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Homebuyer affordability decreased slightly in May, as new mortgages took up a larger share of a the average person’s income while rates trended higher. High inflation and rising mortgage rates won’t lessen the burden on new home buyers in the coming months.

The national median payment applied for by applicants rose to $1,897 last month from April’s $1,889, according to the Mortgage Bankers Association (MBA). The national median mortgage payment for conventional loans was $1,960, down slightly from April’s $1,967, but significantly higher than a year ago, when it was $1,394 in May 2021. Federal Housing Administration (FHA) loan payments rose to $1,430 in May from the previous month’s $1,374. 

“The ongoing affordability hit of higher home prices and fast-rising mortgage rates led to a slowdown in purchase applications in May,” said Edward Seiler, MBA’s associate vice president for housing economics and executive director at the Research Institute for Housing America, according to a statement. 

“While the median principal and interest payment only increased $8 from April, a typical borrower is paying $514 more through the first five months of 2022 – a jump of 37.1%,” he said.

The average purchase mortgage rate rose to 5.27% in early May, according to Freddie Mac PMMS, a 13-year high until it surpassed the 6% level in June. 

Citing inflationary pressures and mortgage rates above 5%, Seiler said the MBA expects sales of new and existing homes to fall below 2021 levels. The agency expects some 5.76 million existing homes to sell in 2022, well below the previous year’s sale of 6.13 million existing homes. New home sales are forecast to remain slightly more stable, with the sale of 769,000 new houses projected, down from 771,000 new houses sold last year.

The purchase applications payment index (PAPI), which measures how new monthly mortgage payments vary relative to income, rose 0.4% to 163.4 in May from 162.8 in April. An increase in MBA’s PAPI, indicative of worsening borrower affordability conditions, means the mortgage payment to income ratio is higher due to increasing application loan amounts, rising mortgage rates, or a decrease in earnings. 

Black and white households’ homebuyer affordability dropped at the steepest rate at 0.7 points. The index for Black households rose to 166.6 and climbed to 164.3 for white households in May from April.

Borrowers in Idaho are facing the greatest affordability challenges with a PAPI index coming in at 253, followed by Nevada (249.7), Arizona (233.5) and Utah (210.9). 

Meanwhile, borrower affordability conditions were best in Washington D.C. (99.7), with Alaska (102.6), Connecticut (111.2) and West Virginia (113) trailing behind.

Source: housingwire.com

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The mortgage industry has its own language, and in order to understand it, homebuyers need to learn different acronyms and jargon when shopping for a home loan. A typical home loan payment or mortgage payment involves a single payment, which is the sum of four different line items: the loan principal, interest, taxes, and insurance – also referred to as PITI. 

Before you set your sights on a home, know if you can afford the costs by learning what PITI is and how it impacts your monthly mortgage payments.

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What does PITI stand for? 

PITI stands for the loan principal, interest amount, taxes, and insurance on your home – the four major elements that make up mortgage payments. 

Homebuyers often underestimate the true cost of homeownership by failing to take into account property taxes and homeowners insurance. It’s crucial that you budget for all the components of your mortgage payment before purchasing a home.

What is PITI? The four components

Now that we know what PITI stands for, let’s break down each of the four components and analyze the individual elements that make up your monthly mortgage payment.

1) Principal

The mortgage principal is the loan amount before any interest is calculated. This is the base amount of your home purchase price minus any down payment you make. 

We’ll use a hypothetical home purchase for reference; if you buy a home for $450,000 with a 20% down payment ($90,000), your mortgage principal amount will be $360,000.

Over your mortgage term, you pay substantially more than the original $360,000 to the lender in the form of loan interest. The principal is the base amount used for loan calculations to determine if they will extend a loan to you. 

2) Interest

Your mortgage interest rate is what you pay the lender as part of your monthly mortgage payment to borrow the funds to purchase your home. The mortgage lender calculates interest as a percentage of your outstanding principal. If your principal loan is for $360,000 and your lender charges you an interest rate of 6%, this means that you will pay $21,600 (6% of $360,000) in interest for the first year of your mortgage.

Your mortgage interest and principal payments are itemized on a mortgage amortization table. The amortization charts show how much each mortgage payment pays down your principal and interest. When you first start making mortgage payments, most of your monthly payment goes toward interest instead of the principal. 

This split shifts over time, and eventually, the amount you pay toward interest decreases, and more is paid toward the principal. As the principal amount of your loan decreases, you start to earn equity on your home. Equity is the portion of your home that you own outright. Your interest decreases as well, as you only pay interest on the principal amount you have not paid off.

For our example, you will pay $21,600 in interest over the first year of your $360,000 mortgage. By the time you have paid down $260,000 of that principal, your principal amount will be $100,000; at that point, you’ll pay interest of $6,000 annually (6% of $100,000).

3) Taxes

When you own your house, you pay taxes on the property to your local government to maintain roads, emergency services, police, firefighters, schools, and more. Buyers often overlook property taxes when estimating homeownership costs, but it is important to consider this recurring annual cost when you’re searching for your new home. Property taxes vary by location and are the most expensive tax homeowners pay. Taxes may be higher in a newer neighborhood or an area coveted by many homeowners. They are often less if you live just outside coveted neighborhoods and in rural areas. 

The amount of property tax you pay is determined by the local property tax rate and the value of your home. A general guideline to estimate property taxes is to allocate approximately $1 for every $1,000 of your home’s value, paid on a monthly basis.For example, if your home is worth $450,000, you can expect to pay around $450 per month in property taxes or $5,400 per year. 

