Lately, we have had many people asking how much money is required to purchase a home this year. Just like most situations in life, each situation and person is different. There are many variables to answering this question. For example, if you are looking to purchase a very expensive half, you are going to need more money upfront than someone who is looking to purchase a less expensive home. Other factors include the location of the home and what type of mortgage you are wanting to use. Thankfully, more mortgage programs have actually decreased the amount of money needed to purchase a home. This has opened it up to more potential buyers qualifying. 

A very rough estimate when it comes to how much money is needed to purchase a home is approximately eight to ten percent of the home purchase price. This rough estimate covers both the minimum down payment and the closing costs. We do want to remind you that it is also important to keep in mind how much your monthly mortgage payment will be, your utility bills, homeowner insurance, and property taxes. These costs are important in deciding if you can afford a particular home or not.

In addition to your down payment and closing costs, there is something called earnest money and cash reserves that need to be budgeted properly. As we already mentioned, both the down payment and closing costs are roughly up to ten percent of the cost of the home. However, some loans may require even more. It depends on the type of loan and the different requirements that they each have. (For example, if you have a low credit score, your down payment and closing costs may be higher than someone with a better credit score.)

Earnest money is a good-faith deposit that goes direct to your down payment when you close on your home.This amount can be up to five percent of the purchase price. After the seller accepts your offer and you sign the contract, you can make this payment. If for some reason the sale of the house falls through, you usually get your earnest money back.

Cash reserves is a certain amount of money that you have in your savings or investment account. The amount varies. The amount is based on your mortgage payment. Your lender wants to make sure you have the ability to pay up to six months of your mortgage. This is almost a “fall safe.” 

As you can tell, it is very difficult to give you an exact amount of money that is required to purchase a home. There are so many variables that play a part.

We have mentioned it before, but to remind you, you are allowed to get multiple pre approval letters. Each pre approval letter comes with an expiration date so this is something that is likely necessary for you to do. There are many factors that make today’s housing market difficult, so finding the perfect home for you and your family may take months. When you find your dream home, you will want to make sure your pre approval letter is current so you do not have any potential obstacles in your way.

In case you need a reminder, a preapproval letter is proof that a lender has confirmation that your finances have been checked and they would lend you a certain amount of money. The letter shows a potential seller that you are indeed a qualified potential buyer. However, just because you have a pre approval letter, keep in mind that it is not a binding agreement with the lender. There will be a more detailed process of getting fully approved for a loan. As long as all goes according to plan, your finalized loan and your pre approval letter will likely have similar amounts and terms.

Also, you can also get pre approved with multiple lenders, at the same time. This means that you could potentially have multiple current pre approval letters. Some experts actually recommend that you get a minimum of three pre approval letters from three different lenders. The reason for this is that each lender will likely approve you in different amounts as it pertains to interest rates, loan amounts, closing costs, etc. By getting these multiple letters, you would be able to compare and see which potential loan would be the best for your family.

Each letter has a different expiration date. Some will be current for sixty days, while some will only be current for thirty. If you do not find a home to purchase before your letter expires, you can easily renew the letter. There are no penalties or issues if you have to renew your letter multiple times.

As you can see, it is beneficial for a few different reasons of obtaining pre approval letters. 

The supply and demand of homes lately has been quite an issue for many people. Especially first-time home buyers who are desperately seeking to purchase a new home! This may be part of where the problem comes from – first-time home buyers are looking to purchase a new home. They are not looking into purchasing an older home. On top of this, they are also having to deal with a mortgage rate increase and property value increase. If you start looking at older homes, you may wind up adding more options to your possibilities. This even holds true for an older home that may need to be renovated and get up to date.

The time it takes to do renovation work differs from the time it takes for a new build. Obviously supply and demand on materials is a factor for both, but for a renovation, there are less materials that are needed than a new build. This means the timeline for supplies to come in can be significantly different.

Did you know that right now, about two thirds of the housing inventory right now are homes that are more than thirty years old? That is quite a bit of opportunity available for people to make an existing home into their dream home. Sometimes it is as easy as changing the flooring and updating the kitchen a bit. Either way, it is an opportunity and an option for those looking to purchase a home now.

And again, the amount of money saved for an older home can be significant. What people can afford right now is a huge factor in everything right now, but especially what home they can afford.

Just like any major decision you make, take a look at all of your options and price everything out appropriately. Also make sure you make a list of what you are looking for in a home so you can make sure the top few choices are what you will be happy with long-term.

Even with how the housing market is right now, there are some areas where renting is less expensive than being a homeowner. The increased mortgage rates and increase in home prices have really played a part in whether renting a home or buying a home is a financially fit decision. 

