Buyers Seek Bigger Mortgages As Home Prices Continue to Rise

Buyers Seek Bigger Mortgages As Home Prices Continue to Rise

Buyers Seek Bigger Mortgages as Home Prices Continue to Rise: Over the past year, there has been a significant increase in home prices forcing home buyers to borrow more to keep up. The average size of a loan purchase rose to $411,400 last week, according to Mortgage Bankers Association, the highest since February. The average loan for a new home surpassed $377,000 last month, a record high.

Home prices are climbing at their fastest pace in more than 15 years. And while low mortgage rates are helping to offset some of those higher prices  – mortgage rates are predicted to head up soon. The 30-year fixed-rate mortgage averaged 3% this week, up from 2.94% the week prior, according to Freddie Mac.

Rising house prices put pressure on loan sizes 

“We’ve seen very red-hot house-price appreciation across the country—double digits nationally,” says Len Kiefer, deputy chief economist at Freddie Mac. “That puts pressure on loan sizes because, to purchase a home at a higher price, you’re going to need to borrow more money.” 

The MBA’s head of forecasting, Joel Kan, said the increase is partly due to the kinds of homes people are buying. The pandemic has led many newly remote workers to seek bigger houses in the suburbs, with more outdoor space. “These homeowners, typically, are still gainfully employed, might be higher-income, etc.,” Kan said. “They might be able to afford a little bit more.”

However, to get these larger mortgages, borrowers will need stellar credit to qualify.  The median credit score for new mortgages was 788 in the first quarter of this year, up from 773 during the same period last year. 

Supply shortages are constraining purchase activity

Mortgage applications to purchase a home fell 4% last week compared with the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. Volume was just 2% higher than the same week one year ago when the housing market was just starting to come back after the pandemic shut it down. 

Joel Kan, an MBA economist stated that “A decline in purchase applications was seen for both conventional and government loans. “There continues to be strong demand for buying a home, but persistent supply shortages are constraining purchase activity, and building material shortages and higher costs are making it more difficult to increase supply.”

The majority of Americans believe now is a good time to buy a home

Despite a surge in home prices, a majority of Americans believe now is a good time to buy a home, according to a new survey from Gallup. Some 53% of Americans believe it is a good time to buy, Gallup reported, citing the results of a survey of nearly 1,000 U.S. adults conducted in April.

Last year, only 50% of people felt this way, marking a record low since Gallup began tracking Americans’ sentiment on the housing market in the 1970s. At the time, people were responding to the sudden slowdown in real-estate transactions as the economy shut down at the beginning of the COVID pandemic.

Demographic shifts and the pandemic-fueled move to remote working caused demand among home buyers to rise. As people rushed into the market and quickly bought up properties, the inventory of available homes for sale has dropped to a record low in recent months.

Americans believe home prices are going to increase over the next year

To an extent, this inventory supply gap is a reflection of years of under-building following the Great Recession. The Gallup survey also found that 71% of Americans believe home prices are going to increase over the next year in their local market.

Expectations of rising home prices were essentially the same across the U.S., regardless of whether the survey respondents lived in a major city, suburb, or rural area. 

Nevertheless, Americans continue to prefer homeownership to other long-term investments. Gallup found that 41% of people believe real estate is the best long-term investment, up from 35% last year.  

Partner with Highly-rated Farmington Hills MI REALTOR -Tom Gilliam

Whether you are interested in Farmington Hills MI homes for sale or it’s time to list your current property, experience matters most in a changing market. Serving Farmington Hills and the surrounding area for over 20 years, Tom is able to provide his clients with the kind of knowledge, skills, commitment, and personalized service they need and deserve.

Tom is down-to-earth and someone you can trust and feel good about working with. His clients appreciate his honesty and transparency and feel it helps them as they make important real estate decisions. Tom makes himself available to his clients whenever they have questions or concerns and promptly returns any texts, calls, or emails.

Farmington Hills MI Homes for Sale 

As your Farmington Hills MI real estate agent, Tom will protect your best interests, advocate for you, handle all the details of the transaction,  and do whatever is necessary to ensure the best results possible. Having a trusted professional like Tom by your side means there is one less thing to worry about. To find out more about buying or selling real estate in Farmington Hills MI, or homes in the surrounding Oakland County area, please give highly-rated Farmington Hills MI REALTORⓇ – Tom Gilliam a call directly at (248) 790-5594 or send him an email.

Tom Gilliam, REALTOR®
RE/MAX Classic
29630 Orchard Lake Rd.
Farmington Hills 48334
Direct: 248-790-5594
Office: 248-737-6800
Email: Tom @ Homes2MoveYou.com
License #314578 

 

Farmington Hills MI Real Estate

 

 

 

Buying A Home in Farmington Hills: 7 Things to Do Before Applying for a Mortgage

Buying A Home in Farmington Hills: 7 Things to Do Before Applying for a Mortgage

 

Buying A Home in Farmington Hills: 7 Things to Do Before Applying for a Mortgage

If you’re thinking about buying a home in Farmington Hills MI, applying for a mortgage is never simple, but it’s even trickier when you don’t know what to expect. If you are a first-time homebuyer, you can make the process easier by learning as much as you can ahead of time, before you’ve found your dream house.

