You Can Save for a Down Payment Faster Than You Think!

Saving for a down payment is often the biggest hurdle for a first-time homebuyer. Depending on where you live, median income, median rents, and home prices all vary. So, we set out to find out how long it would take to save for a down payment in each state.

Using data from the United States Census Bureau and Zillow, we determined how long it would take, nationwide, for a first-time buyer to save enough money for a down payment on their dream home. There is a long-standing ‘rule’ that a household should not pay more than 28% of their income on their monthly housing expense.

By determining the percentage of income spent renting in each state, and the amount needed for a 3% down payment, we were able to establish how long (in years) it would take for an average resident to save enough money to buy a home of their own.

What if you only needed to save 3%?

What if you were able to take advantage of one of Freddie Mac’s or Fannie Mae’s 3%-down programs? Suddenly, saving for a down payment no longer takes 5 or 10 years, but becomes possible in a year or two in many states as shown on the map below.

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Ways to save for a down payment

Here are some ways to help make sure you have enough money when it's time to get your mortgage.

1. Transfer a fixed amount into a savings account every month.

This is the most popular—and convenient—way to save. Set up an automatic direct deposit into a savings account. Commit to never use these savings for any purpose other than your down payment.

2. Skip vacations for a year. 

If you save the money you would have spent vacationing, you can make significant contributions toward a down payment.

3. Lower your expenses. 

Review your expenses and look for what you can reduce or eliminate. Put the money you would have spent on these items into your down payment savings account.

4. Reduce your high interest rate debt.

High interest rates on credit cards can seriously limit your ability to save. Pay off your high interest rate credit cards. Start with your highest interest rate card; when you've paid the entire balance, close the card, and proceed to pay off the next. At a minimum, transfer your credit card balances to the card with the lowest interest rate.

5. Borrow from a relative. 

Many parents or relatives help out when it's time to buy a first home. Gifts can come from your family, spouse or a domestic partner. Just be sure to include the amount of the gift on your loan application.

6. Borrow from your retirement plan. 

Look for penalty-free withdrawals for home buyers in your plan. Many company-sponsored 401(k) or profit-sharing plans allow employees to borrow against their savings to purchase a home. Your Human Resources or Payroll department can help.

7. Sell some of your investments.           

Think of this simply as a way to move some of your current investments into another investment vehicle – your home! As you make payments on your mortgage, you accrue equity in your home. As the value of the home increases, so does the return on your investment.

8. Get a second job.

Even temporarily, earnings from a second job can help you make substantial contributions to your down payment savings.

9. Look into down payment assistance. 

Some organizations might help you with your down payment. See if you qualify with the Federal Housing Administration, the US Department of Agriculture Rural Housing Service and the Veterans Administration. Also check out local housing authorities to see if they have programs to help.

Bottom Line

Whether you have just started to save for a down payment, or have been saving for years, you may be closer to your dream home than you think! Let’s meet up so I can help you evaluate your ability to buy today.

Have a question? Reply to this post or contact me here Contact Me Here

What Type of Loan is best for me?

Conventional loans typically require between 3% and 20% down payment with credit scores in the mid 700's

FHA Loans typically require 3.5% down payment with credit scores in the 600's

VA Loans are for veterans only requiring no down payment with credit scores in the High 600's

Give me a call and lets get you Pre- Approved for a loan and start your home search!

Not Available for All Buyers

Lenders regularly publish mortgage rates but they may not be available for all buyers.

Imagine that the mortgage payment based on an advertised rate influenced a buyer to make an offer on a home. After negotiating a binding contract, this buyer makes a loan application and finds out that for any number of possible reasons, that rate isn’t available.

Even if the person does financially qualify for a loan at a higher interest rate, it will not be the payment that the buyer expected when the contract was negotiated.

Lenders evaluate several factors such as the borrower’s credit score, debt-to-income and loan-to-value ratios. These variables are used to assess the risk associated with the repayment of the loan.

While mortgage money is a commodity, it isn’t priced the same way items are that involve cash for goods. The lender puts up the money today based on a promise from the borrower to repay over a long term, possibly up to thirty years.

