What’s Your Home Actually Worth? Discover What Buyers Will Pay in Today’s Market
It’s easy to look up how much money you have in your savings account or the real-time value of your stock investments. But determining the dollar value of a home is trickier. As a seller, knowing your home’s worth helps you price it correctly when you put it up for sale. If you price it too high, it may sit on the market. But price it too low and you may be losing out on a good chunk of money (nobody wants that!). For buyers, it’s important to know a home’s worth before you make an offer. You want your offer to be competitive, but you don’t want to overpay for the property. Even if you’re not a buyer or seller right now, as a current homeowner you might just be curious about the value of your home. Keeping track of your home’s worth year over year helps you understand the trends in your market. So when you are ready to sell, you can take advantage of a good window of opportunity. The good news is, a trained real estate agent—who understands the nuances of your particular neighborhood—can determine the true market value of your property … and at no cost to you! THE THREE TYPES OF HOME VALUES When you start the process of buying or selling a home, you’ll frequently hear the words appraised value, assessed value, and true market value. It’s important to know the difference between each one so you can make better, informed decisions. Appraised Value A professional appraiser is in charge of determining the appraised value of a home. These appraisals are typically required by a lender when a buyer is financing the property. And while the lender is the one requiring this information, the appraiser does not work for the lender.1 Your appraiser should be an objective, licensed professional who doesn’t have allegiance to the buyer, seller, or lender—no matter who is paying their fee. The number the appraiser comes up with (the appraised value) assures the lender that the buyer is not overpaying for the property. For example, imagine a seller lists a home for $400,000. They reach a deal with the buyer to sell the home for $375,000. However, if an appraiser evaluates the property and determines that the appraised value is actually $325,000, then the lender will not lend for an amount higher than that appraised value of $325,000.2 When figuring out this number, an appraiser will compare the property to similar homes in your neighborhood, and they’ll evaluate factors such as location, square footage, appliances, upgrades, improvements, and the interior and exterior of the home. Assessed Value The assessed value of a home is determined by your local municipal property assessor. This value matters when your county calculates property taxes each year. The lower your assessed value, the less property tax you’ll pay.3 To come up with this value, your assessor will evaluate what comparable homes in the neighborhood have sold for, the size of your home, age, overall condition, and any improvements or upgrades that have been made. However, most assessors don’t have full access to your home, so their information is limited. Assessments are done annually to determine how much property tax you owe. Many counties use a multiplier (typically between 60%-80%) to calculate the final assessed value. So, if the assessor determines that the value of the home is $300,000, but the county uses a 70% multiplier, the assessed value of the home would be $210,000 for tax purposes.4 If your assessed value isn’t as high as you envisioned, don’t sweat it. Many homeowners appeal their assessment in favor of a lower valuation so that they can save money on property taxes. If you’re interested in appealing your property tax assessment, let us know. We offer complimentary assistance and would be happy to help you build your case. True Market Value True market value is established by your real estate agent. It basically refers to the value that a buyer is willing to pay for the property. A good real estate agent is an expert in determining true market value because they have hands-on experience buying and selling properties. They understand the mindsets of buyers in your market and know what they’ll pay for a desirable house, townhouse, or condo. As a seller, knowing your true market value is important because it helps you choose how much to list your property for. It can also help you decide if you want to make any improvements to your home before putting it on the market. Your agent can help you figure out which updates and upgrades will have the biggest impact on your true market value. WHAT’S THE DEAL WITH ONLINE CALCULATORS? When figuring out your home’s value, you might be tempted to see what popular real estate sites like Zillow, Redfin, and Trulia have to say. When you use an online calculator to determine your home’s value on these sites, it is just an estimate. It’s not an actual appraisal or the “true market value.” These sites all have their own algorithms for coming up with their estimates. For example, Zillow comes up with their “Zestimates” by calculating “public and user-submitted data, taking into account special features, location, and market conditions.” 