Knowing what to expect allows you to plan ahead and improve your chances of getting a home loan with favorable terms. Here are 7 things to do before applying for a mortgage:

1). Review your credit report

Review your credit report to ensure there are no surprises long (several months) before you begin the mortgage process. Put simply, a low credit score will lead to a much higher mortgage rate, and even disqualification if it drives your monthly mortgage payment high enough.

When you submit a mortgage application, they’ll check your credit reports maintained by one or more of the three national credit bureaus (Experian, TransUnion, and Equifax), and the credit scores derived from those reports.

Lenders use credit information to help decide whether they’re willing to issue you a home loan and, if so, how much they’re willing to lend you and how much they’ll charge you in interest.

Farmington Hills MI Homes for Sale

Once a year, you can obtain a free credit report from all three credit reporting agencies at AnnualCreditReport.com. You’ll want to review each credit report carefully to make sure it accurately reflects your credit history and be ready to dispute anything on the report that isn’t accurate.  

2). Get familiar with basic mortgage terms

“Amortization,” “origination fee,” “earnest money” and other common terms used in mortgage lending might be phrases you’ve never even heard before. Since we are talking about your money and 10 to 30 years of your life, you’ll want to familiarize yourself with basic mortgage terms before speaking to lenders.

Everything you learn will position you to make the best choices for your finances and your future. Also, don’t be afraid to ask your lender or even your Farmington Hills REALTOR® lots of questions about the mortgage process, including mortgage terms you don’t understand.  

3). Know your budget

You don’t want to wind up with a mortgage you can’t pay – so it’s important to be realistic about your monthly income and expected expenses, and to leave some breathing room in your budget for emergencies or unexpected costs that might come up.

Most financial advisors agree that you should spend no more than 28% of your gross monthly income on housing expenses and no more than 36% on total debt. That includes housing as well as things like student loans, car expenses, and credit card payments.

The 28/36 percent rule is the tried-and-true home affordability rule that establishes a baseline for what you can afford to pay every month. To calculate how much 28% of your income is, simply multiply your monthly income by 28.

If your monthly income is $6,000, for example, the equation should look like this: 6,000 x 28 = 168,000. Now divide that total by 100. 168,000 ÷ 100 = 1,680.

Knowing what you can afford can help you take financially sound next steps. The last thing you want to do is jump into a 30-year home loan that’s unrealistic for your budget, even if you can find a willing lender.

If you want to qualify for a mortgage on your first try, it’s important to know how big of a loan you can reasonably afford. You can speak to a lender and go through a quick pre-qualification process to find out how much you can qualify to borrow and determine your budget for a home.

4). Improve your debt-to-income ratio

A high debt-to-income ratio (DTI) is the #1 reason why mortgage applications get rejected. Your DTI is all your monthly debt payments divided by your gross monthly income.

Most lenders typically offer loans to creditworthy borrowers with DTIs as high as 43-47%. That limit is based on policies by government-backed lenders like Fannie Mae, put in place to protect customers against predatory lending practices.

Simply put, the lower your DTI, the more financing options will be available to you.  If you have some flexibility on when you plan on buying, taking time to lower your DTI (and improve your credit score) can save you a lot of money over the life of your loan. 

A few DTI reduction strategies to consider:

  • If possible, pay off your car loan before applying for your mortgage.
  • If you plan on purchasing a car, considering waiting until after you’ve bought your home.
  • Start paying off your credit cards in full, one by one, but don’t close them out. 
  • If possible, refinance or consolidate current loans to reduce your monthly payments.
  • Consider adding a co-borrower with a low DTI and good credit history to your loan 

5). Consider various loan options

Not all home loans are the same. Knowing what kind of loan is most appropriate for your situation prepares you for talking to lenders and getting the best deal.

Understand how these choices affect your monthly payment, your overall costs both upfront and over time, and your level of risk. A loan “option” is always made up of three different things: loan term, interest rate type, and loan type.

Loan term 

Interest rates come in two basic types: fixed and adjustable. This choice affects whether your interest rate can change, whether your monthly principal and interest payment can change and its amount, and how much interest you will pay over the life of the loan.

With a fixed-rate loan, your interest rate and monthly principal and interest payment will stay the same. Adjustable-rate mortgages (ARMs) offer less predictability but may be cheaper in the short term. In the later years of an ARM, your interest rate changes based on the market, and your monthly principal and interest payment could go up a lot, even double.

Explore rates for different interest rate types and see for yourself how the initial interest rate on an ARM compares to the rate on a fixed-rate mortgage.

Interest rate type 

Interest rates come in two basic types: fixed and adjustable. This choice affects whether your interest rate can change, whether your monthly principal and interest payment can change and its amount, and how much interest you will pay over the life of the loan. 

