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The Myth Behind Down Payments

As you set out on your homebuying journey, you likely have a plan in place, and you’re working on saving for your purchase. But do you know how much you actually need for your down payment?

If you think you have to put 20% down, you may have set your goal based on a common misconception. Freddie Mac says:

“The most damaging down payment myth—since it stops the homebuying process before it can start—is the belief that 20% is necessary.”

Unless specified by your loan type or lender, it’s typically not required to put 20% down. According to the Profile of Home Buyers and Sellers from the National Association of Realtors (NAR), the median down payment hasn’t been over 20% since 2005. It may sound surprising, but today, that number is only 13%. And it’s even lower for first-time homebuyers, whose median down payment is only 7% (see graph below):

How Much Do You Need for Your Down Payment? | Keeping Current Matters

What Does This Mean for You?

While a down payment of 20% or more does have benefits, the typical buyer is putting far less down. That’s good news for you because it means you could be closer to your homebuying dream than you realize.

If you’re interested in learning more about low down payment options, there are several places to go. There are programs for qualified buyers with down payments as low as 3.5%. There are also options like VA loans and USDA loans with no down payment requirements for qualified applicants.

To understand your options, you need to do your homework. If you’re interested in learning more about down payment assistance programs, information is available through sites like downpaymentresource.com. Be sure to also work with a real estate advisor from the start to learn what you may qualify for in the homebuying process.

Your Edge…

Remember: a 20% down payment isn’t always required. If you want to purchase a home this year, give us a call to start the conversation we can point you in the right direction to explore your down payment options.

Keeping Current Matters | January 3, 2022

Appraisals and Inspections: What you need to know

Buyers in today’s market often have questions about the importance of getting a home appraisal and an inspection. That’s because high buyer demand and low housing supply are driving intense competition and leading some buyers to consider waiving those contingencies to stand out in the crowded market.

But is that the best move? Buying a home is one of the most important transactions in your lifetime, and it’s critical to keep your best interests in mind. Here’s a breakdown of what to expect from the appraisal and the inspection, and why each one can potentially save you a lot of time, money, and headaches down the road.

Home Appraisal

The home appraisal is a critical step for securing a mortgage on your home. As Home Light explains:

“. . . lenders typically require an appraisal to ensure that your loan-to-value ratio falls within their underwriting guidelines. Mortgages are secured loans where the lender uses your home as collateral in case you default on the agreed-upon payments.”

Put simply: when you apply for a mortgage, an unbiased appraisal – typically required by your lender – is the best way to verify the value of the home. That appraisal ensures the lender doesn’t loan you more than what the home is worth.

When buyers are competing like they are today, bidding wars and market conditions can push prices up. A buyer’s contract price may end up higher than the value of the home – this is known as an appraisal gap. In today’s market, it’s common for the seller to ask the buyer to make up the difference when an appraisal gap occurs. That means, as a buyer, you may need to be prepared to bring extra money to the table if you really want the home.

Home Inspection

Like the appraisal, the inspection is important because it gives an impartial evaluation of the home. While the appraisal determines the current value of the home, the inspection determines the current condition of the home. As the American Society of Home Inspectors puts it:

“Home inspections are the opportunity to discover major defects that were not apparent at a buyer’s showing. . . . Your home inspection is to help you make an informed decision about the house, including its condition.”

If there are any concerns during the inspection – an aging roof, a malfunctioning HVAC system, or any other questionable items – you have the option to discuss and negotiate any potential issues with the seller. Your real estate advisor can help you navigate this process and negotiate what, if any, repairs need to be made before the sale is finalized.

Keep in mind – home inspections are critical because they can shed light on challenges you may face as the new homeowner. Without an inspection, serious, sometimes costly issues could come as a surprise later on.

Your Edge

Both the appraisal and the inspection are important steps in the homebuying process. They protect your best interests as a buyer by providing unbiased information about the home’s value and condition. Work with your trusted real estate advisor so you have an expert guiding you throughout the entire process.

What is an Appraisal Waivers ??

It’s economy 101 – when supply is low and demand is high, prices naturally rise. That’s what’s happening in today’s housing market. Home prices are appreciating at near-historic rates, and that’s creating some challenges when it comes to home appraisals.

In recent months, it’s become increasingly common for an appraisal to come in below the contract price on the house.

Why does an appraisal gap happen?

Basically, with the heightened buyer demand, purchasers are often willing to pay over asking to secure the home of their dreams. If you’ve ever toured a house you’ve fallen in love with, you understand. Once you start to picture yourself and your furniture in the rooms, you want to do everything you can to land the property, including putting in a high offer to try to beat out other would-be buyers.

When the appraiser comes in, they look at things a bit more objectively. Their job is to assess the inherent value of the home, so they’re going to study the facts. 

In simple terms, while homebuyers may be willing to pay more, appraisers are there to assess the market value of the home. Their goal is to make sure the lender isn’t loaning more money than the home is worth. It’s objective, rather than emotional.

