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Housing Market 2020: February Update

Low mortgage rates and even lower inventory are fueling a competitive start to 2020. Daryl Fairweather offers advice for buyers in this seller’s market.

Read the Transcript:

Hi guys, Katy from Redfin here and I’m standing here with our chief economist Daryl Fairweather. Thanks for being here, thank you for having me.

We are going to talk about the housing market predictions what happened in January and why it looks like it’s going to be such a hot market for buyers this year. 

So Daryl, what happened in January and what’s the housing market doing right now?

Buyers came back in January thanks to low mortgage interest rates. Mortgage interest rates are nearly a percentage point lower right now and they were this time last year which means if you’re a buyer, you can afford more house it’s really attractive to get out there make an offer and lock in a home. We’re seeing a lot of buyers coming out and doing just that.

So is it more than we expected at the end of last year? Is January bigger than we even thought it would be?

We’re hearing from our agents that January is like the new spring. Plenty of buyers are out there more than they would have expected for this time of year and so yeah, it’s been really busy very early in the year.

With this accelerated January being so hot, is that an indication that spring is going to be even hotter? Will it cool down in the spring at all or we’re on the on-ramp and we’re going?

I think that a lot of buyers are trying to get a jump on the spring market but there will still be more buyers who are going to wait until it’s the right time for them personally. We know when their kids are about to be out of school in the summer that’s usually when we see the most activity and I expect that to also be true this year. 

So it’s just heating up quick and going to stay hot? (that’s right) I wish that’s what our summer was going to be like.

So let’s talk about what’s out there for buyers. Lots of buyers, are there a lot of homes on the market?

Because there are buyers who are snatching up homes there are actually fewer homes for sale right now that we’ve seen in two decades at least. But we do expect there to be more new listings coming on the market because builders are taking advantage of low interest rates too and are trying to build to meet the demand.  But the last 10 years there hasn’t been enough new construction to meet demand. That’s true this year, it’s going to continue to be a problem. So there just aren’t enough homes out there for everyone who wants them. If you know you want a home it’s good to be aggressive and take charge.

Speaking to that, what can buyers do to really prepare to make sure they’re aggressive and make sure they’re able to take charge? 

Buyers should set a budget, talk to their lender, get pre-approved. Figure out exactly how high they can go. If they do get into a bidding war and they have to escalate the price also figure out where the nice-to-haves and where the must-haves so that they can figure out which homes actually fit into their budget most perfectly and really give them everything that they want. Even though there aren’t as many options right now there are still homes out there and it’s good to just know going right in how much you’re willing to pay and what it is that you really want.

Awesome so it sounds like yes, it’s a competitive market but it’s competitive because there’s an advantage for buyers being those lower interest rates than we’ve seen in a really really long time. 

Yeah, if you know what you’re doing if you have an agent advising you, you’ll be successful so just hang in there and know the market’s faster but you still have a good chance of getting a home. Got it, so having all your ducks in a row, making sure you’re pre-approved, and having an agent probably who can help you navigate those competitive situations and offer advice on contingencies and escalation clauses and all the intricacies of writing a competitive offer in this market. That’s right. Awesome. 

My last question is what advice do you have for somebody who needs to sell and then buy right away?

There are some options available if you have RedfinNow available for example you can get a cash offer on the home that you own and have some flexibility as to when you move out which makes moving into the next home really convenient you have the cash to do it. If RedfinNow isn’t available there are other options. You can get a bridge loan for example you might want to sell your home and then rent a home in between so that you have some flexibility as to when exactly you can move out. There are options out there but it is a difficult thing to time the sale with buying a new home. 

So it sounds like it’s going to be a crazy housing market this season and 2020 is going to be full of surprises. A competitive market, an exciting market for sellers. We will keep you informed here at Redfin, thank you so much for hanging out with me today and explaining what buyers can do to get ahead of the game and we will talk to you soon.

Sounds great. Alright, thanks guys!

Source: Redfin Blog

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The Ultimate Step-by-Step Guide to Buying a House

Buying a house for the first-time or even second time can be extremely exciting, but it can also be one of the most complex purchases of your life. Not knowing what to do when and how to start can make it even more daunting. To simplify things, we’ve broken down the timeline and created a step-by-step guide to help you navigate all the twists and turns along the way.

Timeline for buying a house

6 Months Out

Assess your situation and get your financials in order. Before jumping into your home search, you must determine how much you can afford. You may have saved enough for your down payment, but don’t forget to account for closing costs, taxes, insurance, and any other unforeseen expenses that may arise when buying a house. This is also the time to make sure you’ve paid down your credit cards and that your credit score is in good condition, ensure you’ve filed your taxes, and that you have a paper trail for all recent major financial transactions.

