By Thomas Connors, Vice President, Mortgage Market Manager, KeyBank
According to the Greater Capital Region Association of Realtors, the local housing market is sitting in a rare sweet spot—conditions are equally favorable to buyers and sellers.
For buyers, rates remain low and the cost to own is affordable—even with the $10,000 state and local tax deduction limit. For sellers, a competitive but well-balanced inventory is facilitating the quick sale of properties at fair market value. It’s a win-win scenario that, for the past two years, has fueled record home sales across the region.
What borrowers need to know
The more things change, the more they stay the same. If you have income, don’t carry a lot of debt and can afford the monthly payment you will likely have no problem getting a loan and can benefit by becoming a homeowner.
Prospective buyers who have concerns about tax reform should know that taxes are very individual. The new tax law will certainly impact homeowners, but how much and whether or not that will be offset by other savings remains to be seen. Your accountant should be able to help provide you with answers to any tax-related questions you may have.
The bottom-line for prospective homebuyers is this: in today’s market, you can buy a great house at a great price for less money and build positive equity fast…provided you develop a plan. Here are seven helpful tips:
Take a good look at your budget. Are you in good financial shape? If you do not currently have a budget, create one. At minimum you should review two to three months of income and expenses to see what type of mortgage payment your budget can accommodate.
Consider your long-term plans. To make buying a home worth your while, Kiplinger.com advises staying in a home five to seven years. Always remember that your home is your shelter. The housing bubble of the 2000s was unprecedented, and in recent years the market has stabilized and become more realistic as house values only marginally increase year-over-year.
Take a good look at your income. Remember, home ownership requires more than just a monthly mortgage payment. Will your income support home maintenance, upkeep and the occasional emergency? Don’t forget to account for taxes.
Review your FICO score. This is what lenders will look at first to determine your rate. If your number is not as high as you would like, see what you can do to strengthen your credit before applying. You can view your credit report for free at annualcreditreport.com.
Know your down payment capacity and don’t overlook closing costs? Ideally, you should have a down payment of 20 percent. This will save you from paying PMI and may help you get a better interest rate. But remember, low down payment options are available to credit worthy buyers. Closing costs are the fees you will need to pay to your lender, title company, local taxing authority and insurance companies to finalize the transaction.
Research your market. On a national level, experts are forecasting that tax reform will drive a decrease in the value of homes. Locally, due to inventory, prices are expected to hold relatively steady. However, markets are shaped by local influences and can shift quickly. Talk with realtors and lenders about trends and forecasts for your area. It will help you understand the market you are buying in, and it will help you predict what the value of your home will do in the foreseeable future.
Assemble a great team. Buying a house can be a complicated and emotional process. A team consisting of experienced professionals—real estate agent, mortgage broker, insurance agent and attorney—can help you avoid many first-time homebuyer mistakes.
Why buy now
There is no perfect time to buy a home. Like taxes, it is very individual. However, homeownership is a great measure—and driver—of financial wellness.
For most people, their home will be the single largest investment they will ever make. It is a tangible asset that can provide financial security as equity builds. Payments can be fixed for the life of the loan, allowing for predictability and stability. Also, a house can provide borrowing power for future large expenses, such as financing a child’s education or supporting retirement needs.
Don’t be afraid of uncertainty. Lack of a sizeable down payment or a weak credit history won’t necessarily keep you out of a house. For example, many banks, including KeyBank, offer mortgage products that allow for low down payments, flexible underwriting, assistance with closing costs and client-centric terms.
Talk to your banker or go to homebuyer education programs in your community. They can help you understand your options and show you that homeownership may be more affordable than you realize. TRIP, RCHR and AHP are just a few Capital Region organizations that help local individuals and families realize the dream of homeownership.
Remember, purchasing a house is more than a long-term investment. While it certainly can generate a great yield if you buy smart and maintain or improve its value over time, it is first and foremost “home”—the place where you will build a lifetime of memories.
About the author: Thomas Connors is vice president and mortgage market manager for KeyBank in the Capital Region. He may be reached at [email protected] or 518-951-2186.
What to expect from the mortgage process
When it comes to getting a loan, doing your homework pays off. You will want to make sure you know what to expect from the process, particularly if you are a first-time homebuyer. The following list will help prepare you.
Pre-approval. A pre-approval is an application for credit and a lender’s written commitment (subject to verification) of how much they’ll let you borrow. Getting pre-approved will show home sellers you are a serious buyer.
Loan application. This is how the bank determines if it will make a loan to you. You will need to provide pay stubs for the past 30 days, W-2 forms and tax returns from the past two years, as well as statements from bank and investment accounts. The lender will also examine your credit history while reviewing your loan application.
Lock in rate. To ensure you receive the rate you were quoted, you may elect to lock in your rate by paying an up-front authorization fee.
Points. You can pay points, a dollar amount based on a percentage of the loan amount, to the lender to reduce the interest rate on the loan. It adds costs up front but can help save you money over time.
Appraisal. The appraisal is conducted by an independent professional and determines the value of the home.
Down payment. Lenders prefer that a borrower have 20 percent of the purchase price for the down payment. If you make a down payment of less than 20 percent you may be required to purchase Private Mortgage Insurance (PMI). PMI protects the lender if you default on the loan and is part of your monthly mortgage loan payment.
Loan review process. After the appraisal, the loan file is submitted to the lender for your loan to be reviewed.
Escrow and title preparation. A title company will hold the money and documents until all conditions of the mortgage approval are met. Title work will be prepared, including a title exam to ensure the title to the property is clear. Other documents such as the mortgage note and deed will be prepared.
Closing costs. The costs associated with processing and closing a loan, such as application fees, points, title, insurance and credit processing.
Signing. The documents will be sent to a title company for you and the seller to sign. Any remaining down payment and closing costs will be due at this time.
Title transfer. When all funds are collected and disbursed and the contract has been verified, the title is transferred—and you’re a new homeowner.