With the interest rate in the news, I wanted to provide some perspective on what that might mean if you are considering buying a home. The Fed declined to raise the rate, but is projected to make a slight bump in December. While rates probably wont skyrocket soon, any increase does affect your buying power when it comes to house shopping. We would never advise you to buy a house based on fear or market pressure. The decision to buy should be made considering many factors, including your lifestyle, desires, and general readiness, in addition to financial considerations. To look at the financial picture, a rent versus buy calculator, like my favorite from the New York Times, can help you get a better sense of whether or not it makes sense for you.
If you are already considering buying a home, the projected bump in interest rates, and the estimated additional 5.4% increase in housing prices over the next year, may be reasons to consider looking in earnest now, versus waiting until next spring or summer. As an example, below is a snapshot at the average housing price for a first time home buyer in our area. If you are looking at homes priced higher, the difference will be even more pronounced.
The City of Falls Church offers closing cost and down payment assistance of up to 20% of the purchase price of a house (less than $450,000) for first time homebuyers. The assistance is a second interest-free loan, with repayment due at the sale or refinance of the home, or if the buyer rents the home out (it is no longer the buyer’s primary residence). One caveat: the City wants an interest in any appreciation in the property for the use of the money. If they loan you 20% of the purchase price of the home and it appreciates, when you sell the home, they want 20% of the new sale price.
Requirements to qualify:
Ask us for more information about how this program stacks up to others on offer in the area, or a recommendation on getting started in your search or working with a lender.
If you have 1% cash and can otherwise qualify for a FHA loan, you may be able to get a second loan for the amount of your down payment from VHDA Plus Loans program. The income and sales price limit on this VHDA funded, FHA insured second mortgage are slightly more generous than some other first time homebuyer programs. You can qualify if your household of 2 makes less than $122k a year and you are looking to buy a place that is under $500k. There are other qualifications, including having good credits (above 620) and taking a buyer education course, but this program can help bridge the cash gap to get your into your new home. Let us recommend a great lender who can help get you pre-qualified.
Here are just a few of the national real estate numbers we are tracking for you now. For more info contact us.
Fairfax County has a program that offers first time home buyers affordable townhomes, and condominiums – both new and resale. This program is a part of the Affordable Dwelling Unit Program (ADU) and is offered directly through area builders or current owners at a drastically reduced market rate ranging from $70,000-$160,000. The communities are located throughout the county and offer many of the same amenities as you would find in your standard local neighborhood. For details on income restrictions, eligibility, and how to apply; contact us today.
Many clients are frequently baffled about where to begin the financing process and what they should be looking for in a mortgage. With so many changes over the years, it’s hard to keep up! We decided to simply and effectively lay out the most common loans and their general guidelines over the coming weeks as part of a series “Let’s Talk Loans”.
Conforming Conventional Loans
What is it? “Conforming” loans are the most common loans in the marketplace, and meet the required standards of both Fannie Mae and Freddie Mac (that is, they “conform” to Fannie and Freddie rules), both of which purchase loans from lenders and then package them up to sell on the secondary market. This allows lenders to receive cash up front for you loan, so they can lend to someone else. Conforming loans can be fixed rate or adjustable rate, and can be 15 year or 30 year.
Why is that important? Investors buy these packaged loans from Fannie and Freddie. Fannie and Freddie charge a guarantee fee, which is approximately 0.5% more than your interest rate. Some banks, however, keep these loans in their own portfolio rather than sell them, depending on the market and their own investment objectives.
What are the guidelines? Typically, you need at least a 5% down payment, and good credit. The conforming loan limit is generally 417,000; however, in more expensive markets of the country, including the DC Metro area, high-value conforming loans up to $625,500 can be found. But be prepared to have a 10%-20% down payment for these larger loans. And without 20% down, you can expect to pay private mortgage insurance, as well.
Next Up: Let’s Talk Loans: FHA
To find out more, or to speak with a home loan expert, contact us!
Save your cash. You’re going to need it for your down payment and closing costs. Save at least 3% of the purchase price to put toward closing costs, even if you’re asking the sellers to chip in. The lower the price of the home, the higher the percentage you should save. For your down payment, you’ll need at least 3.5% for an FHA loan, and for a conventional loan, you’ll want at least 10% down. If you can put 20% or more down, that’s even better and will go a long way toward getting you the best rates and terms from your lender. To help you save, consider setting up a separate “home” savings account into which you make regular deposits with each paycheck and from which you make no withdraws. Ever.
Do your research. Part of preparing to buy a home is research, research, research. By the time you’re ready to get in the car and start looking at homes, you should have logged hours of internet research. From financing to home prices and from neighborhoods to local real estate agents, you’ll need to learn about all of it. By being informed, the process will be more manageable and won’t seem so intimidating.
Check your credit. Go to AnnualCreditReport.com to get your free credit report from all three credit bureaus. You can’t get a free score from the site, but you can at least check the information that’s in their files and ensure it’s correct. If there are errors, get them fixed BEFORE you apply for a mortgage as it can sometimes take a while to get things straightened out. Also, now is NOT the time to open new accounts, close old ones, or to make any large purchases (cars, boats, furniture, etc).
Check your budget. Now IS the time to crunch numbers and see where you stand financially. It’s important to know how much money you have coming in and going out each month. This will help you set a target for your mortgage payment so you don’t overextend yourself financially.
Talk to a Realtor and a lender. If you don’t know any real estate agents, you can start by asking friends, relatives, and colleagues for recommendations. You can also search online. A couple of sites provide reviews of agents in your area. Start by looking at Zillow and Yelp. Trulia is also helpful. Talk to several agents and set up a meeting. You want to be compatible with the agent you choose. After all, you’ll be spending a lot of time together while you’re looking for a home. To get a feel for how we can help you buy your new home, come to our first-time home buyer’s class, being held Tuesday, January 29th at 7pm. We’ll walk you through the home-buying process and give you an overview of current market conditions. This no-obligation class is FREE, and you can register here.
Once you choose an agent, they can provide recommendations for a lender. Talk to several lenders and shop for the best rates and loan terms.
Preparing to buy a home is a lot of work. Contact us to help you get started!
Watch the video below to find out why it’s important to be pre-approved for a loan! If you’d like more information, please contact us.