We have mentioned it before, but we will mention it again. Right now, mortgage rates are five percent higher. It is possible that due to inflation, the mortgage rates may even increase more. If you are contemplating making the plunge and buying a home, we would suggest you do it sooner rather than later. With how things are going right now, it is highly likely that mortgage rates will increase. So get a low mortgage rate now while you can!

The cities in the United States where buying a house is less expensive than renting one are mostly found in the midwest and in the south. The city with the most significant difference is roughly $500 per month. Taken into consideration for this includes a downpayment, Home Owners Association fees or taxes, and homeowner’s insurance. This holds true for both renting and buying. 

Right now, partially due to higher mortgage rates, renting a home is less expensive than purchasing one. In just this year, the number of homes that fall into this category have increased greatly. In some of the major cities, the gap is anywhere between a $750 difference and a $2,500 difference. The major cities that are a technology hotspot tend to favor renting instead of buying a home. In these areas, it is less expensive to rent. The location plays a large role in whether renting or buying is more cost effective.

Just like everything else, these circumstances can change at any time.

Did you know that there are Down Payment Assistance programs available in all states? There  are more than 2,000 programs out there. The program may be run by the state, county, or even city. This means that there are a lot of opportunities out there! You just have to investigate in your region to get the information and see what is available. If you qualify, this may mean being aided in thousands of dollars for your down payment. For most people, this would be incredibly helpful.

The majority of these programs are helpful specifically for homeowners who have never owned a home before. This also holds true if they have not owned a home in the past three years. There are other qualifications as well. Like, just because you are a first time homeowner does not mean you automatically qualify. For example your income must be within a certain amount and the home you are trying to purchase must be within a certain amount. In order to qualify for this type of program, you must also work with an approved mortgage lender. Each program has different qualifications. The qualifications we have discussed thus far are typical ones that most programs follow.

These programs all vary. For example, with some programs you are actually taking out a loan. In other programs you are actually receiving money that will not be expected to be paid back. In some programs, you can use the funds to help pay for your closing costs as well. Keep in mind that if the assistance is actually some type of loan, make sure you are aware of what the terms and rate will be. In some situations, the rate will be more than your mortgage rate. So make sure you are aware of the terms and what is expected of you.

Did you know that there are many ways you can lower your mortgage payment? Many ways to lower your mortgage payment without refinancing, that is! For the majority of Americans, what they spend on their mortgage is their largest expense every month. With this being said, it would absolutely be helpful if you had extra spending money. Or extra money to be put toward other expenses.

To begin with, have you looked into if you have private mortgage insurance? If the value of your home is below 80%, it is not required for you to have mortgage insurance. If this is applicable to you, you may wind up saving hundreds of dollars each month. If you need help figuring out if this applies to you, your mortgage lender can help you. They would also be the ones to cancel your private mortgage insurance.

Your mortgage lender can also help you to make modifications to your loan. They can help to see what opportunities may be available to you that would help you save money. For instance, they may suggest your mortgage terms get changed. Perhaps from changing your terms, you would save money each month. 

Another way to save money monthly is to decrease your homeowners insurance. In order to do this, you may need to switch policies…but, nothing wrong with that! Each provider offers different options and also has different costs. If you do not want to switch providers, if you were to raise your deductible, your monthly mortgage payment would be decreased. If you choose to do this, make sure you are still protected though. Make sure you are fully aware of the changes that were made.

You could also start to make extra payments when you can. For instance, if you are gifted a significant amount of money or save up a significant amount of money, you could put it toward a payment. This would decrease your monthly payments!

There are even more ways out there for you to save on your monthly payment. Sometimes it pays to be creative! 

If you are applying for a mortgage, it is usually in your best interest (and suggested) to not make any changes in your job or career path. Mortgage lenders look for stability. As one of the prerequisites or requirements you could call it, they require a two year job history. However, there is a possibility to still obtain a mortgage without having this requirement. It would take some work, but it is possible. 

If you fall in this category and do not have a two year job history, you should consider an offer letter mortgage. Your past income, education, and potential for future income is looked at in order to measure income. If someone recently graduated from law school, you could consider an offer letter mortgage. Your potential for future income is great. This type of program does not bypass your credit score, down payment, etc. But it affects your eligibility, interest rate, and loan amount. 

Not only are recent graduates applicable for this situation, but someone who is staying in the same profession but just switching companies would be applicable. Also, if you are staying in the same company but perhaps moving out of state, you would also be applicable. This is true even if your job in your new location has not begun. Lenders just want to make sure you will have a reliable income so you can make your mortgage payments.

