Getting a mortgage is every bit as arduous as you might think. While lax mortgage lending standards helped pave the path to the financial crisis a few years ago the pendulum has swung so far the other way in 2017 that getting as simple as a 30-year fixed rate loan is incredibly complex given the amount of paperwork and disclosures required.
Here is what you should expect if you plan to buy a home in 2017 or beyond.
What this means to you, as a homebuyer, is to trust your lender and expect the mortgage process, in terms of the paperwork, to be thorough. The mortgage process could be compared to an airplane ride. No ride, destination, flight attendant, captain or any aspect of each individual flight is the same. Every flight is different.
Every loan is different as well. If you have ever been on a flight and experienced turbulence, that turbulence is the equivalent of a lender coming back and asking you for documentation, even though you already provided it at the beginning. Asking you for documentation a handful of times is normal.
Time is not on your side when purchasing a home for two reasons: You might have a fee for every day you don’t close on time, which could be as much as $100 per day. If you close three days late, that’s $300 in the seller’s pocket. The other reason is your interest rate lock. If you don’t close on time, it might cost you as little as $500 or as much as a few thousand to extend your rate lock commitment to the investor.
Time is also not on your side because there is an expectation your lender and Realtor have that you to provide documentation to them within 24 hours. This means your answer to the request made Monday asking you for a paystub is expected by Tuesday, no later than Wednesday. Delays in the process can be costly and stressful, especially if everyone is counting on the transaction to close by a certain day and it doesn’t due to failure to receive documentation in a timely manner.
The best two things you can do for yourself when purchasing a home are one, get the needed documentation to your professional in a timely manner, and two, expect to be on call for each day of your 30-day purchase contract. Going into the transaction with those expectations up front will help ensure your transaction closes on time.
Homes are less affordable now than they’ve been since the end of 2008, according to an analysis by ATTOM Data Solutions.
The property data company’s affordability index reached an eight-year low in the first quarter of 2017. The index measures wages against home prices.
The most recent index of 103 means 33.6% of average weekly wages were needed to buy a median-priced home. Rising home prices and mortgage rates drove the drop in affordability, said Daren Blomquist, senior vice president of ATTOM Data Solutions.
A county’s affordability depends not only on home prices but how much people make there. In 13 of the 379 counties ATTOM analyzed for its report, average wage earners would need to spend more than 80% of their income to buy a median-priced home. In five of the counties, average wage earners would need more than 100% of their income.
Kings County, New York, better known as Brooklyn, topped the list. An average wage earner there would need 121.4% of their income to buy a median-priced income.
Remember, your credit score will play a large role in whether you get a mortgage — and you might need a high one in these counties so the home is a bit more affordable. You can view two of your scores for free, updated every 14 days, on Credit.com. And here are a bunch of other ways to get ready for buying a home.
Click through our slideshow see all the least affordable counties to buy a home. A note on the data: The percentages are based on the amount needed to make monthly payments on a median-priced home with a 30-year fixed mortgage and a 3% down payment, including property taxes, home insurance and mortgage insurance (full explainer on confusing mortgage terms here).
Once you’ve decided it’s time to buy your own home, saving for that 20% down payment is step one toward doing it. Instead of waiting years, here are six ways to help you save up for that down payment in a matter of months.
1. Explore the Market
If you are saving money to buy your dream home, consider taking a detour through a lower-priced neighborhood first. Buying a lower-cost home means you won’t have to save as long for the down payment. As the home’s value goes up, you can use the equity you’ve built to help you get into a higher-priced home later on, particularly if you find a fixer-upper and you’re good at repairs.
2. Keep Your Priorities in Focus
While it may be tempting to put off other priorities when trying to save for an important goal, Kevin Gallegos, vice president of Phoenix operations at Freedom Financial Network, says paying the rent should always be your first priority. Next, Gallegos says, pay down credit card debt.
“Few, if any, investments will return as much,” he explains. Additionally, having more available credit on your card will improve your debt-to-income ratio and creates a financial cushion that you may need for unexpected costs after moving in to your new home.