As part of the home purchase process, most states require that you get an unbiased, official appraisal to estimate your taxes accurately. Your lender usually orders the home appraisal and includes the cost in their list of closing costs. After you close on your home purchase, keep in mind that your local government will regularly reassess properties every few years for tax purposes, which could lead to a change in your tax bill.

4) Insurance

The “insurance” component of PITI refers to homeowner’s insurance and, when it’s required, private mortgage insurance (PMI). Let’s discuss each of these concepts in more detail. 

Private mortgage insurance (PMI)

Your PMI rates depend on how much of a down payment you made and your credit score. If you’re putting down less than 20% on a conventional loan, you’re required to pay for private mortgage insurance (PMI), which protects the lender if you default on your mortgage payments. Once you build at least 20% equity in your home — and your loan-to-value (LTV) ratio is 80% or less — you can get rid of PMI. For FHA loans, a similar mortgage insurance premium has to be paid throughout the life of the loan on any FHA-backed mortgage loan.

If your PMI comes in at a rate of 1%, here’s how you’d calculate a mortgage of $360,000: $360,000 x 1% = $3,600 per year; $3,600 ÷ 12 monthly payments = $300 per month.

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Homeowners insurance

Most mortgage lenders require a homebuyer to purchase and maintain homeowners insurance over the entire loan term. Homeowners insurance covers you and the lender if something catastrophic happens to the home, and you need to rebuild or move. Most homeowners insurance policies cover your home in the event of a break-in, fire, or storm damage. 

Most insurance companies require you to buy additional coverage for damage from earthquakes or flooding. You can also purchase insurance riders to cover items of significant value, such as an expensive musical instrument, art, or jewelry. If you buy a condominium, you’ll also pay a homeowners association fee. Your lender may consider your HOA fee your insurance as the HOA carries its own insurance that covers the building, and thus you may not need another policy. 

Property insurance amounts can vary among different insurances. It’s wise to shop around after the seller accepts your purchase contract, and before you close on the property, to get a good idea of reasonable rates. Insurance companies consider these factors when calculating an insurance premium:

  • The home’s value
  • Whether you live in an urban area or a rural area
  • Whether you live in an area with high climate risk
  • How close your home is near a fire department or fire hydrant 
  • Whether you have an insurance risk on your property, i.e., something could injure children, such as a trampoline, pool, or specific dog breed 
  • How many insurance claims you make each year for other types of insurance

When estimating your homeowner’s insurance costs, it’s helpful to keep a general rule of thumb in mind. On average, you can anticipate paying approximately $3.50 per every $1,000 of your home’s value in annual homeowner’s insurance premiums. For instance, if your property is valued at $450,000, you can expect to pay around $1,575 per year for insurance coverage, which translates to roughly $131 per month.

How to calculate PITI

Before you start your search for a house, it’s a good idea to calculate PITI to determine your price range and help you find a mortgage option that will fit your budget. The exercise will make you a more rational home buyer and keep you from falling in love with a house outside your price range. 

The simplest way to calculate PITI is by using an online monthly mortgage calculator. Redfin’s mortgage calculator includes the principal and interest, taxes, insurance, HOA, and PMI. You can also add in your location for more accurate estimates.

PITI and the 28% Rule

Your PITI gives you a rough idea of what purchase price range you can afford. One way to identify a purchase price within manageable limits is to use the housing expense ratio. To ensure your ongoing ability to make your mortgage payments, home finance experts typically recommend that your housing costs should be equal to or below 28% of your monthly household budget. If your PITI is more than 28% of your monthly budget, your lender may require you to pay for additional mortgage insurance.

In our example, you can estimate your housing expense ratio by dividing your PITI by your total monthly income. If your household income is $10,000 a month, your PITI will make up about 28% of your monthly budget, well within recommended guidelines. ($2,800/$10,000 = 28%.)

Keep in mind that PITI may just account for just some of your monthly expenses when owning a home. Depending on where you live and how you are paying for your home, there may be additional costs to consider. Additionally, the components that make up PITI are broadly defined here; there is often more complexity that goes into each part of PITI.

How PITI impacts loan approval

During the home buying process, it can be easy to trick yourself into thinking you can afford a more expensive home if you only look at your mortgage’s principal and interest cost without considering the total PITI with taxes and insurance. 

For instance, let’s take a 30-year mortgage on a $450,000 property, assuming a property tax rate of 1.25% ($5,625 per year) and an annual homeowners insurance premium of $3,600. In this scenario, your monthly financial commitment would go beyond just the principal and interest amount, as you would need to allocate an additional $581 to cover taxes and insurance. Understanding and accounting for these factors will provide you with a comprehensive understanding of the actual costs involved in homeownership.

Here is a breakdown of the example discussed above. 

Principal and Interest PITI
Interest rate 7% 7%
20% down payment $90,000 $90,000
Property taxes N/A $450
Homeowners insurance N/A $131
Private mortgage insurance N/A N/A
Monthly payment $1,800 $2,381

How DTI factors in

The principal balance will factor into your debt-to-income (DTI) ratio. Your DTI ratio gives lenders an idea of how capable you are of managing money and the likelihood that you will consistently make your monthly payments. To determine your DTI, the lender uses your total minimum monthly debt obligation and divides it by your gross monthly income to arrive at a percentage. This calculation also includes payments on credit card accounts, auto loans, student loans, and other recurring debt payments. Lenders consider you a higher risk if your DTI ratio exceeds 43%, some lenders will allow a DTI as high as 50%. 