5 These online estimates can be a great starting point for opening up the conversation with your real estate agent about your home’s worth. But even Zillow recommends that you use a real estate agent for coming up with the actual market value of your home. The site says that once you get your “Zestimate,” you should still get “a comparative market analysis from a real estate agent.” Having an agent involved in this process is essential because they understand the market better than a computer ever could. They’re showing property in your city every single day, and they know the particular preferences of buyers and sellers in the area. Young professionals, large families, empty nesters, and other groups are all looking for different things in a home. A local agent has most likely worked with all of them, so they understand what every segment in your market is specifically looking for. HOW AN AGENT FINDS YOUR HOME’S TRUE MARKET VALUE So, how does an actual real estate agent determine true market value? They’ll start by doing a comparative market analysis (CMA). This means they’ll compare your home’s features to similar properties in your area. For the CMA, the agent looks at the below factors to influence their assessment of your home’s worth:6 Neighborhood sales - Your agent will look at similar, recently sold homes in your neighborhood to see what they sold for and what they have in common with your house. The exterior - What does your home look like from the outside? Your agent will factor in curb appeal, the style of the house, the front and backyard, and anything else that impacts how the house looks to everyone walking and driving by. The interior - This is everything inside the walls of the house. Square footage, number of bedrooms and bathrooms, appliances, and more all influence the overall market value. Age of the home - Whether you have a newer or older home affects the number your agent comes up with as part of their assessment. Style of the home - The style of your home is important because buyers in different markets have different tastes. If buyers prefer ranch-style homes and you have one, then your home may sell for a premium (aka more money!). Market trends - Because a local agent has so much experience in your market, they have their finger on the pulse of your area’s trends and know what buyers are willing to pay for a property like yours. Location, location, location - This one’s probably the most obvious. Your agent will think about how popular the area is, how safe it is, and what schools are like. A computer algorithm simply can’t take all of these factors into account when calculating the value of your home. The reality is, nothing beats the accuracy of a real estate agent or professional appraiser when it comes to determining a home’s true market value. YOUR AGENT IS THERE EVERY STEP OF THE WAY Determining a home’s true market value is a real estate agent’s forte. If you’re a seller, your agent will help you find your home’s market value so you can list it at the right price. For buyers, your agent will help you determine the value so you can come up with a fair offer. Your agent can also set up a personalized home search on the Multiple Listing Service (MLS) for you so you’ll receive emails of listings that meet your criteria. This will help you see what’s out there in your city and how properties are being priced. Get a Complimentary Report With Your Home’s True Market Value Curious about your home’s true market value? Call us to request a free, no-obligation Comparative Market Analysis to find out exactly how much your home is worth! Sources: Chicago Tribune - https://www.chicagotribune.com/suburbs/chi-ugc-article-what-is-the-difference-between-market-value-a-2013-09-30-story.html SFGATE - https://homeguides.sfgate.com/market-value-vs-appraised-value-1206.html ValuePenguin - https://www.valuepenguin.com/mortgages/what-is-the-assessed-value-of-a-house Movoto - https://www.movoto.com/blog/homeownership/assessed-value-vs-market-value/ Zillow - https://www.zillow.com/how-much-is-my-home-worth/ Realtor.com - https://www.realtor.com/advice/sell/assessed-value-vs-market-value-difference/
Why Real Estate Investing Makes (Dollars and) Sense
INTRODUCTION Turn on the television or scroll through Facebook, and chances are you’ll see at least one advertisement for a group or “guru” who promises to teach you how to “get rich quick” through real estate investing. The truth is, much of what they’re selling are high-risk tactics that aren’t a good fit for the average investor. However, there is a way to make steady, predictable, low-risk income through real estate investing. In this blog post, we’ll examine the tried-and-true tactics that can be used to increase your income, pay off debt … even fund your retirement! WHY INVEST IN REAL ESTATE? One of the basic principles of real estate investment lies in this fact: everyone needs a place to live. And according to the Bureau of Labor Statistics’ most recent Consumer Expenditures Survey, housing is typically an American’s largest expense.1 But there are other reasons why real estate is a great investment choice, and we’ve outlined the top five below: 1. Appreciation Appreciation is the increase in your property’s value over time. History has proven that over an extended period of time, the value of real estate continues to rise. That doesn’t mean recessions won’t occur. The real estate market is cyclical, and market ups and downs are natural. In fact, the U.S. housing market took a sharp