Guest Author: Keegan Pafford

They say there’s a first time for everything. And if obtaining a mortgage is the next first on your list, you’ve come to the right place.

To ensure your first-time is the best time, we compiled a list of five easy-to-follow tips that help ease the burden of applying for a home loan.

Your elegant new address is perfect in every way, shouldn’t the financing process be too?

Know Your Credit Score

Because lenders don’t know you personally, your credit score is used to gauge your creditworthiness.

According to the Federal Reserve Bank of New York’s Household Debt and Credit Report (Q3:2020), nearly 96% of mortgages originated in the third-quarter had an Equifax credit score of 660 or more. In contrast, just over 4% of mortgages originated had a credit score of 659 or less. Furthermore, the median credit score was 786, while the bottom 10% of credit scores began at 683.

If your credit score is below the figures above, you should think about a Federal Housing Administration (FHA) loan. Commonly used by first-time homebuyers, FHA loans are available to individuals with less-than-stellar credit.

To qualify, you must adhere to the following rules:

  1. FICO score of at least 580 = 3.5% down payment
  2. FICO score between 500 and 579 = 10% down payment
  3. MIP (Mortgage Insurance Premium) is required
  4. Debt-to-income ratio < 43%
  5. The home must be your primary residence
  6. You must have steady income and proof of employment

Do You Need Private Mortgage Insurance (PMI)?

Depending on your down payment, you may need to obtain private mortgage insurance (PMI). For loans greater than 80% of the home’s value, lenders require you to obtain PMI.

As an expense that’s added to your monthly (or bi-weekly) mortgage payment, PMI protects the lender in case you default on the loan. However, once your debt balance is equal to or less than 78% of the home’s value, PMI is automatically eliminated.

As a general rule, to avoid PMI, you should opt for a higher down payment. However, the National Association of REALTORS’ (NAR) Home Buyers and Sellers Generational Trends Report shows that most first-time buyers don’t heed this advice.

Consult With a Mortgage Broker

As intermediaries between you and the lender, mortgage brokers are the home-buying equivalent of financial advisors. Rather than swimming with the sharks on your own, a mortgage broker can help prepare your loan application, offer quality advice and ensure you receive a fair deal.

Best of all, their services are pro bono.

Because mortgage brokers are compensated by the lender, you don’t incur any advisory fees.

Furthermore, because mortgage brokers have relationships with many potential lenders, they can leverage competing offers and help secure the best terms. In contrast, when you work directly with a lender, it’s his or her job to sell the product with the highest fees.

Choose the Right Loan

At the outset, your broker (or the lender) will present you with a myriad of loan options.

The most common are:

  1. Fixed-rate mortgages
  2. Adjustable-rate mortgages
  3. Interest-only mortgages

To explain the first, a fixed-rate mortgage offers simplicity and predictability. By locking in the specific terms, your interest rate and mortgage payment remains constant throughout the entire term. And while 15 and 30-year terms are most common, fixed-rate mortgages are also available in 10, 20, and 40-year terms.

In contrast, an adjustable-rate loan’s interest rate fluctuates throughout the loan’s life. Often indexed to the U.S. Federal Reserves’ overnight lending rate, rising interest rates will cause your mortgage rate and payment to increase (vice versa).

However, both options are structured as ‘amortizing’ loans. An eloquent word ingrained within traditional finance-speak, the term amortizing means that both principal and interest are included within your mortgage payment. The dynamic allows you to gradually reduce the debt balance and pay off your mortgage over say, 20, 25, or 30 years.

As for the third option, an interest-only mortgage is just that – interest-only. Instead of repaying the principal during the loan term, you pay interest periodically and repay the full balance at the end of the term.

So which one should you choose?

Well, it really comes down to your personal preference. However, with interest rates near historic lows, a fixed-rate mortgage has never been more affordable.

Get Preapproved

If you breezed through the requirements above, don’t sprint to the open house just yet. After consulting with your broker and negotiating acceptable terms, obtain a preapproval letter from your lender. Within it, the lender will outline how much it’s willing to offer and when the offer expires (usually 90 days).

By obtaining the document, it shows real estate agents and sellers that you mean business. More importantly, though, it gives you an edge over other applicants that can’t demonstrate the same level of financial health.

Conclusion

While obtaining a mortgage may seem intimidating, it doesn’t have to be.

By creating a detailed roadmap and planning ahead for all of the procedural, and often boring, aspects of the process, you can spend less time worrying and more time enjoying your home search. Furthermore, if you follow the tips above, you’re prepared for anything the process may throw your way.

