Posts Tagged ‘first time home buyer’

Owning Makes More Financial Sense than Renting

December 3, 2019

A recent Census Bureau report showed that construction began for 11,000 single-family built-for-rent houses in the second quarter of 2019.  Mind you, these are not apartments, but single-family homes built specifically to rent.  A recent National Association of Home Builders blog post stated that renting by choice is gaining popularity among millennials.   

The CEO of a build-for-rent developer stated, “What we were shocked to find out was it was people that had great credit, they had money for down payments, they had great incomes but they just didn’t want to own a home.”  So their renter clientelle does not consist of people experiencing job loss, credit challenges, etc.  They could buy a home, but they choose to rent instead.  It’s a lifestyle decision.

Here’s a negative consequence of this choice.  William Wheaton, a MIT housing economist, recently made said to NPR, “Owning still makes much more sense.  If prices continue to rise, buying will be a money tree.”  Even home price appreciation occurs at low levels, that growth serves to build personal wealth for the home owner.  So home price appreciation builds homeowner equity.  In addition, the principal component of every mortgage payment also builds homeowner equity.  A tenant’s monthly rent checks are expense only – there’s no wealth building when it comes to paying rent.

From a long-term wealth perspective, owning builds wealth better than renting (especially with today’s low interest rates and strong home affordability).  If you are renting in Georgia now and wonder if owning would benefit you financially, give me a call.  We’ll run some numbers and see if home ownership is better for you financially.

Is a Housing Boom Coming?

November 19, 2019

Stephen McBride, a contributor for Forbes magazine, posted an October article titled, “The Biggest Housing Boom In History Has Just Begun.” McBride approaches the subject from an investor perspective, but as someone employed in the home finance world, the article is very relevant to my job.

One of McBride’s sources stated, “The most important driver of home prices is supply and demand.  And right now, there is a chronic undersupply of homes in America.”  Since the late 1950’s, the US has seen an average of 1.5 million homes built annually, according to Census Bureau data.  However, since the Great Recession started in 2008, new home construction has averaged only 900,000 units annually.  That’s a shortfall of 600,000 off the historical annual average for 10 years now.  So we have a cumulative undersupply of 6,000,000 homes relative to historical data.  The article goes on to state, “fewer homes were built in the last decade than any decade since the ’50’s.”

On the demand side, the focus is the Millennial cohort.  The Millennials are the largest generation in American history.  Now the median age of the Millennial cohort is 34.  This historical average age of people buying their first home is 33.  According to the National Association of Realtors, one-third of home buyers are now Millennials.  The article goes on to state that “Every year for the next decade, tens of millions of Millennials will hit home buying age.”

Put these two factors together and you have a tight housing supply coupled with increasing demand.  Supply and demand analysis therefore predicts that home prices will rise.  (This makes me want to buy another house or two!)

I earned my economics degree a long time ago, but the supply and demand basics have not changed.  This appears to be the perfect storm for rising home prices.  And that could mean significant wealth growth for home owners over the next several years.

Want to get into the market now while mortgage rates are near historic lows and before home values start rising quickly again?  Give me a call at Dunwoody Mortgage.  We will get you prequalified quickly and help you close with the best financing for your current situation.  You can buy a home with a minimum 3% to 3.5% down payment and a credit score of 620+.  Now could be the perfect time for you to buy a home.

Home Affordability at its Highest Point in Years

November 1, 2019

According to a recent report by Black Knight, Inc., home affordability reached its best level in years in August 2019.  This follows a consistent decline in home affordability from late 2016 through late 2018.  Home affordability hit a nine-year low in November 2018, as mortgage rates rose to the 5% range.  At that time, the national home payment to income ratio rose to 23.7%.  According to Black Rock, this led to an extended slow down in home price growth.

Since November 2018, mortgage rate declines plus this slower home appreciation has greatly improved home affordability.  The national payment to income ratio has dropped to 20.7%.  This ratio means that the monthly principal and interest (P&I) payment on an average-priced home now requires only 20.7% of the national median income.

Put another way, interest rate declines between November 2018 and August 2019 has increased home buying power by about $46,000. In August 2019, a home buyer would pay the same P&I amount on a $246,000 home mortgage as she would have paid on a $200,000 home mortgage in November 2018.

On the other hand, I found websites and recent articles showing that Atlanta-area rents have risen around 4% in the preceding 12 months.  In short, owning a home in Atlanta has gotten more affordable while renting has gotten more expensive.