downturn in 2008, and many properties took several years to recover their value. However, in the vast majority of markets, the value of real estate does grow over the long term. The S&P CoreLogic Case-Shiller National Home Price Index, which tracks U.S. residential real estate prices, released its latest results on August 29 with the headline “National Home Price Index Rises Again to All Time High.”2 While no investment is without risk, real estate has proven again and again to be a solid choice to invest your money over the long term. 2. Hedge Against Inflation Inflation is the rate at which the general cost of goods and services rises. As inflation rises, prices go up. This means the money you have in your bank account is essentially worth less because your purchasing power has decreased. Luckily, real estate prices also rise when inflation increases. That means any money you have invested in real estate will rise with (or often exceed) the rate of inflation. Therefore, real estate is a smart place to put your money to guard against inflation. 3. Cash Flow One of the big benefits of investing in real estate over the stock market is its ability to provide a fairly steady and predictable monthly cash flow. That is, if you choose to rent out your investment property to a tenant, you can expect to receive a rent payment each month. If you’ve invested wisely, the rent payment should cover the debt obligation you may have on the property (i.e. mortgage), as well as any repairs and maintenance that are needed. Ideally, the monthly rental income would be great enough to leave you a little extra cash each month, as well. You could use that extra money to pay off the mortgage faster, cover your own household expenses, or save for another investment property. Even if you only take in enough rent to cover your expenses, a rental property purchase will pay for itself over time. As you pay down the mortgage every month with your rental income, your equity will continue to increase, until you own the property free and clear … leaving you with residual cash flow for years to come. As the owner, you will also benefit from the property’s appreciation when it comes time to sell. This can be a great way to save for retirement or even fund a child’s college education. Purchase a property when the child is young, and with a little discipline, it can be paid off by the time they are ready to go to college. You can sell it for a lump sum, or use the monthly income to pay their tuition and expenses. 4. Leverage One of the unique features that sets real estate apart from other asset classes is the ability to leverage your investment. Leverage is the use of borrowed capital to increase the potential return on investment. For example, if you purchase an investment property for $100,000, you might put 10% down ($10,000) and borrow the remaining $90,000 in the form of a mortgage. Even though you’ve only invested $10,000 at this point, you have the ability to earn a profit on the entire $100,000 investment. So, if the property appreciates to $120,000 – a 20% increase over the purchase price – you still only have to pay the bank back the original $90,000 (plus interest) … and you get to keep the $20,000 profit. That means you made $20,000 off of a $10,000 investment, essentially doubling your money, even though the market only went up by 20%! That’s the power of leverage. 5. Tax Advantages One of the top reasons to invest in real estate is the tax benefit. There are numerous ways a real estate investment can save you money each year on taxes: Depreciation When you record your income from a rental property on your annual tax return, you get to deduct any expenses associated with the investment. This includes interest paid on the mortgage, maintenance, repairs and improvements, but it also includes something called depreciation. Depreciation is the theoretical loss your property suffers each year due to aging. While it’s true that as a home ages it will structurally need repairs and systems will eventually need to be replaced, we’ve also learned in this post that the value of real estate appreciates over time. So getting to claim a “loss” on your investment that is actually gaining in value makes real estate an appealing investment choice. Serial Home Selling Even if you’re not interested in owning a rental property, other types of real estate investments offer tax advantages, as well. Generally, when you own an investment property you pay a capital gains tax on any profits you make when you sell the property. However, when you sell your principal residence, you are exempt from paying taxes on capital gains (up to $250,000 for singles and $500,000 for couples). The Internal Revenue Service (IRS) only requires that you live in the house for two of the previous five years. That means you can purchase an investment property, live in it while you remodel it, and then sell it for a tax-free profit two years later. This can be a great way to get started in real estate investing. Section 1031 Exchanges In addition to profiting off of your personal residence tax free, it is possible to sell an investment property tax free if you do it through a 1031 Exchange. If structured properly, the IRS Tax Code enables an investor to sell a property and reinvest the proceeds in a new property while deferring all capital gains