Don’t overlook other housing costs

PITI is just one fundamental concept to understand before applying for a mortgage. As you consider how much house you can afford, you’ll also need to plan for additional costs typically associated with homeownership. These include HOA or condo fees, which can range from $100 to $1,000 per month, with an average of $200 to $300. Additionally, budgeting for repairs and maintenance is crucial, with a general guideline of saving 1% to 5% of your home’s value annually. For a newer $450,000 home, this would mean setting aside $4,500 to $22,500 per year. Utility bills for electricity, water, gas, sewer, cable, trash, and internet should also be factored in, and contacting the utility company or asking the seller or neighbors can help estimate these costs.

The bottom line on PITI

Buying a home is very exciting, but before signing your mortgage contract, know what payment amount you can afford based on PITI and other monthly costs. The more you understand the home buying and mortgage process and the total cost of homeownership, the easier it will be to finalize your purchase decision. Your home purchase represents an important milestone in your life – avoid confusion and uncertainty by gaining a solid understanding of PITI and the cost of homeownership. 

Source: redfin.com

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The mortgage space is unique from a lot of other businesses in that the customer isn’t always right.

And special offers are typically few and far between. This is mostly because of the complexities involved with closing a home loan.

For example, it’s pretty easy to find a promo code when booking a hotel, or snag a sign-up bonus for opening a credit card.

But when it comes to a home loan, you typically aren’t offered much other than perhaps speedy service, or a money-back guarantee if things go wrong and it’s entirely their fault.

Price-matching is also pretty hard to come by, though Chase has just launched such a deal.

Get $200 If Chase Can’t Match or Do Better

In honor of National Homeownership Month, Chase has rolled out some new offerings in their home loan department.

This includes homebuyer education resources, a Closing Guarantee, and as mentioned, a price-matching pilot program.

The way it works is fairly straightforward – Chase will give home buyers $200 if they can’t match or beat a competing loan offer.

To be eligible, you need to complete an initial purchase loan application with Chase by September 30th, 2023.

And you must provide an official Loan Estimate (LE) from another licensed lender that includes the same loan term, purpose, product, and loan type.

Assuming Chase can’t match or beat it, they’ll provide you with $200 within 30 days of withdrawal of the Chase application.

At the moment, this is only available to customers purchasing properties in the states of Arizona and Ohio.

And the following counties in Texas: Austin, Brazoria, Chambers, Fort Bend, Galveston, Harris, Liberty, Montgomery, and Waller.

It’s also only valid for customers who hold an active Chase personal deposit account opened on or before May 1st, 2023.

Your loan scenario has to be pretty vanilla, meaning no investment properties, 2-4 unit properties, second homes, home equity loans or second mortgages.

Chase $5,000 Closing Guarantee and Lock and Shop

Aside from the new price match offer, Chase has a Closing Guarantee that provides $5,000 if they’re unable to close a home purchase loan on time.

As always, you need to hold up your end of the bargain by getting income/asset documents and signed disclosures to Chase in a timely fashion.

And the contract closing date must be at least 21 calendar days after receipt of a completed home loan application for conventional loans (30+ for FHA/VA).

Of course, delays caused by third parties or due to force majeure events won’t result in compensation.

This is kind of one of those things where if you’re using Chase anyway, keep an eye on it as you might be compensated if they don’t close on time.

Additionally, Chase launched a new “Lock and Shop” option that lets you lock in your mortgage rate for 90 days before finding a home to buy.

That way you have assurances that your mortgage payment won’t go up if mortgage rates unexpectedly rise during the home search.

And there is no upfront fee for this option when using Chase Homebuyer Advantage, which is their conditional letter of approval you can obtain upfront.

You get 60 days to find a property to purchase, and a one-time float down option will be available if mortgage rates improve during that time.

This can be combined with the Closing Guarantee as well.

Chase Offering Grants of $2,500 and $5,000 in Select Areas Nationwide

Lastly, you can search for down payment assistance and other grants via Chase’s Homebuyer assistance finder.

Simply enter an address and it will show you matched programs that might be available.

In select areas, the Chase Homebuyer Grant provides $2,500 or $5,000 toward a new home purchase.

The company notes that a $5,000 grant is available to eligible home buyers purchasing a property in majority-Black and Hispanic neighborhoods throughout the United States.

Chase was the fourth largest mortgage lender in the U.S. in 2022, per HMDA data. They funded about $99 billion in home loans last year.

Only three lenders originated more mortgages, including United Wholesale Mortgage (UWM), Rocket Mortgage, and Wells Fargo.

As always, be sure to look at the big picture when comparing mortgage offers. This includes the interest rate, lender fees, and the company’s overall competency and service.

Source: thetruthaboutmortgage.com

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After the recent extraordinary show of force defending changes to LLPAs by federal regulators and their friends, the forest through the trees risk remains in focus to me.

One of the great concerns I have, as both a former regulator and the former head of a major industry trade association, is the downside risk of keeping the GSEs in conservatorship any longer. For me, it’s really a question about the lesser of two evils.

What’s the greater risk to housing: an endless series of FHFA directors who change seats with each political administration and then proceed to tinker with policy in pursuit of political priorities? Or, the risk of releasing Fannie and Freddie without firmly legislating some of the reforms that I and many others advocated for, going back to the early years of conservatorship?

Make no mistake about it, I sat firmly entrenched for years opposing the “recap and release” crowd, to the point where the camps on both sides of the issue were in almost pitched warfare. The Mortgage Bankers Association argued that Congressional reform should precede any effort to release the GSEs. In fact I testified in front of Congress in 2017 stating such.