Do you rent your home in Georgia?  Has your rent increased making money tight?  Give me a call and let’s talk about mortgage affordability.  You don’t need perfect credit to buy a home, and you will need only a minimum 3% to 3.5% for your down payment.  (Military veterans can obtain VA loans with a 0% down payment.)  With the current low mortgage rates, you might be able to buy more home than you thought you could, for a lower monthly payment than you thought you would have to make.  And with buying a home, you will get the equity / wealth benefits from potential home appreciation.  It’s a GREAT time to buy a home in Georgia!!

American Homebuying Power Grows

September 26, 2019

Overall economic circumstances keep improving for potential homebuyers.  First American’s Real House Price Index (RHPI) shows that Americans’ homebuying power increased consistently from January through July 2019.  The index tracks single-family home price changes adjusted for mortgage interest rate changes and personal income changes.

Mortgage interest rates trended downward during the first half of 2019, and they are even lower now compared to mid-year.  First American reported mortgage rates in January were 4.5%, and rates moved into the 3’s over the summer.  Average household income increased over the same time period.

Decreasing mortgage rates combined with increasing household incomes provide a double boost to Americans’ home buying power.  The Index’s “house-buying power” for consumers increased roughly 10% from January through July.  According to First American’s Chief Economist, Mark Fleming, “House-buying power is at the highest it’s been since we began tracking it in 1991.”

That means now is a great time to buy a home!  Even though home prices have been increasing, the decrease in mortgage rates coupled with household income growth make right now the best time to buy a home in almost 30 years, based on the RHPI measures.

Do you have a Georgia friend who complains about a landlord who won’t fix problems?  Let them know that their homebuying power is stronger than it has been in decades, and connect them with me.  I’ll help them obtain the best home mortgage for their unique situation as quickly as possible.  I’ll help your friend take advantage of today’s really low mortgage rates before they increase to 2018 levels or even higher.  Together, we will fire their unresponsive landlord!

Millennial Home Ownership Survey

September 19, 2019

There are some interesting facts and observations in an August article documenting survey results from Millennial home buyers.  Here’s a link to the full study from lendedu.com.  1,000 people aged 23 to 38 participated in the survey.  Here are some survey results:

  • 58% of respondents say they own their own home.
  • 83% of these home owners obtained a mortgage to buy their home.
  • 75% of these mortgage holders obtained a FHA loan.
  • 16% is the average down payment percentage for the survey respondents.

To me, it is very surprising to me that such a high percentage of these home buyers used the FHA program, especially given the relatively high down payment percentage reported.  What I also find surprising is how the author treats FHA loans vis a vis the private mortgage insurance component of conventional mortgages.

Let’s look at the basics of FHA mortgage insurance (“MI”) vs. conventional (private) mortgage insurance (“PMI”).  FHA charges a 1.75% up-front MI.  On a $300,000 loan, that charge is $5,250.  Assuming a Millennial average 16% down payment, FHA charges a 0.80% monthly MI premium, which equals $200 per month.  And for this loan, the borrower must pay the monthly MI for 11 years.

For PMI on conventional loans, there is no up-front fee.  So our $300,000 mortgage holder is better off by $5,250 to start.  The PMI premium is based on the combination of down payment and the borrower’s credit score.  Let’s assume that a Millennial buyer (we’ll call her “Anna”) has a 680 credit score.  I calculate Anna’s monthly PMI premium at 0.26% or $65 per month.  In addition, the conventional loan PMI will cancel sooner than FHA MI, so Anna will pay conventional loan PMI for less than half the time she would pay FHA loan MI.

Summarizing this example, Anna with a 680 credit score would reap the following mortgage insurance benefits of choosing a conventional loan vs. FHA: (1) Anna saves $5,250 by not having the up-front FHA MI premium rolled into the loan amount; (2) Anna saves $135 per month with the lower PMI rate vs. the FHA MI rate; and (3) Anna stops making mortgage insurance payments way sooner.  And Anna’s PMI payment will be even lower if her credit score is in the 700’s.  From a mortgage insurance perspective, the conventional loan seems like a much better deal.

The author praises the use of FHA mortgages, then later makes the following statements about private mortgage insurance:

  • PMI should be avoided as it will usually cost the homeowner between 0.5% to 1% of the full mortgage amount….”
  • “…it is not great that so many are also paying for PMI as a result of less-than-optimal down payments…”

Such blanket negative statements about PMI concern me.  In our example, and many examples where the borrower has a strong credit score and can make a 10% or more down payment, the numbers often favor conventional loans.  FHA loans are often better when the borrower’s credit score is low or the borrower can only make a down payment of 10% or less.