taxes. Tax-Deferred Retirement Account It’s a common misconception that you can only purchase financial instruments (i.e. stocks, bonds, mutual funds, etc.) through an Individual Retirement Account (IRA) or 401(k). In actuality, the IRS allows individuals to invest retirement funds in real estate and other alternative types of investments, as well. By purchasing your investment property through an IRA, you can take advantage of all of the tax savings these accounts offer. Be sure to consult a tax professional regarding all tax matters related to your real estate investments. If structured correctly, the profits you earn on your real estate investments can be largely shielded from tax liability. Just another reason to choose real estate as your preferred investment vehicle. TYPES OF REAL ESTATE INVESTMENTS While there are numerous ways to invest in real estate, we’re going to focus on three primary ways average investors earn money through real estate. We touched on several of these already in the previous section. 1. Remodel and Resell HGTV has countless “reality” shows featuring property flippers who make this investment strategy look easy. Commonly referred to as a “Fix and Flip,” investors purchase a property with the intention of remodeling it in a short period of time, with the hope of selling it quickly for a profit. This is a higher-risk tactic, and one for which many of the real estate “gurus” we talked about earlier claim to have the magic formula. They promise huge profits in a short amount of time. But investors need to understand the risks involved, and be prepared financially to cover additional expenses that may arise. Luckily, an experienced real estate agent can help you identify properties that may be good candidates for this type of investment strategy… and help you avoid some of the pitfalls that could derail your plans. 2. Traditional Rental One of the more conservative choices for investing in real estate is to purchase a rental property. The appeal of a rental property is that you can generate cash flow to cover the expenses, while taking advantage of the property’s long-term appreciation in value, and the tax benefits of investing in real estate. It’s a win-win, and a great way for first-time investors to get started. And according to the U.S. Bureau of Labor Statistics, rents for primary residences have increased 21.9 percent between 2007 and 2015 as demand for rental units continues to grow.1 3. Short-term Rental With the huge movement toward a “sharing economy,” platforms that facilitate short-term rentals, like Airbnb and HomeAway, are booming. Their popularity has spurred a growing trend toward dual-purpose vacation homes, which owners use themselves part of the year, and rent out the remainder of the time. There are also a growing number of investors purchasing single-family homes for the sole purpose of leasing them on these sites. Short-term rentals offer several benefits over traditional rentals, which many investors find attractive, including flexibility and higher profit margins. However, the most profitable properties are strategically located near popular tourist destinations. You’ll need an experienced real estate professional to help you identify the right property if you want to be successful in this highly-competitive market. DOES REAL ESTATE INVESTING SOUND TOO GOOD TO BE TRUE? We’ve all heard stories, or maybe even know someone, who struck it rich with a well-timed real estate purchase. However, just like any investment strategy, a high potential for earnings often goes hand-in-hand with an increase in risk. Still, there’s substantial evidence that a well-executed real estate investment can be one of the best choices for your money. Purchasing a home to remodel and resell can be highly profitable, as long as you have a trusted team in place to complete the remodel quickly and within budget … and the financial means to carry the property for a few extra months if delays occur. Or, if you buy a house for appreciation and cash flow, you can ride through the market ups and downs without stress because you know your property value is bound to increase over time, and your expenses are covered by your rental income. In either scenario, make sure you’re working with a real estate agent who has knowledge of the investment market and can guide you through the process. While no investment is without risk, a conservative and well-planned investment in real estate can supplement your income and set you up for future financial security. If you are considering an investment in real estate, please contact us to set up a free consultation. We have experience working with all types of investors and can help you determine the best strategy to meet your investment goals. Sources: Bureau of Labor Statistics Consumer Expenditure Survey Annual Report – https://www.bls.gov/opub/reports/consumer-expenditures/2015/home.htm S&P Dow Jones Indices Press Release –https://www.spice-indices.com/idpfiles/spice-assets/resources/public/documents/574349_cshomeprice-release-0829.pdf?force_download=true Durden, T. (2016 November 29). US Home Prices Rise Above July 2006 Levels, Hit New Record High [blog post] ZeroHedge –http://www.zerohedge.com/news/2016-11-29/us-home-prices-rise-above-july-2006-levels-hit-new-record-high
The Homebuyer's Guide to Getting Mortgage Ready!