3. Automate Your Savings
You can create a budget based on your current expenses to determine how much you can save each month. Once you have determined how much you can afford to save, automatically transfer that amount from your checking account to a savings account.
“Save before you ever have the money in your hand,” Gallegos says. “Record this expense like a bill every month.”
4. Generate More Income
To raise money quickly, Gallegos says it pays off to turn your spare time into money-making opportunities. Look around your apartment for unneeded items to sell online or have a yard sale.
“Even small proceeds can accumulate surprisingly quickly,” he says. “Maybe you have skills where you can turn a hobby into a part-time, money-making enterprise. Babysit, tutor, do yard work or other part-time work.”
5. Track Your Daily Expenses
Before pulling out your wallet, ask yourself how badly you need to buy something. For example, if there is free coffee at work, do you really need to go to the coffee shop every morning? Gallegos admits it sounds cliché to ask such questions, “yet this is just the type of disciplined act that will get someone on track to saving as much as possible as quickly as possible,” he says.
To further reduce daily spending, Gallegos recommends paying with cash instead of using a debit or credit card. “Many studies report that people spend up to 15 to 20% less when paying with cash,” he says.
6. Reduce Household Expenses
There are many ways to reduce monthly expenses at home that can help build your savings for a down payment more quickly. Washing clothes in cold water saves up to 90% of the energy expended in the washing cycle, notes Gallegos. Switching to cold water will directly reduce next month’s utility bill. Plus, speaking of laundry, skip the dryer. That’ll eliminate carbon emissions and help you bank away extra dollars, he adds.
You should also eliminate drafts in your home and turn the hot water temperature down to 120 degrees, which will save you money. Per EnergyStar.gov, a house’s water heater “can waste anywhere from $36 to $61 annually in standby heat losses and more than $400 in demand losses.”
Implementing only one of these ideas may not increase your savings significantly, but if you try a few of them, it can make a real difference to your savings account after a few months and get you on the right track to having enough for your new home.
[Editor’s Note: A good credit score can make buying a new home more affordable, too, since it’ll help you qualify for a low interest rate. You can see where your credit stands by viewing two of your scores for free on Credit.com.]
A few days before you sign the documents to finalize your purchase of a home, you’ll have the chance to take one last look through the property. The final walk-through is your last opportunity to confirm that the house is in similar or better condition than it was when it went under contract, and it’s also your chance to make sure no new issues have cropped up since the inspection.
What Should I Look for During My Final Walk-Through?
It has probably been weeks since you’ve seen the home and it’s exciting to walk through it again. You may be tempted to start mentally arranging furniture and picking out new paint colors while you’re there, but it’s in your best interest to put those feelings aside for now. This is your last chance to look for issues and work with the seller to address them before the home is officially yours. You should plan to spend 30 minutes to an hour walking through the home, paying careful attention to its condition.
Before you head off to see your new home, it’s important you make sure you have your contract, inspection summary, a notepad, a camera, any photos you took of damage that needed repair, a cell phone and charger (to easily check that all electrical outlets are working) and, of course, your real estate agent. Make sure to coordinate with the sellers before deciding on a date. If you go too early they may not have finished moving out, and if you go too late, you may not have enough time to remedy any large issues that you spot.
Here are the big things to look for when making your final walk-through.
Are all agreed-upon repair items completed? (Ask to see receipts.)
Has the previous owner removed all debris, garbage and unwanted items? (Keep in mind, the house will likely not be professionally cleaned and will need a once-over when you move in.)
Has the yard been maintained?
Are all agreed-upon appliances still in the house and are they working properly?
Does the home still contain all furniture included with the purchase?
Are there any major holes or damages as a result of the previous owner moving out? (Normal wear and tear like nail holes can be expected.)
Here are some other things to look for once you have checked the above.
Do all lights and switches still work? (Keep in mind the home has likely been vacant for 30 or more days. If light switches don’t work, it could be due to burnt-out bulbs, which you’ll likely need to replace yourself.)
Do all power outlets work? (Use your cell phone and charger to quickly test whether outlets work).
Are appliances in working order?