The key lesson here is to consult a professional mortgage lender (I suggest that this guy for Georgia home buyers) to run the numbers for both FHA and conventional loans.  Then choose the best option given your circumstances.

Planning the move

September 10, 2019

At The Mortgage Blog, we talk often about making a plan for the mortgage. Today, let’s talk about a different type of plan – the move itself!

It makes perfect sense. I mean, we make plans to ensure the home loan goes smoothly. There is a plan for the home we look to buy (area of town, school districts, size of home, size of yard, etc.). I mean, why wouldn’t we tackle moving with the same concepts.

So here’s to planning the move! Where to begin? Let’s begin the same way we begin a home search, with a plan. Just like you’d sort potential homes by number of beds, baths, etc., let’s begin sorting our possessions into categories such as:

  • clothes
  • kitchen items
  • plates
  • glasses
  • decorative items
  • toys
  • important documents
  • toiletries
  • books

Looking at an entire house full of items is overwhelming. Sorting through each category becomes more manageable. With the categories in place, it makes the next step of sorting easier.

Once everything is sorted, it becomes obvious what to do with all of the possessions. Reviewing each category separately, you can begin to see what items you want to keep, what items to sell/donate/give away, and what items simply need to be recycled or thrown away.

The final step is to begin packing as soon as you are able to do so. Planning a summer move? Well, you don’t need winter clothes in the spring. Pack them up! Use the same logic for other items you don’t need access to all of the time. By getting a head start on packing, it will lessen the burden when it comes to packing up the entire house.

Still overwhelmed? Packing and organizing just isn’t your thing? No worries! Lots of people don’t like this stuff. If you want to consult a professional, how about Amber Blandford with Joyful Spaces. Amber owns and operates the professional organizing services provided by Joyful Spaces. When some people run screaming in fear of organizing, Amber feels a rush of joy! She’ll help you get going!

So there are some thoughts on planning a move. Still need to plan on how to pay for the home purchase? I’m always happy to help! Contact me today. If buying in the state of Georgia, I can get you prequalified in a few minutes and have you well on your way to making an offer on your new home!

Types of Mortgages – FHA

July 23, 2019

Given recent mortgage program changes, now is a good time to review the pros and cons of the major loan programs and when borrower circumstances favor one specific loan program.  In the last few years, many of our clients have used the conventional Home Ready program.   Without Home Ready, many of these buyers would have used FHA loans.  Given the Home Ready changes, we expect more future buyers to use FHA loans.

So let’s talk about FHA loans!

  • In the metro-Atlanta area, buyers can purchase homes up to about $390,000 using a minimum down payment (3.5%) FHA loan.  That is a lot of home!
  • Relative to conventional mortgages, FHA loans are generally more forgiving of credit “issues.”  This means lower credit score borrowers will most likely get a better FHA interest rate versus a conventional loan.
  • FHA allows for lower credit scores and shorter wait times following derogatory credit events, such as foreclosure or bankruptcy.  Borrowers typically need a 620 score to qualify.  Depending on other borrower details, Dunwoody Mortgage may be able to close loans where the borrower’s credit score is as low as 580.

Both FHA and conventional loans require monthly mortgage insurance “MI” for down payments less than 20%.  For FHA, the monthly premium is a flat 0.85% of the loan amount.  Conventional loans determine the premium based on the borrower’s credit score and down payment.  FHA loans also have an up-front mortgage insurance premium.  FHA monthly MI is permanent if the down payment is less than 10%.  Note that Congress is now considering a bill to automatically cancel FHA MI similar to how conventional loans cancel the insurance.  More to come on this story.

In the next post, we will review conventional loan details.  For now, if you know someone looking to buy a Georgia home, please refer them to me.  We Dunwoody Mortgage professionals understand the key loan program details and we coach our buyers to make the best decision given their circumstances.  We can help our clients find ways to lower interest and mortgage insurance costs.  We have a strong record full of very positive customer reviews.


The mysterious case of home ownership

July 9, 2019

Home buyers continue to make assumptions (most of which are bad) when it comes to buying a home. Meaning, the options for education for buying a home are not as good as they should be.

That is why you have The Mortgage Blog!