But today I now see the risks of letting this drag on into perpetuity without resolve. As each succeeding FHFA director comes into the role the industry, potential homeowners, lenders and more will face the risk of a cascading series of policy initiatives being implemented by the GSEs at the behest of the FHFA, regardless of whatever protests that may come from the respective staffs at either GSE.

While the latest was this clearly manipulated LLPA pricing structure and the now failed attempt at a DTI cap, the list of fees added to 2-4 unit homes, second homes, cash-out refinances, and more appear to be focused on political objectives and not actual risk.

In fact, MBA traditionally argued that g-fees and other pricing methods at the GSEs should only reflect the actual risks of the loans and not be used for other purposes. Prior to the collapse of Fannie and Freddie, pre 2008, the GSEs would give preferred pricing to their largest sellers in what was known as “alliance” agreements. The spread in pricing between a large seller and a small one was significant.

I remember early in my career at MBA taking three CEOs of independent mortgage banks to meet with then Acting FHFA Director Ed DeMarco to argue against any price disparity based on anything but the actual risk of the loan. And DeMarco responded, almost completely eliminating the pricing differences during his tenure.

But today we have more to be concerned with. You see, the LLPA changes, while small in impact, were just part of the slippery slope of adjusting fees and policies to make the GSEs do business differently and to get them to focus more on entry-level homebuyers.

The Urban Institute puts out a monthly chart book that is chock-full of incredible data about our marketplace. In the most recent May release, they show just how hard it is for the GSEs to expand access to minorities who make up a significant share of new first-time homebuyers.

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As the chart above shows, it’s the Ginnie Mae programs, FHA in particular, that completely dwarf the efforts of the GSEs in this regard. And while these modest changes to LLPAs might help, there is far more that impedes the ability of the GSEs to be effective in this area.

But FHFA hasn’t stopped there. There is the implementation of goals focused on LIP (low income purchase loans) and VLIP (very low income purchase loans) that could result in a number of unintentional distortions to pricing and credit availability. It’s all in their affordability goals and, while complicated, we can already see distortions.

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The goals, shown in the chart above, are clear, but if you look at how the GSEs have performed historically against these numbers, the fact is that there are many years over the last decade where these goals would have been missed.

But now things are changing. The GSEs are using the cash window to buy more of these LIP and VLIP loans, reducing the effectiveness of the cash window for other purposes. We are seeing the GSEs begin to selectively reduce the volume of high-balance purchases in order to improve the percentages.

Over the course of 2022, it appears that Freddie may have begun offering selected customers pricing incentives for lower balance owner-occupied purchase loans and also allowed customers with greater numbers of these loans to increase their delivery percentages.

Fannie Mae, on the other hand, seems to have required customers to simply deliver a representative mix of VLIP and LIP loans to both GSEs. Since Fannie Mae had lower delivery percentages with selected customers that had more of the lower balance loans, they believe they did not meet some of the enterprise housing goals for 2022.

The need to hit the targets is forcing the GSEs to reduce the ability of sellers to deliver what the market will bear and instead deliver to the mix the objectives that they need. The problem here is that they are turning to negative incentives.

Facing a market that is not producing loans at the aspirational levels of the current VLIP and LIP goals, the GSEs appear to have turned a corner. They are transitioning from positive incentives that might promote greater production of housing goals loans, to now imposing disincentives, from both a pricing and volume perspective, that create an adverse impact on a significant majority of GSE owner-occupied purchase borrowers.

Said differently, the GSEs are not able to produce enough VLIP and LIP “numerator” loans, so they have no alternative but to try to reduce the non-VLIP and LIP “denominator” loans in an effort to achieve the ratios that FHFA established.

Look, the GSEs have always had affordable housing goals. What has changed is that they no longer have a retained portfolio that can be used to help meet these goals through bulk purchases. But more importantly, this new structure is forcing pricing distortions which we are already seeing blatantly though the LLPA structure, but even more so through changes to usage of the cash window, disincentives to sellers to reduce higher balance loans, and more.

All of this will lead to hurting the mainstream borrowers that the GSEs have always served.

As shown above in the chart showing the GSEs’ mix to other sources, perhaps we need to think differently here. Yes, reasonable goals make sense for the GSEs. But all the programs within Ginnie Mae still dwarf any ability the GSEs have to significantly change the market.

But the greater question we all need to ask is this: is the lesser of evils the need to release the GSEs from conservatorship and allow them to return to a more self-managed business environment? This would lessen the ability of their regulator to use these two companies for political purposes, which might distort the market in ways that are ultimately more harmful than any gains they may make along the way.

For me, I have turned this corner. The GSEs are far too important to be overly manipulated in ways that might hurt execution for the traditional homebuyer in these programs. There are other ways to explicitly support affordable housing objectives. This to me is just too slippery a slope.

As I see the forest through the trees, I am faced with a new conclusion. We need to release the GSEs from conservatorship as soon as possible. There is too much at risk to the housing finance system over time as we erode their core business models for political purposes.

Source: housingwire.com

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Last Updated: May 25, 2023 BY Michelle Schroeder-Gardner – 64 Comments

Disclosure: This post may contain affiliate links, meaning I get a commission if you decide to make a purchase through my links, at no cost to you. Please read my disclosure for more info.

Tips For When Buying a House

Tips For When Buying a HouseWhen we bought our first (and current) house, our whole process went by very quickly and smoothly. Our mortgage company and real estate agent both told us that our mortgage was the quickest process they’ve ever done. We got pre-approved and bought a house less than one month from start to finish.

It took around 2 weeks for us to find the perfect house, and we probably looked at over 20 houses in person. We also looked at hundreds online so the 20 that we looked at we thought were for sure buys. Our agent probably HATED us. Luckily she was a family friend so I hope she got over her hatred quickly 🙂

We are sort of in the home buying process again as you all know. We keep going back and forth with what type of house we want, where we want it located, and how much we want to spend.

