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  • You’ve most likely heard the rule: Save for a 20-percent down payment before you buy a

     home. The logic behind saving 20 percent is solid, as it shows that you have the financial

     discipline and stability to save for a long-term goal. It also helps you get favorable rates

     from lenders.

     

    But there can actually be financial benefits to putting down a small down payment—as low

     as three percent—rather than parting with so much cash up front, even if you have the

     money available.

     

    THE DOWNSIDE

     

    The downsides of a small down payment are pretty well known. You’ll have to pay Private

     Mortgage Insurance for years, and the lower your down payment, the more you’ll pay.

     You’ll also be offered a lesser loan amount than borrowers who have a 20-percent down

     payment, which will eliminate some homes from your search.

     

    THE UPSIDE

     

    The national average for home appreciation is about five percent. The appreciation is

     independent from your home payment, so whether you put down 20 percent or three

     percent, the increase in equity is the same. If you’re looking at your home as an investment,

     putting down a smaller amount can lead to a higher return on investment, while also leaving

     more of your savings free for home repairs, upgrades, or other investment opportunities.

     

    THE HAPPY MEDIUM

     

    Of course, your home payment options aren’t binary. Most borrowers can find some

     common ground between the security of a traditional 20 percent and an investment-

    focused, small down payment. Your trusted real estate professional can provide some

     

     answers as you explore your financing options.

  • Measuring Your Ability to Achieve the American Dream

    Measuring Your Ability to Achieve the American Dream | Keeping Current Matters Forbes.com recently released the results of their new American Dream Index, in which they measure “the prosperity of the middle class, and…examine which states best support the American Dream.” The monthly index measures several different economic factors, including goods-producing employment, personal and commercial bankruptcies, building permits, startup activity, unemployment insurance claims, labor force participation, and layoffs. The national index score was rounded out to 100 in January and saw a modest jump to 100.5 in February. Alaska represented the lowest score on the index at 80.7, due mostly to the recent collapse in oil prices. Nevada came in with the highest score at 108.8, boosted by big gains in goods-producing jobs and new construction activity. The full results can be seen in the map below. Measuring Your Ability to Achieve the American Dream | Keeping Current Matters Forbes Senior Editor Kurt Badenhausen explained why many states saw a boost in the index last month:
    “[B]usinesses are hiring in part in anticipation of tax cuts and less regulation... Many areas of the country have experienced strong upticks in employment and construction, as well as declines in unemployment claims since the start of the year.”

    Bottom Line

    The American Dream, for many, includes being able to own a home of his or her own. With the economy improving in many areas of the country, that dream can finally become a reality

  • You Can Never Have TMI about PMI | Simplifying The Market

    You Can Never Have TMI about PMI

    When it comes to buying a home, whether it is your first time or your fifth, it is always important to know all the facts. With the large number of mortgage programs available that allow buyers to purchase a home with a down payment below 20%, you can never have Too Much Information (TMI)about Private Mortgage Insurance (PMI).

    What is Private Mortgage Insurance (PMI)?

    Freddie Mac defines PMI as:

    “An insurance policy that protects the lender if you are unable to pay your mortgage. It's a monthly fee, rolled into your mortgage payment, that is required for all conforming, conventional loans that have down payments less than 20%.

    Once you've built equity of 20% in your home, you can cancel your PMI and remove that expense from your mortgage payment.”

    As the borrower, you pay the monthly premiums for the insurance policy, and the lender is the beneficiary. Freddie Mac goes on to explain that:

    “The cost of PMI varies based on your loan-to-value ratio – the amount you owe on your mortgage compared to its value – and credit score, but you can expect to pay between $30 and $70 per month for every $100,000 borrowed.” 

    According to the National Association of Realtors, the average down payment for all buyers last year was 10%. For first-time buyers, that number dropped to 6%, while repeat buyers put down 14% (no doubt aided by the sale of their home). This just goes to show that for a large number of buyers last year, PMI did not stop them from buying their dream homes.

    Here’s an example of the cost of a mortgage on a $200,000 home with a 5% down payment & PMI, compared to a 20% down payment without PMI:

    You Can Never Have TMI about PMI | Simplifying The Market

    The larger the down payment you can make, the lower your monthly housing cost will be, but Freddie Mac urges you to remember:

    “It's no doubt an added cost, but it's enabling you to buy now and begin building equity versus waiting 5 to 10 years to build enough savings for a 20% down payment.”

    Bottom Line

    If you have questions about whether you should buy now or wait until you’ve saved a larger down payment, let’s get together to discuss our market’s conditions and to help you make the best decision for you and your family.

  • The Truth About Housing Affordability | Simplifying The Market

    The Truth About Housing Affordability

    From a purely economic perspective, this is one of the best times in American history to buy a home. Black Night Financial Services discusses this in their most recent Monthly Mortgage Monitor.

    Here are two of the report’s revelations:

    1. The average U.S. home value increased by $13,500 from last year, but low interest rates have kept the monthly principal & interest payment needed to purchase a median-priced home almost equal to one year ago.
    2. Home affordability still remains favorable compared to long-term historic norms.

    The report explains:

    “Even though the value of the average home in the U.S. increased by about $13,500 over the last year, thanks to declining interest rates it actually costs almost exactly the same in principal and interest each month to purchase as it did this time last year.

    Even taking into account the fact that affordability can vary – sometimes significantly – across the country based upon the different rates of home price appreciation we’re seeing, that’s a pretty incredible balancing act between interest rates and home prices at the national level…

    Right now, it takes 20 percent of the median monthly income to cover monthly payments on the median-priced home, which is well below historical norms.”

    However, the report warns that affordability will be dramatically impacted by an increase in mortgage rates.

    “A half-point increase in interest rates would be equivalent to a $17,000 jump in the average home price, and bring that ratio to 21.5 percent. This increase is still below historical norms, but puts more pressure on homebuyers.”

    Bottom Line

    If you are ready and willing to purchase a home of your own, let's get together to find out if you are able to. Now is a great time to jump in.

  • How Long Do Families Stay in a Home? | Simplifying The Market

    How Long Do Families Stay in a Home?

    The National Association of Realtors (NAR) keeps historic data on many aspects of homeownership. One of the data points that has changed dramatically is the median tenure of a family in a home. As the graph below shows, for over twenty years (1985-2008), the median tenure averaged exactly six years. However, since 2008, that average is almost nine years – an increase of almost 50%.

    How Long Do Families Stay in a Home? | Simplifying The Market

    Why the dramatic increase?

    The reasons for this change are plentiful. The top two reasons are:

    1. The fall in home prices during the housing crisis left many homeowners in a negative equity situation (where their home was worth less than the mortgage on the property).
    2. The uncertainty of the economy made some homeowners much more fiscally conservative about making a move.

    However, with home prices rising dramatically over the last several years, over 90% of homes with a mortgage are now in a positive equity situation with 70% of them having at least 20% equity.

    And, with the economy coming back and wages starting to increase, many homeowners are in a much better financial situation than they were just a few short years ago.

    What does this mean for housing?

    Many believe that a large portion of homeowners are not in a house that is best for their current family circumstances. They could be baby boomers living in an empty, four-bedroom colonial, or a millennial couple planning to start a family that currently lives in a one-bedroom condo.

    These homeowners are ready to make a move. Since the lack of housing inventory is a major challenge in the current housing market, this could be great news.

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