The simple solution to avoid surprises such as the one described here is to get pre-approved at the beginning of the home search process. Since pre-qualification does not mean the same thing to all lenders, call if you’d like a recommendation of a trusted mortgage professional.

Bret Wilson - (214) 315-9465

Real Estate Blog www.realestatewithbret.blogspot.com

This is Not Your Parents' 3% Down Payments Plan

This Is NOT Your Parents’ 3% Down Payment Plan

 August 5, 2015  Down Payments, For Buyers

In their latest Housing Market Insight & Outlook report, Freddie Mac revealed that recent low down payment initiatives have raised concerns that we may be returning to the same lax mortgage qualifications that caused the housing crisis from which we are just now recovering.

The report went on to explain that today’s underwriting guidelines are nothing like those that existed just prior to the housing meltdown.

“Pre-crisis underwriting allowed layered risk, that is, the combination of multiple features that amplified credit risk. Low down payments often were combined with variable-payment loan structures, property-based underwriting, and questionable appraisals. These risk factors, along with the ‘irrational exuberance’ of some borrowers, led to large losses during the crisis.”

What is layered risk?

In the pre-crisis environment, many mortgage loans incorporated several additional features besides low down payments that multiplied the total risk of the loans such as: variable payment options, underwriting based on the property not the borrower, questionable appraisal processes. Borrower expectations were also overly optimistic at that time.

Freddie Mac highlights the difference between then and now by using a table in the report:

By removing the “layered risk”, we can be confident that low down payment programs will not impact the market the way mortgage underwriting impacted the market a decade ago. And the report explains:

“Previous research has found that reduced down payments can increase the relative probability of homeownership among some groups by over 25 percent.”

Bottom Line

We believe the report’s conclusion says it all:

“As long as the underwriting process bars the return of the layered risks prevalent in the pre-crisis era, lower down payments are not a cause for concern.”

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Renovation loans give homebuyers an edge in a competitive market

(BPT) - In the past, homebuyers could choose from a bounty of properties on the market. However, things are starkly different. In many locations throughout the United States, inventory of homes for sale is at historic lows, creating a seller's market where multiple buyers get into bidding wars over move-in-ready homes.

"Move-in-ready homes may be selling like hotcakes, but older homes or damaged properties are often passed over," says Margaret Kelly, CEO with RE/MAX. "This is a big opportunity for smart buyers who are willing to overlook cosmetic or other imperfections."

If buyers can look beyond aesthetic characteristics like paint color, hardware and floor coverings, they may discover a diamond in the rough, especially if the home is in the neighborhood where they prefer to live. For example, if they like the overall design of a particular home, but the kitchen is old and the deck needs major repairs, a renovation loan can help them purchase the property while upgrading the kitchen and outdoor space exactly how they want them.

"Many homebuyers are surprised you don't need a ton of money in the bank to fund improvements," explains Kelly. "A special type of loan called a renovation loan is ideal for these types of homes because it covers both the cost of the mortgage and repairs."

Renovation loans can also help buyers who want to purchase in a particular neighborhood where most home prices exceed their budget. Properties that need work are typically listed at a lower cost and often go unsold, creating an opportunity for people willing to make improvements. Buyers can use a renovation loan to get into the neighborhood of their dreams, quickly build equity and customize a home to their personal preferences.

Several variations of renovation loans are available. FHA renovation loans are called 203(k) loans. How much money you want to borrow and the kinds of improvements you plan to make will determine which of the two 203(k) types you need. Freddie Mac and Fannie Mae have their own specific types of renovation loans.

Requirements for the borrower, the amount you can borrow, and the overall structure of the loan are different for each program. Typically, the loan is based on the estimated home value after improvements, and buyers will need to get bids from licensed contractors to help determine the total loan amount as well as a timeline for the work to be completed.

Because finding a home and getting approval of a renovation loan can be complicated, it's wise for buyers to work with a real estate specialist who has experience in these types of sales. For example, RE/MAX agents lead the industry in professional designations and many have experience working with buyers who want a renovation loan. Visit www.remax.com to find an agent in your area.

"A renovation loan really does give homebuyers an edge in today's competitive market," says Kelly. "It's definitely something to research and determine whether it's right for you."

Courtesy of BPT