Don’t wait until you’re ready to move to start preparing financially to buy a home. If you’re like the vast majority of home buyers, you will choose to finance your purchase with a mortgage loan. By preparing in advance, you can avoid the common delays and roadblocks many buyers face when applying for a mortgage. The requirements to secure a mortgage may seem overwhelming, especially if you’re a first-time buyer. But we’ve outlined three simple steps to get you started on your path to homeownership. Even if you’re a current homeowner, it’s a good idea to prepare in advance so you don’t encounter any surprises along the way. Lending requirements have become more rigorous in recent years, and changes to your credit history, debt levels, job type and other factors could impact your chances of approval. It’s never too early to start preparing to buy a home. Follow these three steps to begin laying the foundation for your future home purchase today! STEP 1: CHECK YOUR CREDIT SCORE Your credit score is one of the first things a lender will check to see if you qualify for a loan. It’s a good idea to review your credit report and score yourself before you’re ready to apply for a mortgage. If you have a low score, you will need time to raise it. And sometimes fraudulent activity or erroneous information will appear on your report, which can take months to correct. The credit score most lenders use is your FICO score, a weighted score developed by the Fair Isaac Corporation that takes into account your payment history (35%), amounts owed (30%), length of credit history (15%), new credit (10%), and credit mix (10%).1 Base FICO scores range from 300 to 850. A higher FICO score will help you qualify for a lower mortgage interest rate, which will save you money.2 By federal law, you are entitled to one free copy of your credit report every 12 months from each of the three major credit bureaus (Equifax, Experian and Transunion). Request your free credit report at https://www.annualcreditreport.com. Minimum Score Requirements To qualify for the lowest interest rates available, you will usually need a FICO score of 760 or higher. Most lenders require a score of at least 620 to qualify for a conventional mortgage.3 If your FICO score is less than 620, you may be able to qualify for a non-conventional mortgage. However, you should expect to pay higher interest rates and fees. For example, you may be able to secure an FHA loan (one issued by a private lender but insured by the Federal Housing Administration) with a credit score as low as 580 if you can make a 3.5 percent down payment. And FHA loans are available to applicants with credit scores as low as 500 with a 10 percent down payment.4 Increase Your Credit Score There’s no quick fix for a low credit score, but the following steps will help you increase it over time.5 1. Make Payments on Time At 35 percent, your payment history accounts for the largest portion of your credit score. Therefore, it’s crucial to get caught up on any late payments and make all of your future payments on time. If you have trouble remembering to pay your bills on time, set up payment reminders through your online banking platform, a free money management tool like Mint, or an app like BillMinder. 2. Avoid Applying for New Credit You Don’t Need New accounts will lower your average account age, which could negatively impact your length of credit history. Also, each time you apply for credit, it can result in a small decrease in your credit score. The exception to this rule? If you don’t have any credit cards—or any credit accounts at all—you should open an account to establish a credit history. Just be sure to use it responsibly and pay it off in full each month. If you need to shop for a new credit account, for example, a car loan, be sure to complete your loan applications within a short period of time. FICO attempts to distinguish between a search for a single loan and applications to open several new lines of credit by the window of time during which inquiries occur. 3. Pay Down Credit Cards When you pay off your credit cards and other revolving credit, you lower your amounts owed, or credit utilization ratio (ratio of account balances to credit limits). Some experts recommend starting with your highest-interest debt and paying it off first. Others suggest paying off your lowest balance first and then rolling that payment into your next-lowest balance to create momentum. Whichever method you choose, the first step is to make a list of all of your credit card balances and then start tackling them one by one. Make the minimum payments on all of your cards except one. Pay as much as possible on that card until it’s paid in full, then cross it off your list and move on to the next card. Debt Interest Rate Total Payoff Minimum Payment Credit Card 1 12.5% $460 $18.40 Credit Card 2 18.9% $1,012 $40.48 Credit Card 3 3.11% $6,300 $252 4. Avoid Closing Old Accounts Closing an old account will not remove it from your credit report. In fact, it can hurt your score, as it can raise your credit utilization ratio—since you’ll have less available