What Buyers and Sellers Need To Know About the Appraisal Gap | Keeping Current Matters

In a highly competitive market like today’s, having a discrepancy between the two numbers isn’t unusual. Here’s a look at the increasing rate of appraisal gaps, according to data from  CoreLogic (see graph):

What does this mean for you?

Ultimately, knowledge is power. The best thing you can do is understand an appraisal gap may impact your transaction if you’re buying or selling. If you do encounter an appraisal below your contract price, know that in today’s sellers’ market, the most common approach is for the seller to ask the buyer to make up the difference in price. Buyers, be prepared to bring extra money to the table if you really want the home.

Above all else, lean on your real estate agent. Whether you’re a buyer or seller, your trusted advisor is your ally if you come up against an appraisal gap. We’ll help you understand your options and handle any additional negotiations that need to happen.

Your Edge

In today’s real estate market, it’s important to stay informed on the latest trends. Work with a real estate professional to help you navigate an appraisal gap to get the best possible outcome.

Keeping Current Matters

Most Important Features to Homebuyers

2021 has thus far presented a very interesting real estate market causing many people to ask themselves: “should I sell my home? ” Have you ever thought about selling while the market is hot? If so, I bet you wonder, What features are most important to homebuyers? What can you as a sellers do to your homes to make it more desirable to the most buyers?

If you are looking to take advantage of the 2021 real estate market, but aren’t quite sure which angle to take, here is a list of the 10 most likely amenities first-time homebuyers are going to prioritize:

1. UPDATED KITCHENS & BATHS

What do new homebuyers want? The answer is simple: updated kitchens and bathrooms. Millennials and first-time homebuyers have made their intentions known. Updated kitchens and baths are a must. According to a recent survey conducted by Metropolitan Regional Information Systems Inc., 81 percent of respondents recognized updated kitchens and bathrooms as the most important feature when considering whether or not to purchase a home.

If your budget warrants it, I highly recommend upgrading your kitchen and bathrooms. What’s more, you don’t need to break the bank to attract first-time homebuyers.

2. OPEN FLOOR PLANS

What are homebuyers looking for, if not for more living space? The whole idea of moving into a first home is to upgrade from the previous living arrangements, after all. Outside of modernized kitchens and baths, first-time homebuyers have expressed their desire for open floor plans. Not surprisingly, 59 percent of first-time homebuyers were expected to place a priority on less-confined homes, or those that facilitate functionality. Sellers should consider their current floor plan and determine whether or not it would be worth knocking down a wall or two before they put the property up for sale.

If at all possible, eliminate any walls that separate the kitchen from the living room. People of all generations, not only millennials, have come to favor the open kitchen concept, as it allows for a more conversational flow to the property.

3. LOW MAINTENANCE FEATURES

The cost of purchasing a new home is enough to keep a large amount of millennials from actively participating in the housing market. Even those that finally manage to take the leap must do so with cautious optimism, as prices are surpassing their pre-recession levels in more and more cities every month. For what it’s worth, first-time homebuyers are finding it difficult to come up with a down payment and monthly mortgage payment, let alone the funds to maintain the property they just bought. First-time homebuyers simply don’t have the expendable funds to worry about too many costs that follow the actual purchase itself.

Most first-time buyers cringe at the thought of spending more money after having recently made the largest purchase of their life, so it only makes sense that they will prefer a “move-in ready” home over one that requires a lot of maintenance. That said, sellers are advised to reduce the amount of post-purchase work as possible.

4. ENERGY EFFICIENCY

Not unlike limiting the amount of maintenance a property will require once it is purchased, energy efficiency has caught the attention of first-time homebuyers for the soul purpose of saving money. However, energy efficiency has the added benefit of compounding savings over time.

Sellers are advised to include as many energy efficient upgrades in their homes as they can if they want to attract the interest of first-time buyers.

According to Remodeling’s Cost Vs. Value report, the addition of fiberglass insulation in your attic can set you back about $1,268. What’s more, that same project coincides with an average resale value of $1,482, or a return of 116.9 percent on the initial cost of the project; it actually adds to the value of the house.

If you are looking to sell your home, don’t hesitate to highlight any energy efficient amenities you may have. First-time homebuyers are interested in anything that will save them money in the long-run, not excluding, low-flush toilets, attic insulation, double-paned windows and anything else that will reduce both their carbon footprint and energy consumption.

5. WIRELESS CONNECTIVITY

No other generation is more aware of what today’s technology is capable of than millennials. That said, it is safe to assume that their inherent dependency on technology will affect the way millennials buy homes. In fact, nearly a quarter of all first-time buyers (20%) are expected to place a priority on homes with strong cell phone service and Internet connectivity (smart home features).

Never before has the need for strong cell phone service and WiFi connectivity been more important to buyers, and those looking to sell in 2021 should take note. Be proactive and address any issues your property may have with connectivity. For less than $100 you can buy a signal booster and eliminate any concerns your future buyers may have.