Our current house is fine for now. There is definitely nothing wrong with it, I guess we just want something a little nicer that also has a little more room. So we could: a) stay in our current house and save a lot of money; or b) buy a house within the next year and finance the majority of it (probably with a 25% down payment).

If we did stay in our house for longer, we would spend some money on making it perfect. I definitely would want to change some things in our bathroom (such as adding a nice glass shower door), make our front and backyards perfect (possibly add a garden) and finish decorating everything to the way we want it. This is a whole ‘nother post in itself!

Anyways, when we bought our current house, we followed all of the steps below, except for the fact that we didn’t realize that the total monthly cost would be that much higher than what the mortgage company quoted us. That is something that we were naive about. Learn from our mistake!

1. Get pre-approved for a mortgage!

This is definitely one of the first steps you should take. Looking at houses without getting pre-approved can be disastrous because you might just be wasting your time. You might not get approved, get approved for less than you think, etc.

Wouldn’t it really stink if you spent a ton of time looking at houses that turned out to be way more than what you can be pre-approved for? That can be a major letdown.

2. Buy less than what you are approved for.

I think we were approved for around $200,000. We were 20 years old and this seemed like a ton since we made hardly any money then. We were shocked and we looked at one house that was around this price range, but then we realized that this was a bad idea as we wanted to be more comfortable with our bills.

Also, something that our real estate agent told us, is to not show the seller how much you are pre-approved for. We showed our real estate agent our real pre-approval amount of course, and our agent said that when this happens, it can not be good. She said that if some sellers can see what we can actually “afford,” that they know how flexible that you can be with your pricing and negotiating. You can get your mortgage lender to lower the amount on the piece of paper and this is what we did. We asked our lender to say that our pre-approved amount was $150,000 (everyone, please keep in mind that I live in the Midwest and housing is cheaper here).

3. Buy a house that’s a good size for you.

Also think about the future you are planning when you think about the size of the house you might buy. Remember my post on how we Bought Too Much House? Keep that in mind! While before our house seemed way too big for us, we now want something bigger. Eventually of course we would want kids, but it’s mainly that we want a bigger yard.

Do you plan on living in this house for awhile, or just a short amount of time such as 5 years? Do you want a house and neighborhood/city that is good for kids to grow up in? There are many questions to ask yourself.

4. Get a realtor!

This is something that I definitely recommend. Our realtor saved us a lot of money and was a great negotiator. We got the seller to pay all closing costs (which were around $5,000). And she also got them to fix a lot of little things around the house. Realtors do a lot of work and are skilled in buying/selling houses. They know where to begin, what to look for and have tons of tips.

5. Make sure you look around and don’t settle.

The market is great right now for people who are looking. There are a lot of houses out there and most have a great price (all of course depending on your city! Some cities are in a housing bubble). You will be living in this house most likely for a long amount of time, so you don’t want to regret your decision.

6. Hire an inspector.

This is something that is definitely needed as well. An inspector will be able to find things that might sway you from NOT buying the house. If you’re buying a house, then you can most likely shell out another $300 for an inspection. It is a good investment.

7. Figure out the WHOLE cost.

Not just want the mortgage would be. Figure out if there will be any PMI, what the homeowners insurance will be, and property taxes. This all can add up quickly, and it added around $300 to our mortgage.

8. Save!

Now that you know you want a house, try and save as much as you can before you move into your new home. Your new costs will most likely be higher than what you think, and any extra savings will be extremely helpful.

Related articles:

What tips do you have for a potential homebuyer?

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Source: makingsenseofcents.com

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They say that right now is a seller’s market, but in my little neighborhood it was definitely a buyer’s market.

This made our home sale a little more difficult than what others may be experiencing in the United States but luckily we were still able to get a contract on our home 3.5 months after our home was put on the market. In fact, we actually received three contracts on our home that very week after not receiving any bites for 3.5 months (and over 30 home showings in that time period).

While I’m no expert at selling a home, I did recently go through the whole home selling process.

Selling a home can be a long and stressful process but hopefully with this guide I can help someone’s home sale go a little more smoothly than mine did.

Preparing your home to be put on the market and knowing the necessary steps and tips to selling a home can make a home sale go much more smoothly.

Plus, I don’t think anyone wants to experience any sort of surprise when selling their home since it is such a big expense.

Below are my steps and tips for selling your home. Enjoy and good luck with your home sale!

Find a real estate agent.

If you decide to sell your home by using a real estate agent, then you should look for one sooner rather than later. This way your real estate agent can give you an idea of what your home may sell for, what changes you may want to make, what the timeline for selling your house may be, and so on.

We used the same real estate agent from when we originally bought our home. If you need one in the St. Louis area, let me know and I can send you her contact information! She made the process a breeze.

Get a city home inspection.

I highly recommend looking into whether your city requires a city home inspection in order for your house to be put on the market.

We had to call our city office and schedule an appointment. I thought it would be easy and that they would just come over, but the wait time was actually quite long in order to fit my appointment in. Plus, we were calling during the slow season so I wouldn’t want to imagine what the wait would have been if we would have called during the spring or summer months when everyone else is trying to put their home on the market as well. The wait may have been months!

Also, keep in mind that these are only good for so many months. Ours was set to expire in the summer but thankfully we received a contract on our home and it sold in time. The city home inspection wasn’t expensive, but it did take a lot of time and there were some small changes that we were required to make before the house could be closed on.

Declutter.