 

About the Author

Keegan Pafford is a loan officer with Gold Star Lending, LLC, an independent wholesale mortgage brokerage in Portsmouth New Hampshire. He is a Seacoast NH native with a passion for business and real estate investing. Contact him via Facebook or keegan@goldstarlending.com if you’d like to discuss purchases, refinancing, or anything in between.

2021 is officially upon us. But how, exactly, is the new year shaping up through the lens of real estate?

HomeLight’s Top Agent Insights Q4 2020 Report surveyed over 1,000 real estate agents for their insights into the 2021 housing market, including:

  • Lack of inventory will continue to pose challenges in 2021. A lack of homes for sale presented one of the biggest challenges for buyers in 2020—and at 20.5 percent, a continued lack of inventory is the factor most agents cited as their pick for the biggest influence on the 2021 housing market.
  • Remote work will continue to influence the real estate market. Low inventory will have a big impact on the market—but so will remote work. 14.5 percent of agents surveyed said the shift to remote work will have the biggest influence on the housing market in the upcoming year.
  • Low mortgage rates will continue to drive demand. A whopping 94 percent of agents surveyed said that low interest rates were boosting buyer demand in Q4 2020—and with most experts expecting mortgage rates to stay low through the end of the year (according to the report, Fannie Mae is expecting interest rates to stay around 2.8 percent while the Mortgage Bankers Association is forecasting a slight increase in rates to 3.3 percent), that demand should continue through 2021.

The Takeaway:

So, what does this mean for you? Real estate agents have their finger on the pulse of what’s happening in the market—so understanding their insights and predictions can help you better prepare to navigate the market in 2021, whether you’re planning to buy or sell.

For years, we’ve all heard about the most desirable home features buyers are looking for, from upgraded kitchens to remodeled bathrooms, master suites, and more. The latest on the hotlist, however, might surprise you: home offices.

In a recent article by George Ratiu, Senior Economist with realtor.com, he notes how listings with an office are selling quickly:

“As more companies have been embracing remote work, buyers are driving demand for houses with home offices higher. Homes featuring the term ‘office’ are selling 9 days faster than the overall housing inventory.”

Today, more and more people are working remotely, and that’s not just because the current pandemic is prompting businesses to operate virtually. According to the same piece and the most recent data available, the number of employees working at home was fairly steady from 1997 – 2004 but has been climbing ever since (see graph below):Why Home Office Space Is More Desirable Than Ever | Keeping Current MattersClearly, the work-from-home population is growing, and technology is making it possible. Just last month, according to an article on Think Google, searches for telecommuting hit an all-time high, and that’s certainly no surprise given our current situation.

People all over the U.S. are looking for answers on how to be most effective at home, and it’s making the ideal workspace more and more desirable. In fact, best practices from seasoned work-from-home professionals, like Chris Anderson, Senior Account Executive at HousingWire, tout that having a dedicated space is a must for productivity.

With today’s increasing demand for home offices, it’s a great feature to highlight within your listing if you’re selling a house that may meet this growing need. From bright natural light with large windows to built-in bookshelves or a quiet and secluded atmosphere, whatever makes your office space shine is worth mentioning to buyers when you’re ready to list your house.

Ratiu concludes:

“For housing, the continued increase in the share of remote workers implies that demand for homes with offices or dedicated work spaces will continue to increase. The current coronavirus pandemic offers a dramatic indication of the fact that companies and employees will have to develop plans and clearer policies for remote work beyond the current crisis.”

Bottom Line

Remote work may become more widely accepted as this current crisis teaches businesses throughout the country what it takes to function virtually. So, what seems like a business challenge today may be more of the norm tomorrow. With that in mind, if you have a home office, your house may be more desirable to buyers than you think.

Today’s everyday reality is pretty different than it looked just a few weeks ago. We’re learning how to do a lot of things in new ways, from how we work remotely to how we engage with our friends and neighbors. Almost everything right now is shifting to a virtual format. One of the big changes we’re adapting to is the revisions to the common real estate transaction, which all vary by state and locality. Technology, however, is making it possible for many of us to continue on the quest for homeownership, an essential need for all.

Here’s a look at some of the elements of the process that are changing (at least in the near-term), due to stay-at-home orders and social distancing, and what you may need to know about each one if you’re thinking of buying or selling a home sooner rather than later.