Do toilets flush?
Do sinks, showers and tub spouts run? Can you spot any leaks?
Is there hot water?
Do sink and tub drain stoppers function?
Do all windows and doors open and close smoothly? And are all screens present and attached properly? Be sure to check that window latches and door locks are working properly.
Do the heat and air conditioning work?
And remember, your lender might run a final credit check before you close. You should keep an eye on your credit during this critical time. You can view a free credit report snapshot, which is updated every 14 days, on Credit.com.
Buying a home in a competitive market means you need to have all your ducks in a row. You can be successful by putting your best foot forward before the starting gate. One way to spruce up your offer is to write a love letter to the seller.
All sellers have different reasons and motivations for selling their home. A major life event may have caused them to rethink their life and selling the house makes the most sense. They may have found their dream home or a better rental and need to sell the one you are looking at.
No matter what has happened, the dollar amount you are offering to purchase their home is going to carry the most significance to the majority of sellers. Making a strong offer with the guidance of your real estate agent and having a solid mortgage pre-approval in place is critical for success. Those are the key components required to make sure your chances increase for getting an accepted offer. Still, a stellar offer letter can break a tie between two identical offers — or even sway the owner your way if someone slightly bests your bid. With that in mind, here’s how to craft a killer offer letter for your dream home.
1. Write the Letter Yourself
This letter should come from you, not your real estate agent. The agent cannot convey the emotional attachment you feel toward the home the way you can. If your agent wants to write a companion letter or character profile, that’s fine, but a love letter that comes directly from the prospective buyer will be most meaningful. This letter should be impactful and compel the seller to choose you.
2. Explain Why You Want the Home
The reality is that you do not know the reason why they are selling their home (though your real estate agent may be able to supply some clues) so a good strategy is to give them the reason you want it. Write a letter to the seller appealing to their emotional side along with their financial interest in your offer. Write a genuine letter about why you are interested in buying their home specifically. What about it calls to you? Do you see your family living there for a long time?
3. Be Specific
If you really liked the way the backyard “felt” and you can see your kids playing there or getting married under a well-groomed tree, put it into words. Make the sellers see you in their home. It sounds sappy, but it can appeal to the right people. A letter can evoke pride for a seller in their home and can give them the satisfaction of being able to provide a home for a young family that will create more happy memories there.
4. Get Personal
Talk about your family. Use this letter as a way to introduce yourself and tell the seller about your long-term goals. Let them know if you’ve been raised in the area and share with them why you think their home is the fit for you and yours.
5. Assure Them You’re a Strong Buyer
A seller will want to know a buyer can make good on their offer, so be sure to let them if you have a steady source of income, what you do for a living and, even, how solid your credit score may be. (You can see how your credit is doing throughout the homebuying process by viewing two of your free credit scores, updated every 14 days, on Credit.com.)
One additional thing you should consider is having your lender call the listing agent in order to confirm your ability to purchase and willingness to perform. This is a bonus that can help push your offer over the top as this confirmation proves to the listing agent and sellers that you are serious and well-qualified. Communication in every real estate transaction is critical and this proactive approach reduces the amount of vetting that the listing agent has to do on their offers.
What’s in a Offer?
Remember all those ducks we mentioned earlier. In addition to your love letter, your offer to purchase someone’s home might include:
A cover letter from your agent explaining who you are and why they brought you to their home
The terms (total offer price, down payment, etc.) under which you would purchase their home.
In addition to that personal and detailed letter explaining why you would be a good fit for their home, you may also want to include a photo of you and your family.
A mortgage pre-approval letter from your lender showing you are dedicated to buying their home.
U.S. foreclosure activity picked up a bit from July to August, but it’s still generally on the decline, according to the latest report on the topic from ATTOM Data Solutions. One in every 1,395 U.S. housing units had a foreclosure filing in August (a default notice, scheduled auction, bank repossession or an something similar — filings vary by state), and that’s about a 10% increase from July. The change since last August shows a more encouraging trend: The national foreclosure rate fell by about 13%.