We decluttered our home like crazy before we even showed it to our realtor. Home buyers do not want to see clutter as it can make a house look smaller, dirtier, and not as nice.

Decluttering is probably one of the easiest things you can do during a home sale, so why not do it?

Some of the things you may want to do include:

  • Clear out your basement and/or attic. Most have their basements and attics filled with things they do not need.
  • Put away any personal items. Sadly, you may have to tuck away your favorite photos during a home sale. Buyers like to imagine themselves in a home and if there are pictures of you everywhere then that may make it more difficult.
  • Sort through closets, cabinets, extra rooms, and so on.
  • Remove anything that may make a room seem smaller.

Clean.

Cleaning is something that everyone who is planning on selling a home should do. Sadly, this is a step that some skip!

Some of the cleaning tasks you may want to add to your to-do list include:

  • Clean and wax floors.
  • Power wash the driveway.
  • Dust everything.
  • Wash windows and mirrors.
  • Paint furniture, walls, trim, and so on if you are able to. It’s a relatively cheap change that can completely change a home. This is actually one of my TOP tips for selling your home. Paint can go a long way.
  • Clean your fridge. Yes, sometimes home buyers will peer in there.

Improve your curb appeal.

The first thing that a potential home buyer looks at is pictures of your home from the outside. The first thing they see in person is the outside of your home as well.

They say that everyone judges a home within the first 5 minutes. If that’s not enough to tell you that curb appeal is important, then I don’t know what will!

Potential home buyers don’t like to see a house that needs a lot of maintenance. Even though every house needs it, no one actually wants to think about it.

For curb appeal you will want to:

  • Keep your lawn cut and tidy.
  • Remove any trash from the front, back and side of your home.
  • Pick up any leaves and keep your gutters clean.
  • Plant flowers.

Decide if you will stage your home or not.

Homes that are staged usually sell quicker and for a higher amount of money than homes that are not.

If you are able to then look into staging your home or leaving some of your furniture in the home (if you are moving before the home sells).

Show your home.

When you’re house is on the market, you will have to allow for home showings. Potential home buyers may show up at the very last moment so your home should always be clean.

I’ve been asked by many if the home seller should be home during a home showing. I pretty much think that’s just a bad idea overall. You should clean your home and leave (take your pets with you) so that the potential home buyer can look at your home and be stress-free.

Since we didn’t live in our home while it was on the market, it made for selling our home much easier. Many times potential home buyers would come just 5 minutes to an hour before they wanted to see it, which would have been quite difficult if we would have been living there.

The house also would have been a disaster!

Accept an offer.

Eventually, you will hopefully receive an offer or two. You may do some negotiating on price and again after the homebuyer completes their own home inspection and appraisal as well.

Once you accept an offer though, you may be able to breathe a little easier. However, it’s not done just yet! You still need to actually close on the house and give the keys to the homebuyer.

Close on your home and move out!

The last of my tips for selling your home is finalizing everything on closing day. You will be told how much you owe or how much you will receive, what you need to do in order to close on the loan, and so on. Then, you will sign tons of papers and hand over the keys.

The last part may be the best or worst – you have to move out! Depending on when the home buyer’s closing date is, you generally want to have everything out of the home by then unless some sort of agreement has been made.

Hope you enjoyed my guide to selling your home. While my home sale didn’t go as smoothly as I would have liked, there were no surprises and the only thing that held us back was tanking neighborhood prices. Hopefully the tips for selling your home I gave above will make the process for you much easier!

Did anything go wrong with a past home sale of yours? What tips for selling a home would you give to someone?

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Source: makingsenseofcents.com

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Washington, DC
CNN
 — 

Mortgage rates fell slightly this week, staying almost flat ahead of the Federal Reserve’s closely watched interest rate-setting meeting next week.

The 30-year fixed-rate mortgage averaged 6.13% in the week ending January 26, down from 6.15% the week before, according to data from Freddie Mac released Thursday. A year ago, the 30-year fixed rate was 3.55%.

“Mortgage rates continue to tick down and, as a result, home purchase demand is thawing from the monthslong freeze that gripped the housing market,” said Sam Khater, Freddie Mac’s chief economist. “Potential homebuyers remain sensitive to changes in mortgage rates, but ample demand remains, fueled by first-time homebuyers.”

After climbing for most of 2022, spurred by the Fed’s harsh interest rate hikes to tame soaring inflation, mortgage rates have been trending downward since November, alongside data that continues to show inflation may have reached its peak. Last week’s mortgage rates hit the lowest level since September.

The average mortgage rate is based on mortgage applications that Freddie Mac receives from thousands of lenders across the country. The survey includes only borrowers who put 20% down and have excellent credit. Many buyers who put down less money upfront or have less than ideal credit will pay more than the average rate.

All eyes on the Fed

The Fed is expected to continue its rate-hiking campaign at its two-day meeting on January 31 to February 1. The central bank is likely to announce a smaller increase in the fed funds rate, with a quarter-point hike, compared with the half-point and three-quarter-point increases in the meetings last year.

The Fed does not set the interest rates borrowers pay on mortgages directly. But its actions influence them. Mortgage rates tend to track the yield on 10-year US Treasury bonds, which move based on a combination of anticipation about the Fed’s actions, what the Fed actually does and investors’ reactions.

When Treasury yields go up, so do mortgage rates; when they go down, mortgage rates tend to follow.

“The Freddie Mac fixed rate for a 30-year loan rebounded slightly this week, following the trajectory of the 10-year Treasury,” said Jiayi Xu, an economist at Realtor.com. “While businesses and investors are watching the market closely, the recent large-scale layoffs in the tech sector combined with Monday’s stock market rebound have created mixed signals.”