If you plan to go this route, it is important to make sure your job offer letter includes many details. It should include your start date and your salary. It should also be signed by both you and your employer. The more specific the letter is, the happier the loan officer will be.

There are quite a few loan types that allow this type of letter. Do not lose your hope if you are in between jobs and you want to apply for a mortgage!

Last week we chatted about the speculation of a recession occurring. There are a handful of reasons that people are coming up with this conclusion. We want to make it clear that we are not, in any way, predicting that this will happen. We have simply gathered information from others and put together the reasons why this is being said. This type of information includes the fact that both unemployment and inflation is high. This means less money is going into the economy. Also, the Federal Reserve policies are more strict than usual. Overall, there are less houses being built for a multitude of reasons. But when this occurs, the economy is typically impacted. With all of this being said, the conclusion for some is a possible recession. 

If a recession happens, the housing market will be affected in a few different ways. To start, mortgage rates will likely decrease as inflation decreases. Typically these two rates tend to go in the same direction as one another.

However, when it comes to the price of homes, the price of homes will either stay the same or increase. In the last six recession that have happened, this is what happened. (Again, we do not have a crystal ball and are not saying that this is what is going to happen. We are only letting you know what has happened in the past.) 2022 is very different from previous recessions. To start, supply and demand is different. The demand for homes is high and the supply is low. Lenders are also more strict in 2022 as well. With this being said, what would happen to the housing market is not certain since things are different than in the past.

It is hard to tell what would happen to the prices of homes for sale. It is possible that the price would decrease as sellers would realize what is appropriate to sell the home. But again, that is not certain.

Something to keep in mind as it relates to the housing market and a recession is that it is important to realize that real estate investments need to always be looked at in the long term. So if you have that type of mindset, it is possible that a recession would not even have any effect over you as it relates to the housing market.

With it being in the middle of the year, there has been some speculation of a recession happening. With people worrying about the possibility of a recession, people are also concerned what it would mean for both homeowners and those purchasing a home. No one can predict the future, that is certain. We have no crystal ball for this type of thing. However, there are a handful of signs that indicate if a recession is likely to occur or not.

To start, if the unemployment rate is high, it is a sign of a potential recession. If people are struggling with finding a job, the money they have is being used on necessities. This means that there is not “extra” money being spent eating out or buying clothes, etc. So overall, unemployment means less money going into the economy.

Another potential sign of a recession is when inflation starts to happen. This means that money, overall, holds less value. Right now, inflation is at a forty year high. It is predicted that this will hold until at least the fall. It does not mean after the fall, things will go back to “normal,” though. It does mean that consumers are less likely to spend money since the cost of things are so much higher than normal. This is especially true for the unemployed. Again, this means less money going into the economy.

The Federal Reserve has a huge influence on whether a recession will or will not occur. The central bank is doing its best to fight against inflation. Let’s hope that they are able to influence things positively. There are some big meetings that are due to occur. The outcome of these meetings will influence a possible recession in general, but also mortgage rates as well.

Compared to a year ago, home building has taken a huge backseat. There are a lot of reasons for this. To start, the cost of materials has skyrocketed, along with issues in the supply chain. There has also been a labor shortage as well. With all of these things combined, builders are simply just not building as many houses. In the past, this usually indicates economic troubles.

Next week, we will talk about how a potential recession would affect the housing market.

Investment properties are an option for people who have some extra cash flow or saved up money where they would like to earn a return on investment. Even though the cost of homes have indeed increased, you may still have the opportunity to earn a great deal of money. There are a lot of things that you need to take into consideration. Some of the things you need to think about are what timeline do you have to work with? How much money do you have to spend? With how much money you have to spend, would you have to borrow anything from anyone? How much money are you hoping to make from the investment? You can never ask too many questions, especially when it comes to making an important decision like this!

If you are still not confident if this is the right route for you, we have a simple way for you to look at it. To start, with the amount of money you have to invest, can you purchase a home with just that amount of money? Or would more funding be needed in addition to what you have? If more money is needed, will what you are expected to make be worth the investment? An important factor to look at is if the home does not sell immediately, will you have any financial issues because of it? If you would, an investment property may not be the best avenue for you. With the unpredictable market of today, it is not guaranteed how quickly a home would sell.

Something else you should keep in mind, that the majority of people may not be aware of, is the fact that the interest rate of second homes is usually higher. With taking this into consideration, would you still make a significant amount of money for the investment to be worth it?

If after asking yourself these types of questions and you think an investment property is a good idea, we would recommend you speak to a professional. We would be happy to talk to you about your mortgage options on an investment property!