Get pre-approved and find a mortgage lender. It’s important to apply for a mortgage pre-approval before you begin house hunting in earnest. Not only will this help keep you realistic about your options, but it also shows sellers that you’re a qualified and serious buyer. Don’t be tempted to just go with your current bank. It’s best to shop around to find the best rate and determine which mortgage and lender are right for you. Pre-approval letters do have an expiration date, so be aware of when yours is. It’s okay if you have to apply again later on.  

3 Months Out

Find a buyer’s agent. A buyer’s agent is a licensed real estate agent who will represent you throughout your buying journey. A good buyer’s agent will be an expert on the home buying process, know your area inside and out, be familiar with local listing agents, and be a skilled negotiator.

Begin searching for homes. Ask the questions that will help set parameters for your home search. Are you looking to move to a new city such as Sacramento or Portland? Are you set on buying a house in a particular school district or neighborhood? How many bedrooms do you need? Do you want a single-family home or are you open to a townhouse, or maybe even a condo?

Attend open houses and go on tours. When you’re touring multiple homes, it’s easy to confuse different features or concerns so take notes as you’re touring. Don’t forget to pick your agent’s brain and ask for their input.

2 Months Out

Submit, or resubmit your pre-approval application. If you didn’t get a pre-approval letter, now is the time. Most letters last for 60 to 90 days. If your search extends beyond that, reapply. 

Make an offer. You’ve found the home you want to call yours. Submit your offer as soon after touring the house as possible. Speed is of the essence in a competitive housing market with limited inventory. Talk with your agent about the terms of your deal and the competition you face to determine an offer price. You and your agent will work together to write and submit the offer letter to the seller’s agent.

Negotiate Home Price. Counter-offers are common and should even be expected when buying a house. Common counter-offers can include proposed changes to the price, closing date, or purchase contract contingencies. You may go back and forth with the seller a few times before you come to terms you both agree on. 

Enter the closing process. Once you and the seller agree on the terms, you’ll enter the closing process, which usually takes 30 to 45 days. You’ll likely be in very close communication with your agent, lender, and escrow agency during this time. 

1 Month Out 

Deposit earnest money. Once the seller has accepted the offer, the earnest money will be deposited into an escrow account or held by the listing agent. Once the sale of the home has been completed, the earnest money you paid will be applied toward your closing costs.

Order your title. You’ll receive a preliminary title report from an escrow agent or attorney within a week after you reach mutual acceptance on an offer. Once the transaction closes, you will receive a final title policy.

Line up a home inspection. This step is critical as it allows you as the homebuyer to discover any material defects or necessary repairs before buying the house. Pay special attention to the results of the inspection because many states hold a buyer responsible for understanding and investigating issues raised during inspections. Also, if there is an inspection contingency, you can negotiate with sellers to cover the costs of certain repairs, ask for concessions, or back out of the sale.

Finalize the home sale. Now that you’ve completed all negotiations, it’s time to finalize and sign the purchase agreement with the seller.

Complete the mortgage application and book an appraisal. While you have been pre-approved, you still need to meet with your lender and finalize your mortgage application. The lender will also request an appraisal at this time.

1-2 Weeks Out 

Receive Loan Approval. A licensed appraiser will determine the home’s market value based on comparable recent sales of homes in the neighborhood. After the appraisal has been completed, it will typically take around two weeks for the lender to get all the paperwork and approval completed. 

Final walk-through. This is when you can verify that the condition of the house hasn’t changed and that all updates and repairs have been made. The final walk-through usually takes place 24 hours before the scheduled closing day. 

Closing Day

Pay closing costs and sign all paperwork. Come to closing day prepared with your government-issued ID and any requested documents. Bring a cashier’s check for your down payment and be prepared to pay any closing costs. Now all that’s left to do is close escrow and sign the required paperwork. 

Get your keys. Congratulations on your new home! Depending on if your house is turnkey ready or not, there might be some maintenance and remodeling you want to complete before moving in. You’ll also want to think about hiring movers, buying new furniture and appliances, setting up your utilities, etc. You’ll pay for these after the house is yours but may want to factor them into your budget or create a separate post-move budget.

Source: Redfin Blog

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5 Tips for Buying a House with Student Loans

The thought of buying a house with student loans can be daunting, but that doesn’t mean it’s impossible. With a proper strategy in place, and the willingness to do whatever it takes to save for a home, you could be well on your way to pursuing the purchase of your first home.  students graduating with student loans

Do Student Loans Affect Buying a Home? 

Sadly yes, student loan debt can possibly affect your journey to homeownership. Saving up for a down payment can be challenging while keeping up with your student loan payments, not to mention budgeting for future monthly mortgage payments. Other potential challenges include your debt-to-income ratio and your credit score. Rest assured, there are solutions. If you are looking to buy a home but still have student loan debt follow these useful tips.

1) Improve Your Credit Score 

Your credit score is one of the most frequently used scores to determine whether you should be given a loan. Loan companies will use your credit score to evaluate how risky you are with your borrowing. The higher your credit score the more likely you will be accepted for a loan. You have the ability to view your credit report once a year. This allows you to check for any errors that could be decreasing it. If you have a low credit score there are a few things you can do to build it back up.