With a fixed-rate loan, your interest rate and monthly principal and interest payment will stay the same. Adjustable-rate mortgages (ARMs) offer less predictability but may be cheaper in the short term. In the later years of an ARM, your interest rate changes based on the market, and your monthly principal and interest payment could go up a lot, even double. 

Explore rates for different interest rate types and see for yourself how the initial interest rate on an ARM compares to the rate on a fixed-rate mortgage.

Loan type 

 Mortgage loans are organized into categories based on the size of the loan and whether they are part of a government program (conventional, FHA, or special programs). This choice affects how much you will need for a down payment, the total cost of your loan, including interest and mortgage insurance, and how much you can borrow, and the house price range you can consider. 

Each loan type is designed for different situations. Sometimes, only one loan type will fit your situation. If multiple options fit your situation, try out scenarios and ask lenders to provide several quotes so you can see which type offers the best deal overall.

6). Shop around

You’ll want to compare all the costs involved in obtaining a mortgage. Shopping, comparing, and negotiating may save you thousands of dollars. Home loans are available from several types of lenders – commercial banks, mortgage companies, thrift institutions, and credit unions.

Different lenders may quote you different prices, so you’ll want to contact several lenders to make sure you’re getting the best price. You can also get a home loan through a mortgage broker with access to several lenders, giving you a wider selection of loan products and terms to choose from.

Keep in mind that brokers are not obligated to find the best deal for you unless they have contracted with you to act as your agent. Therefore, you should consider contacting more than one broker, just as you should with banks or thrift institutions.

Good agents know good lenders

Your Farmington Hills real estate agent can help you find a mortgage lender. Most agents have a plethora of lenders in their referral database, and a group of lenders that they have personally worked with before. Agents can be trusted to refer a mortgage lender with a proven record and who can close loans.  

The Real Estate Settlement Procedures Act (RESPA) prohibits agents from receiving a “thing of value” from a lender in exchange for sending you its way, and this inhibits them from entering into quid pro quo arrangements that might not be best for their clients.

Most homebuyers want their new home purchase to be handled thoughtfully. They want to close within the contract period. That scenario is more likely to happen if you use your agent’s preferred mortgage lender.

7). Pull together your financial documents  

It’s a good idea to start prepping your financial documents. Lenders will request paperwork for your mortgage application that proves things like how much money you make and your debts. 

 Depending on your financial situation, the documents you will likely need when applying for a mortgage include 2 years’ worth of tax returns, pay stubs, W-2s or other proof of income, bank statements and other assets, credit history, gift letters, photo ID, and rental history.

If you’re self-employed or have other sources of income (such as child support), you will need to show your lender proof through 1099 forms, direct deposits, or other means. 

If you have any blemishes on your credit reports such as a previous short sale or a foreclosure, be prepared to write a statement that explains any negative items. Lenders may look at one-time unavoidable circumstances differently from habitual delinquency. 

The takeaway

The more you prepare ahead of time, the easier it should be to get the loan you need on the home you want and can comfortably afford. Don’t forget to compare different loan products, such as fixed-rate mortgages vs. ARMs, and conventional loans vs. FHA loans.

Both have their pros and cons and should be carefully considered. There is no one-size-fits-all approach. Also, be sure to shop around and get rate quotes from more than one lender. By doing so, you’ll likely get a better interest rate, more favorable loan terms, and save money now and in the long term.

Speak with your Farmington Hills MI REALTORⓇ about referring a lender to you. Real estate agents who routinely close a lot of deals have experience working with multiple lenders and know which of them will deliver.

Partner with Highly-rated Farmington Hills MI REALTOR -Tom Gilliam

Whether you are interested in Farmington Hills MI homes for sale or it’s time to list your current property, experience matters most in a changing market. Serving Farmington Hills and the surrounding area for over 20 years, Tom is able to provide his clients with the kind of knowledge, skills, commitment, and personalized service they need and deserve.

An extremely down-to-earth person, Tom is someone you can trust and feel good about working with. His clients appreciate his honesty and transparency and feel it helps them as they make important real estate decisions. Tom makes himself available to his clients whenever they have questions or concerns and promptly returns any texts, calls, or emails.

Farmington Hills MI Homes for Sale 

As your Farmington Hills MI real estate agent, Tom will protect your best interests, advocate for you, negotiate on your behalf and do whatever is necessary to ensure the best results possible. Having a trusted professional like Tom by your side means there is one less thing to worry about.

To find out more about buying or selling real estate in Farmington Hills MI, or homes in the surrounding Oakland County area, please give highly-rated REALTORⓇ – Tom Gilliam a call directly at (248) 790-5594 or send him an email

Tom Gilliam, REALTOR®
RE/MAX Classic
29630 Orchard Lake Rd.
Farmington Hills 48334
Direct: 248-790-5594
Office: 248-737-6800
Email: Tom @ Homes2MoveYou.com
License #314578 

Farmington Hills MI Real Estate

 

 

 

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