credit—and decrease your average length of credit history. Similarly, paying off a collection account will not remove it from your report. It remains on your credit report for seven years, however, the negative impact on your score will decrease over time. 5. Correct Errors on Your Report Mistakes or fraudulent activity can negatively impact your credit score. That’s why it’s a good idea to check your credit report at least once per year. The Federal Trade Commission has instructions on their website for disputing errors on your report. While it may seem like a lot of effort to raise your credit score, your hard work will pay off in the long run. Not only will it help you qualify for a mortgage, a high credit score can help you secure a lower interest rate on car loans and credit cards, as well. You may even qualify for lower rates on insurance premiums.6 STEP 2: SAVE UP FOR A DOWN PAYMENT AND CLOSING COSTS The next step in preparing for your home purchase is to save up for a down payment and closing costs. Down Payment When you purchase a home, you typically pay for a portion of it in cash (down payment) and take out a loan to cover the remaining balance (mortgage). Many first-time buyers wonder: How much do I need to save for a down payment? The answer is … it depends. Generally speaking, the higher your down payment, the more money you will save on interest and fees. For example, you will qualify for a lower interest rate and avoid paying for mortgage insurance if your down payment is at least 20 percent of the property’s purchase price. But what if you can’t afford to put down 20 percent? On a conventional loan, you will be required to purchase private mortgage insurance (PMI) if your down payment is less than 20 percent. PMI is insurance that compensates your lender if you default on your loan.7 PMI will cost you between 0.3 to 1.5 percent of the overall mortgage amount each year.8 So, on a $100,000 loan, you can expect to pay between $300 and $1500 per year for PMI until your mortgage balance falls below 80 percent of the appraised value.9 For a conventional mortgage with PMI, most lenders will accept a minimum down payment of five percent of the purchase price.7 If a five-percent down payment is still too high, an FHA-insured loan may be an option for you. Because they are guaranteed by the Federal Housing Administration, FHA loans only require a 3.5 percent down payment if your credit score is 580 or higher.7 The downside of getting an FHA loan? You’ll be required to pay an upfront mortgage insurance premium (MIP) of 1.75 percent of the total loan amount, as well as an annual MIP of between 0.80 and 1.05 percent of your loan balance on a 30-year note. There are also certain limitations on the types of loans and properties that qualify.10 There are a variety of other government-sponsored programs created to assist home buyers, as well. For example, veterans and current members of the Armed Forces may qualify for a VA-backed loan requiring a $0 down payment.7 Consult a mortgage lender about what options are available to you. TYPE MINIMUM DOWN ADDITIONAL FEES Conventional Loan 20% Qualify for the best rates and no mortgage insurance required Conventional Loan 5% Must purchase private mortgage insurance costing 0.3 - 1.5% of mortgage annually FHA Loan 3.5% Upfront mortgage insurance premium of 1.75% of loan amount and annual fee of 0.8 - 1.05% Current Homeowners If you’re a current homeowner, you may have equity in your home that you can use toward your down payment on a new home. We can help you estimate your expected return after you sell your current home and pay back your existing mortgage. Contact us for a free evaluation! Closing Costs Closing costs should also be factored into your savings plan. These may include loan origination fees, discount points, appraisal fees, title searches, title insurance, surveys and other fees associated with the purchase of your home. Closing costs vary but typically range between two to five percent of the purchase price.11 If you don’t have the funds to pay these outright at closing, you can often add them to your mortgage balance and pay them over time. However, this means you’ll have a higher monthly payment and pay more over the long term because you’ll pay interest on the fees. STEP 3: ESTIMATE YOUR HOME PURCHASING POWER Once you have the required credit score, savings for a down payment and a list of all your outstanding debt obligations via your credit report, you can assess whether you are ready and able to purchase a home. It’s important to have a sense of how much you can reasonably afford—and how much you’ll be able to borrow—to see if homeownership is within reach. Your debt-to-income (DTI) ratio is one of the main factors mortgage companies use to determine how much they are willing to lend you, and it can help you gauge whether or not your home-purchasing goals are realistic given your current financial situation. Your DTI ratio is essentially a comparison of your housing expenses and other debt versus your income. There are two different DTI ratios that lenders consider: Front-End Ratio Also