This misinformation is undoubtedly holding some back from even looking to try and purchase a home. Let’s take a look at a recent survey by Fannie Mae to see some of the false assumptions buyers have about purchasing a home:

  • most buyers assume the minimum credit score is higher than what is actually required to qualify
  • most buyers assume the down payment is higher than what is actually required as a minimum down payment
  • few home buyers are aware of low down payment programs such as Fannie Mae Home Ready requiring only 3% down

Under these assumptions, many potential buyers assume home ownership isn’t even an option and therefor do not do any further investigating into possibilities of buying a home.

The Mortgage Blog has covered all of these topics and more:

The Mortgage Blog has your back! Reading over these, one will learn a large down payment is not needed to buy a home (as little as 3% down on a conventional loan and 3.5% on an FHA loan), perfect credit is not required (down to 620 on FHA and conventional and sometimes as low as 580 on FHA), and there are programs out there for first time home buyers.

Been wanting to own a home but confused at all of the misinformation out there? Just want a straight answer or two? Contact me! I will be happy to answer your questions about home ownership. If you are looking to buy in the state of Georgia, I can get you prequalified and on your way to owning a home!

Changes coming to Home Ready

July 2, 2019

Fannie Mae has a great loan product called Home Ready. Potential home buyers can qualify even if not a first time home buyer. The blog covered the details of Home Ready in the past. Check out those posts:

One aspect to pay attention to is the income limit. To qualify for Home Ready, a potential buyer’s income can’t exceed 100% of the area median income (AMI) for the area. There are also some areas with no income limits. These areas are determined from the census track (where household income and people are counted in geographic areas).

Here is a handy website where one can look up a property to see about qualifying income limits:

https://homeready-eligibility.fanniemae.com/homeready/

Starting July 20, 2019, Fannie Mae will implement changes to the program. Gone are the no income limit areas. Another change is the qualifying income reduces from 100% of the AMI to 80%. What does this mean:

  • some metro Atlanta areas have no income limits, so a buyer could have an income of $200,000 and still use Home Ready. After July 20th, that will no longer be the case.
  • If an AMI is $80,000, the qualifying income will be now $64,000 (80% of the AMI) instead of the $80,000.

It seems Home Ready is narrowing the pool of potential buyers who can use the program. If you are looking to use Home Ready, talk to your loan officer to see if these changes could impact your home search.

Looking to buy in the state of Georgia, if so, contact me today. We can get you ready to make an offer on a new home in minutes, and see if Home Ready is a program you could take advantage of with your home purchase.

Buying a Home Earlier Delivers Long Term Wealth Benefits

May 22, 2019


It is common knowledge that many Millennials are delaying “life milestones.”  A recent study by the Urban Institute shows this by documenting the increase in young adults living with their parents.  People often assume that adults living with parents can save more money, better positioning themselves for a home purchase.  But this study reports that although the intentions are positive, the actual economic results tend to be negative.  The study concludes that adults who lived with their parents between ages 25 and 34 were less likely to form independent households and buy homes 10 years later, as compared with young adults who did not live with their parents.  And this result can negatively impact their future wealth.

The study reported that the percent of young adults living with parents almost doubled between 2000 and 2017 – growing from 11.9% to 22%.  This means 5.6 million more young adults live with parents now.  Reasons for this increase include, but are not limited to (1) Student debt – since 2000, student loan debt has more than tripled.  This debt burden makes it harder for young adults to live independently.  (2) Income – adults with lower incomes are more likely to live with parents.  (3) Housing costs – real rents are at historic highs, making it harder for young adults to live independently.  (4) Below average credit – in 2016, the median credit score was 640 for Millennials and 662 for Gen Xers.

So how does this trend affect young adults over time?  Studies show that home ownership is one of the best tools for building wealth.  And UI reports here that the biggest housing investment returns go to adults who bought homes at younger ages.  The study concludes, “our results suggest that living with parents has negative long-term economic consequences.”

As mentioned in a previous blog post, perhaps many of these young adults believe the many untrue myths that stop people from pursuing home ownership.  The fact is, buying a home with a small down payment, below average credit, and other debt can be easier than many people imagine.

Do you have friends in Georgia whose adult children live with them?  Do you know a young co-worker living with his parents?  Perhaps they fear they cannot buy a home because of below average credit scores or limited available cash.  Since the study shows these young adults may wind up better off financially if they buy a home sooner, refer these people to me.  We at Dunwoody Mortgage will do everything we can to help them buy a home and start building their wealth now, positioning them for a better economic future.