6. LAUNDRY ROOMS

Often overlooked, but never unappreciated, laundry rooms have found themselves at the top of almost everyone’s priorities list. According to a Kiplinger article, in fact, 91.0% of buyers want laundry rooms in their new homes, and first-time buyers are no exception. Perhaps it has to do with need more space, or maybe its because they are tired of using shared, communal laundry rooms at their previous apartment complexes, but first-time buyers have expressed the need to have a laundry room.

As a result, today’s sellers would be wise to give it to them. With an investment ranging anywhere from $1,000 to $10,000, sellers can install a small-scale laundry room that will attract more buyers. The added attention will surely drive up competition, and perhaps even offer prices.

7. PATIOS

With many first-time buyers moving up to a home, a top priority will be more space. More often than not, new buyers are coming from cramped living spaces, and moving up is more of a need form ore space than anything else. That said, it shouldn’t surprise sellers to learn that patios are wanted by about 87.0% of today’s buyers. Since most first-time buyers are used to using a balcony, a patio makes a lot of sense; it’s a relatively simple upgrade that can make a world of difference.

Once again, most first-time homebuyers are looking to replace their current living situation with more spacious accommodations. Sometimes the whole reason someone wants to buy a home is for more space, which would explain why about 85.0% of today’s buyers demand garage storage space.

As any homeowner will tell you, it’s easy to accumulate too much stuff. Homeowners have a knack for abundance, and garage storage space is a must. More specifically, however, is the value of efficiency. Garage storage space allows homeowners to buy the things they need/want without taking up too much space in the living area. On top of that, garage storage is usually more accessible than an attic or shed, which allows homeowners to store things over the course of a year without forgetting where they put them.

9. EXTERIOR LIGHTING

Exterior lighting is a great way to add both curb appeal and functional lighting. On the one hand, a properly lit home is much more attractive and welcoming to anyone passing by or stopping in for a visit. On the other hand, exterior lighting is almost necessary for anyone looking to host outdoor activities. Additionally, and perhaps most importantly, exterior lighting is an added safety feature. A few minor installments can make a home safer for its occupants. Whether it’s barbecuing or hosting a game night, exterior lighting can make all the difference, and homebuyers are starting to take notice. For a relatively low cost of entry, exterior lighting can be installed for as little as $50.00 a fixture. Of course, the cost can increase with more luxurious fixtures, but the point remains the same: the project can be done for an affordable price.

WALK-IN PANTRY

What features are most important to homebuyers? I can’t stress this enough: more space. And, as it turns out, walk-in pantries are a great way to add more space to a home. The cost of a walk-in pantry will vary from the inexpensive to the exorbitantly expensive; the price will be dictated by the style of home. For example, luxury homes will require nicer pantries to suit the new owners’ needs. Luxury walk-in pantries can run owners upwards of tens of thousands of dollars. However, mid-range homes can get away with something more affordable. Consequently, about 83.0% of today’s buyers will want to see a walk-in pantry, which makes the investment worthwhile. Typically around five square feet, walk-in pantries are what first-time homebuyers are looking for in a new place; again, they want more space than the place they are moving from.

Your Edge…

The rest of 2021 will certainly draw the interest of first-time homebuyers on a massive scale, which leaves sellers having to answer one important question: What features are most important to homebuyers? What do new homebuyers want, and what can today’s sellers do to accommodate the needs of their customers. Outside of offering a listing in a relatively competitive market, sellers should take note of the amenities listed above. Not only will today’s best new home features help sellers find buyers, but they should simultaneously award their owners with higher returns. If for nothing else, buyers in today’s market appear ready and willing to pay up for the features they want; it’s up to the sellers to make sure they deliver.

Favorite Room in the House?

The family room has long been the favorite room in the house—it’s where homeowners get to spend quality time with other family members. However, as the significant increase in time spent at home during the pandemic has changed preferences, homeowners now favor quieter and more private areas in the home.

In a survey of more than 2,000 Americans, the new favorite room in the home: the master bedroom. In the survey, conducted by Ally Home, some respondents said it’s their new favorite spot because it’s where “they can hide from family members.”

Here are the five favorite rooms in the house, according to the Ally Home survey:

  1. Master bedroom: 27%
  2. Family room: 14%
  3. Kitchen: 10%
  4. Master bath: 9%
  5. Man or woman cave: 7%

Spending so much time at home over the last year has also sparked a wave of house projects among many homeowners. Eighty-eight percent of the 2,000 homeowners surveyed say they’re considering improvements to their homes to make it more “staycation-ready.” The most popular projects center on the outdoors:

  • 38% are considering installing an in-ground or above-ground pool or spa.
  • 35% are considering building an outdoor athletic court.
  • 29% are considering improvements to their porch, deck or patio.

Your Edge

Wondering whether making improvements to your current house is the right things to do? Call an agent who is familiar with your area. They’ll be able to help you determine the best course of action.

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