called the housing ratio, this is the percentage of your income that would go toward housing expenses each month, including your mortgage payment, private mortgage insurance, property taxes, homeowner’s insurance and association dues.12 To calculate your front-end DTI ratio, a lender will add up your expected housing expenses and divide it by your gross monthly income (income before taxes). The maximum front-end DTI ratio for most mortgages is 28 percent. For an FHA-backed loan, this ratio must not exceed 31 percent.13 Back-End Ratio The back-end ratio takes into account all of your monthly debt obligations: your expected housing expenses PLUS credit card bills, car payments, child support or alimony, student loans and any other debt that shows up on your credit report.12 To calculate your back-end ratio, a lender will tabulate your expected housing expenses and other monthly debt payments and divide it by your gross monthly income (income before taxes). The maximum back-end DTI ratio for most mortgages is 36 percent. For an FHA-backed loan, this ratio must not exceed 41 percent.13 Home Affordability Calculator To get a sense of how much home you can afford, visit the National Association of Realtors’ free Home Affordability Calculator at https://www.realtor.com/mortgage/tools/affordability-calculator. This handy tool will help you determine your home purchasing power depending on your location, annual income, monthly debt, and down payment. It also offers a monthly mortgage breakdown that projects what you would pay each month in principal and interest, property taxes, and home insurance. The Home Affordability Calculator defaults to a back-end DTI ratio of 36 percent. If the monthly cost estimate at that ratio is significantly higher than what you’re currently paying for housing, you need to consider whether or not you can make up the difference each month in your budget. If not, you may want to lower your target purchase price to a more conservative DTI ratio. The tool enables you to scroll through higher and lower price points to see the impact on your monthly payments so you can identify your ideal price point. (Note: This tool only provides an estimate of your purchasing power. You will need to secure pre-approval from a mortgage lender to know your true mortgage approval amount and monthly payment projections.) Can I Afford to Buy My Dream Home? Once you have a sense of your purchasing power, it’s time to find out which neighborhoods and types of homes you can afford. The best way to determine this is to contact a licensed real estate agent. We help homeowners like you every day and can send you a comprehensive list of homes within your budget that meet your specific needs. If there are homes within your price range and target neighborhoods that meet your criteria—congratulations! It’s time to begin your home search. If not, you may need to continue saving up for a larger down payment … or adjust your search parameters to find homes that do fit within your budget. We can help you determine the right course for you. START LAYING YOUR FOUNDATION TODAY It’s never too early to start preparing financially for a home purchase. These three steps will set you on the path toward homeownership … and a secure financial future! And if you are ready to buy now but don’t have a perfect credit score or a big down payment, don’t get discouraged. There are resources and options available that might make it possible for you to buy a home sooner than you think. We can help. Want to find out if you’re ready to buy a house? Give us a call! We’ll help you review your options, connect you with one of our trusted mortgage lenders, and help you determine the ideal time to begin your new home search. *The above references an opinion and is for informational purposes only. It is not intended to be financial advice. Consult a financial professional for advice regarding your individual needs. Sources: Quicken Loans Blog – https://www.quickenloans.com/blog/how-does-your-credit-score-affect-your-mortgage-eligibility myFICO – https://www.myfico.com/credit-education/credit-report-credit-score-articles/ Bankrate – https://www.bankrate.com/mortgages/what-is-a-good-credit-score-to-buy-a-house/ Bankrate – https://www.bankrate.com/finance/mortgages/7-crucial-facts-about-fha-loans-1.aspx myFICO – https://www.myfico.com/credit-education/improve-your-credit-score/ The Balance – https://www.thebalance.com/having-good-credit-score-960528 Bankrate – https://www.bankrate.com/mortgages/how-much-is-a-down-payment-on-a-house/ Bankrate – https://www.bankrate.com/finance/mortgages/the-basics-of-private-mortgage-insurance-pmi.aspx Bankrate – https://www.bankrate.com/finance/mortgages/removing-private-mortgage-insurance.aspx The Balance – https://www.thebalance.com/fha-home-loan-pitfalls-315673 Investopedia – https://www.investopedia.com/terms/c/closingcosts.asp Bankrate – https://www.bankrate.com/finance/mortgages/why-debt-to-income-matters-in-mortgages-1.aspx The Lenders Network – https://thelendersnetwork.com/fha-debt-to-income-ratio/
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