On one hand, she said, many cash-burning tech companies are struggling with the Fed’s rate hikes. On the other hand, investors are happy about slowing inflation and anticipate that interest rate hikes may begin to moderate or stabilize in the months ahead.

Economic indicators like the low unemployment rate and the cooling inflation rate do not point toward a recession, Xu said. “However, it’s important to keep in mind that monetary policy takes time to have an impact, and these economic indicators might not yet show the full effects of the restrictive policy,” she said.

While the Fed may continue to raise rates this year, Xu said, the slower pace will help to create a soft landing for the economy by balancing the risks of bringing down inflation without pushing up the unemployment rate.

“Despite slowing inflation, the expected ongoing restrictive monetary policy may keep mortgage rates in the 6%-7% range in the short term,” she said.

Mortgage applications rise

The downward trend for mortgage rates since November has had a positive impact on home affordability for mortgage borrowers.

Homebuyer affordability improved in December, with the national median payment decreasing 2.9% to $1,920 from $1,977 in November, according to the Mortgage Bankers Association.

Many buyers are taking advantage of the relatively lower rates of the past few weeks: Applications for mortgages were up 7% last week from one week earlier, according to MBA.

“Borrower demand, thanks to lower mortgage rates, continues to rise in early 2023,” said Bob Broeksmit, MBA president and CEO. “Mortgage applications increased for the third straight week. Purchase demand is still below year-ago levels, but lower rates and improving affordability are favorable developments for the housing market heading into the spring.”

Buyer traffic is picking up in many markets, even if inventory is slow to improve.

“High costs and concerns about economic uncertainty had many buyers pausing their purchasing decisions and led to fewer transactions,” said Xu. “However, decreased competition may have presented opportunities for some first-time home buyers.”

Source: cnn.com

Apache is functioning normally

Find out how to buy a house at a young age. This is a great list!

Find out how to buy a house at a young age. This is a great list!It’s no secret here on Making Sense of Cents that I am a homeowner.

However, what some people might not know is that I bought my home at the age of 20.

Yes, I was TWENTY YEARS OLD.

I know this isn’t the norm for most people, and I know that just because some are able to do it and make it work doesn’t mean that it’s for everyone. Most of my friends bought homes when they were around my age as well, so maybe it’s a St. Louis thing? 🙂

Anyway, we both had okay full-time jobs at the time. Buying a house at a young age was possible for us.

We moved into our home in October of 2009, and I graduated in May of 2010, so we did buy our home thinking that we would have a higher income coming May 2010. Luckily, that worked out in our favor, but I don’t think I would ever recommend buying on an expected higher income unless you knew for sure (150%!) that it would happen.

We bought in 2009, when there was the $8,000 first-time homebuyer tax credit and when the housing market was cheap for buyers. Also, buying a home where I live is cheaper than renting, so that was something that definitely influenced us.

Before we bought, we were renting a house (for super cheap – like $350 a month, if I remember correctly) but had to move because we had a crazy neighbor who had the SWAT team at his house on a monthly basis and he started to threaten our lives as well (some of you know exactly how that ended – not good at all).

Also, I found a snake in my bed one night (yes, an actual SNAKE!) and I was pretty much scared to sleep in that house ever again because of the neighbor and the snake.

Even though we were both very young, houses were a steal at the time, and we needed a new place to live.

Here are my tips to help you buy your next home. If you want to buy a house at a young age, or any age, there are things you might want to think about.

Do you actually want to buy? Or should you rent?

Before you decide that you absolutely want to buy your next home, you should stop and think about the positives and negatives of both home ownership and renting. Not everyone is meant to be a homeowner. And not everyone wants to rent.

Some different things that you should think about include:

  • Do you want to travel a lot? If you want to travel, then having a permanent home where you have to pay the bills even if no one is there may be a waste of money for you.
  • Do you plan on moving for your career? If you are young, then you may still be early in your career and you may decide that you want to leave your home city one day. I actually was offered a position right after I graduated from college (around 6 months after we bought our house) and they wanted me to move. Luckily, the position kind of sucked and the town they wanted me to move to sounded absolutely horrible (I think there were around 100 people that lived in the whole COUNTY of where the position was located) so I didn’t give the position any thought.
  • How’s your credit? If you are young, then you may not have even established any credit. It would be very hard, if not impossible, to buy a home without a good credit score.
  • Do you have time and/or money for home maintenance? If you own your home, then there will be home maintenance that goes along with it – it doesn’t matter if your house is new or old, stuff happens. Something may break, grass needs to be mowed, and so on.

What kind of home do you want?

Each person is different. Just because the “American Dream” is said to be a suburban house with a white picket fence, doesn’t mean that it’s everyone’s dream.

You should really think about where you want to live and what kind of home you want.

  • Do you want to live in the suburbs? Maybe you want to live right on the beach? Or is city living more for you? Or do you want to live far away from everyone and live 20 minutes away from the closest grocery store?
  • Do you want a house, a condominium, a townhouse, a duplex, a farm, or something else? Maybe you want to live on a boat? I don’t know! There are so many different options out there

Find a realtor.

If you are buying a home, please find a realtor! I have met a few people who think that they have to pay the realtor if they are a potential homebuyer. That is not true.

The realtor receives a commission from the seller, at no cost to you. Or at least this is how it is in the United States. Can others in other countries chime in about this?

There are many positives of having a real estate agent. They can help you negotiate (they are professionals at this), they can help you find the perfect home for you, they have experience in buying homes, and they can help you with all of the paperwork that will need to be done (and trust me, there is so much paperwork!).