1. Virtual Consultations – Instead of heading into an office, you can meet with real estate and lending professionals through video chat. Whether it’s your first initial needs analysis as a buyer or your listing appointment as a seller, you can still get the process started remotely and create a plan together. Your trusted advisor is still on your side.

2. Home Searches & Virtual Showings – According to theNational Association of Realtors (NAR), the Internet is one of the three most popular information sources buyers use when searching for homes. Your real estate agent can send you listing information and help you request a virtual showing when you’re ready to start looking. This means you can virtually walk through the homes on your wish list while keeping your family safe. As a seller, you can still have virtual open houses and virtual tours too, so as not to miss those buyers looking to find a home right now.

3. Document Signing – Although this is another area that varies by state, today more portions of the transaction are being done digitally. In many areas, your agent or loan officer can set up an account where you can upload all of the required documents and sign electronically right from your computer.

4. Sending Money – Whether you need to pay for an appraisal or submit closing costs, there are options available. Depending on the transaction and local regulations, you may be able to pay by credit card, and most banks will also allow you to wire funds from your account. Sometimes you can send a check by mail, and in some states, a mobile escrow agent will pick up a check from your home.

5. Closing Process – Again, depending on your area, a mobile notary may be able to bring the required documents to your home before the closing. If your state requires an attorney to be present, check with your legal counsel to see what options are available. Also, depending on the title company, some are allowing drive-thru closings, which is similar to doing a transaction at a bank window.

Although these virtual processes are starting to become more widely accepted, it does not mean that this is the way things are going to get done from now on. Under the current circumstances, however, technology is making it possible to continue much of the real estate transaction today.

Bottom Line

If you need to move today, technology can help make it happen; there are options available. To learn about the specific regulations in your area, contact a local real estate professional to discuss your situation, so you don’t have to put your real estate plans on hold.

It’s a difficult time for everybody, especially those whose health has been affected by the pandemic. It’s difficult for the brave healthcare workers putting their lives at risk trying to heal the sick, and it’s difficult for the men and women spending their days and nights keeping people fed, keeping shelves stocked, making sure supplies are delivered, floors are cleaned, and everything in between.

And, it’s probably a difficult time for you too.

Modern life is stressful, even without a pandemic. The boss wants you to do more, the kids need to be fed, the bills have to get paid, and the house needs to be maintained. But now, those stresses have all been magnified and laid bare.

So what do real estate agents want you to know during this complicated, stressful, and difficult time? And why should you even care? We are, after all, here to serve you.

Well, the answer is… that’s exactly what we want you to know: we’re here to help you!

And not just that, but we’re in this with you. Uncertainty, doubt, stress, and everything in between affects us just as it does you, and we have the same fears as you do about where the future is headed.

That said, it’s not all gloom and doom. There are solid reasons to be optimistic, especially when it comes to housing.

First, this is not a housing recession like the crash of 2008, where the collapse of the economy was tied directly to mortgage-backed securities and skyrocketing default rates.

In fact, of the last five recessions, only 2008 saw home values drop precipitously, while they continued increasing in three other instances, and only decreased by -1.9% in (1991).

That’s not to say we’re even going into a recession, especially since forecasts from some of the brightest minds in finance predict positive GDP growth of 12% starting in June (Q3).

Second, this crisis has the attention of the world, and there’s an aggressive push to put an end to it sooner than later. Of course, when we’re in the thick of it, it can be difficult to see the light at the end of the tunnel. But social distancing seems to be working, and nearly every country in the world is dumping massive resources in search of a treatment, and a cure. Almost everyone is doing what they can (or at least have to) in order to give this crisis an end date so everyone can get back to business as usual.

So, while we all struggle to adjust to this strange moment of time we’re living in, it’s also good to keep things in perspective.

Even though the process has been interrupted or paused in some ways and areas, homes are still selling, people are still buying, and the value that you’ve accumulated, by all accounts, is likely to remain.

In short, people still want to buy and sell houses. And while there are certainly many people who will be affected financially due to the pandemic, many others will not. They may not be going into the office, but they’re still employed and doing their jobs—just from home.

So, if you want or need to buy or sell right now, reach out, and we’ll work together to get it done in a safe and socially-distanced manner.

And if you’ve been considering buying or selling your home, and this current environment has made you rethink things, that’s perfectly okay too! We’re here to guide you and answer your questions at any time, not just when you’re ready to list or buy.

We, like you, can’t wait until things get back to normal, and for many of us, simply talking to you about real estate helps things feel normal, so please don’t hesitate to call!

And remember, you’re not alone in this.