Regularly making your student loan and credit card payments on time is a great place to start. On-time payments signal to financial lenders that you are a responsible borrower. Providing evidence that you are accountable with your money. Making the borrowing process much more simple and allowing you to obtain loans more easily. 

Additionally, you should attempt to completely pay off any credit card debt you currently have. If that is not possible then start by keeping your credit card balances low. Professionals advise you to only spend around thirty percent of your credit limit each month. Doing this will keep your credit score intact and will eventually lead to an increase in your credit score. Another recommendation is to keep any unused credit lines open. Even if you haven’t used them or have them already paid off, closing them could result in an increase to your credit utilization ratio. If you practice these strategies and avoid opening new credit cards you will see your credit increase in no time. 

2) Manage your Debt to Income Ratio

Your debt to income ratio, also known as your DTI is considered to be all of your monthly debt payments divided by your gross monthly income. Financial lenders use this number to determine how well you can manage monthly payments, and if you can afford to repay the money you want to borrow. The DTI ratio is one of the most important numbers lenders look at, and it’s important to try to lower your number before applying for a loan.  You will want to keep your DTI ratio below 43% to be accepted for a mortgage loan

a calculator for calculating student loans

Your DTI has two components: debt and income. So there are two things you can do to reduce your DTI—pay down your debt or increase your income or both. Pay a little more on your loan payments each month and try to pay off any credit card debt you may have. Any reduction in the amount of debt you have will be greatly beneficial. If you have the ability to ask for a raise at your current job, do it. If not, you can try to increase your income by picking up a second job, a side hustle, or asking to work some overtime. Increasing your salary and reducing your debt will not only prove beneficial for buying a house but also with other aspects of your life like refinancing your student loan.

Sometimes paying off debt can be too difficult to manage, that’s why there are two payoff plans that can help you manage your debt. The debt avalanche and debt snowball methods. Both of these methods require you to list out all lines of debt and make payments towards all but one debt. The debt avalanche method lets you use any remaining money left over from other debt payments to put towards your debt that has the highest interest rate. This method will allow you to save the most money on interest.

The debt snowball method allows you to pay off your smallest debts first before tackling your larger ones. Helping you build motivation for repaying all your debt. Teaming up with a financial professional to map out your finances is recommended. They can assist you in creating a plan for budgeting, repaying debt and planning future purchases. Which may be beneficial before buying a house with student loans.  

3) Refinance Your Student Loans 

When mortgage lenders are assessing your debt to income ratio they will look at the amount of student loan debt you have, your interest rate, and the time it will take you to pay them off. A great way to show lenders you are on track to pay off your student loans faster is through refinancing. If you have high student loan debt, refinancing would be a useful step to take. Generally, the sooner you can refinance your student loans, the better. 

When you refinance your student loans your new lender will pay off your original loans and replace them with a new one at a lower interest rate. Having this lower interest rate will save you money immediately as well as in the long run. It will also prove helpful in saving money for a downpayment on a home. Although this sounds like an obvious step to take, not everyone has the ability to refinance. In order to be approved you typically have to have a good credit score, and an acceptable DTI. Clearly, you can see why a high credit score and low DTI are very important. If you qualify for refinancing, it is highly advised to take advantage of it as quickly as possible.saving for a mortgage

4) Apply for pre-approval on a mortgage 

One of the smartest things you can do to ensure you have the best chance of buying the home you want is applying for pre-approval on a mortgage. Often times, homebuyers make an offer on a home and then apply for a mortgage. Doing it the other way around is actually much wiser. Pre-approval will tell you how much of a loan you qualify for, and what your monthly payment might be. It also gives you an idea of what you can afford in your area, or where the best place to live on your budget might be.

Having access to this information can help you determine if you can afford to buy a home in New York, or somewhere like Dallas. To get a better idea of what you qualify for, mortgage lenders will look at your employment history, your DTI, credit history, and assets. It is imperative that those numbers are in good shape before you apply for a mortgage loan. Giving you the best chance of receiving a larger loan, with a lower interest rate. 

5) Consider Down Payment Assistance Programs 

Many people struggle with the cash down payment that they must make in order to buy a home. This is especially prevalent if you have a significant amount of student loans to pay back. If you find yourself in this situation, there are various types of payment assistance programs. Including federal loan programs, and first-time homebuyer programs. These programs can help ease the burden of down payments, interest rates, and closing costs. With a little research, you can find the perfect one for you and begin the hunt for your first home. 

Buying a house with student loan debt can be a stressful time, fortunately, there are options to help put your mind and financial situation at ease. By making a concerted effort to work on lowering your DTI, raising your credit score, taking advantage of refinancing your student loans, and teaming up with the right professionals can enhance your chances of getting the home you deserve. 

Source: Redfin Blog