Think about the total cost of the home that you want to buy.

This is something that some/many people do not think about when they buy a home. When you buy a home, there are so many factors that go into how much a home truly costs.

These include:

  • The home price. This is the number one thing that potential homebuyers look at, but don’t forget about the below!
  • Utility bills. You would be surprised to see how much utility bills can vary. One home may have utility bills of $200, and another may have utility bills of $700. You should be able to get a detailed past expense list or at least a realistic estimation of how much utility bills will cost you for that specific house from the current homeowners.
  • Private Mortgage Insurance. If you didn’t put a 20% down payment on your home, then you may have to pay PMI.
  • Property insurance. Insurance can vary greatly depending on where you live and what type of home you have. I pay around $700 a year for property insurance, but I know others who pay over $2,000 a year.
  • Property taxes. This can be a rather large amount of your monthly mortgage each month. I pay around $150 each month towards property taxes, but I know others who pay over $500 each month (and that is just crazy to me!).
  • Maintenance. Things will break in homes, like I said earlier. Also, you may need to paint eventually, mow the lawn, buy more efficient appliances, and more.

Rent out a room in your home for some extra money.

I wouldn’t recommend buying a home unless you can truly afford it. However, if you are young and there is plenty of extra space in your home, then it probably wouldn’t hurt you to rent out some of that extra space.

Renting out a room in your home can add an extra few hundred dollars to your income each month, which can be really helpful if you are a homeowner.

We have four bedrooms in our house and we only use one (our bedroom). So when my sister needed a place to live a few years ago, we invited her to live with us. It’s been working out very well. She’s been living with us since May of 2012 and pays around $325 per month.

We also haven’t really noticed an increase in any of our bills, but with some renters you may notice that. It’s always a good idea to try to estimate how much things will increase, wear and tear, and more in order to see whether renting a room in your home is worth it for you.

Is it a good idea to buy a house at a young age?

There are many things to think about when buying a house when you’re young, such as:

  • How long do you think you will live in the area?
  • Can you afford the house?
  • Do you want to travel?
  • Do you plan on having a family?

And so on.

Buying a house in your early 20s, or whatever you consider to be a young age is possible, but you’ll just want to be smart with your decision.

What advice would you give to someone looking for a home? Is there anything that you wish you would have done differently when home shopping?

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Source: makingsenseofcents.com

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Mortgage rates surged closer to 7% this week, further worsening housing conditions for buyers.

The rate on the 30-year fixed mortgage increased to 6.79% from 6.57% the week prior, according to Freddie Mac, on expectations the Federal Reserve will hike interest rates again. For the past eight months, rates have stayed between 6% and 7% with few signs of significantly softening anytime soon.

Elevated rates — along with still-high home prices — have been a blow for homebuyer affordability and have convinced many homeowners to delay listing — worsening inventory conditions in a supply-starved market.

“Both buyers and sellers have backed off from the market because mortgage rates are so high,” Daryl Fairweather, chief economist at Redfin, told Yahoo Finance. “They’ve made homebuying more expensive. Homeowners who were able to lock in 3% mortgage rates a little over a year ago don’t want to give up those rates and are not selling.”

“So we’re seeing way fewer transactions this time of the year,” she added.

The dearth of deals was evident in other data this week.

For instance, the share of applications to purchase a home slid 3% last week from a week earlier, according to the Mortgage Bankers Association’s survey. Overall, buyer demand is 45% lower than the same week one year ago.

“Although there has been a steady flow of purchase demand around rates in the low to mid 6% range, that demand is likely to weaken as rates approach 7%,” Freddie Mac Chief Economist Sam Khater said in a statement. Khater noted that a “buoyant economy” has convinced many market watchers that more Fed hikes are on the way.

A separate study by real estate analytics company Altos Research found the number of pending sales that should complete in June and July sat at 398,000 last week, unchanged from the week prior. That’s even as inventory rose 2% or the week ending May 29.

“That could be a signal that some buyers froze as rates jumped,” Mike Simonsen, founder of Altos Research wrote in a blog post.

A home is offered for sale in the Bucktown neighborhood in Chicago, Illinois. (Credit: Scott Olson/Getty Images)A home is offered for sale in the Bucktown neighborhood in Chicago, Illinois. (Credit: Scott Olson/Getty Images)

A home is offered for sale in the Bucktown neighborhood in Chicago, Illinois. (Credit: Scott Olson/Getty Images)

Higher rates have also left a growing share of homeowners reluctant to list this spring. Those who have put their homes on the market may find they have the upper hand against buyers.

“We had a house on the market for only a couple of days and right off the bat we had four buyers through its first day listed,” Monte Miner, real estate agent at Ironwood Fine Properties, told Yahoo Finance. “That’s a good sign that the place is going to sell at or even above expectations, but buyers won’t get the opportunity to negotiate when competition is high.”

That’s if buyers can even find a house to purchase.

For instance, an index measuring the volume of signed contracts was unchanged in April from March, even though the spring is the busiest time to list and sell a home, according to the National Association of Realtors last week.

Similarly, the number of homes that went into contract this week was down almost 5% from the previous week and down 14% from the same time a year earlier, according to Altos Research.

“We know that demand for housing has outpaced supply all year. But mortgage rates really jumped this week … There are signals that some buyers put their actions on hold,” Simonsen wrote. “If rates stay … do the little green shoots of market strength quickly wither away?”

Gabriella is a personal finance reporter at Yahoo Finance. Follow her on Twitter @__gabriellacruz.

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Source: finance.yahoo.com