But in the states where foreclosure rates have been the highest in recent years, things remain volatile. While seven of the 10 states with the highest foreclosure rates last month recorded year-over-year declines in foreclosure activity, only three of those states saw declines in excess of the national average. And in six of those 10 states, the foreclosure rate increased more than the national average since July.
Any stage of foreclosure can be stressful on a homeowner, whether they’ve fallen behind on a mortgage payment for the first time or are at the end of a sometimes years-long process of forfeiting their home to the bank. In addition to the financial and emotional affect these processes have, they can also seriously damage a consumer’s credit for many years. But even if you’ve started to struggle with your mortgage payments, it’s worth exploring your options for avoiding foreclosure. All mortgage borrowers should keep an eye on how their home loan affects their credit as part of good financial housekeeping, as well — you can get your credit scores, updated every 14 days, by getting a free credit report summary on Credit.com.
Here’s an update on how some of the states with the highest foreclosure rates are faring, based on the August foreclosure data from ATTOM.
If you were planning to buy a home or refinance one you already own, you can expect to encounter a lot of paperwork. But here’s one thing you probably didn’t know: Tax returns aren’t always required.
If you are a W-2 wage earner, there is a smaller chance you’ll need to provide tax returns than if you’re self-employed. If you’re self-employed, the only way a lender can determine your income is by examining your tax returns. As a self-employed worker, these documents show how much you took home versus your net income. There are some situations where you can get away with using a year’s worth of tax returns, such as when you transition from being full-time employee at a company to being self-employed.
Automated Underwriting Findings
Mortgage lenders will ask for two years of tax returns, plus two years of W-2s and pay stubs from the last 30 days. Every mortgage in America sold on the secondary market is run through automated underwriting, software systems that crunch data and let lenders know your risk in terms of repaying the loan.
If you are a W-2 wage earner and the automated underwriting findings do not require tax returns, you may not need to provide returns at all in order to close on a home.
To be clear, we are discussing the average W-2 wage earner. Any of the following could trigger needing two years of tax returns despite your employee status:
Social Security income
Schedule C income beyond your normal W-2 job
Partnership in a business or another entity
Other Things to Keep in Mind
When you apply for a loan, it’s generally a good idea to provide two years of tax returns, two years of W-2s and the 30-day pay stubs all lenders require. However, there is a saying in mortgage lending that applicants should only provide “what is needed.” Providing only what’s asked for can go a long way, as there are fewer documents to scrutinize. That said, automated underwriting dictates what documentation you must provide to obtain financing.
Some banks also have additional requirements, so even if your loan does not require tax returns, their individual banking policies might. Such requirements are due to the bank’s relationship with Fannie Mae and Freddie Mac, or its particular appetite for risk. A good rule of thumb is to provide the bare bones requirements so there are no questions as to whether you qualify.
The key is to work with a mortgage lender who has a common sense approach to financing rather than one who promises ultra-low rates but is so risk-adverse that you are continuously asked to furnish more paperwork and your loan never ends up closing escrow.
As soon as my husband and I pulled up to see the house we’d eventually buy, it already had a good vibe to it. A blue house with a red door— just like the one I grew up in. It struck a sentimental note with me immediately.
After living in one-bedroom apartments for the past seven years, we were looking to finally make the move from renters to homeowners. It wasn’t a quick process— buying a house (and getting a mortgage) aren’t things that move quickly, generally. But once we moved in, we knew we had a long to-do list of things we wanted to accomplish to make this house ours. There were a few bumps along the road, though. Here are the sometimes costly, often annoying and always informative things I learned from my first few months of homeownership.
1. Recycling & trash aren’t necessarily provided by your county/city.
Once we moved in, we knew we had to set up all of our utilities. As apartment-dwellers though, we didn’t realize how many services aren’t included in some areas’ public works departments. In our area, trash and recycling were not provided gratis by the city or county— we had to pay the government to take our garbage away or hire a private service to do it instead. It’s not an incredibly expensive item to add to our budget, but it was definitely an expense we weren’t anticipating.
2. Get ready for higher utilities.
The biggest apartment my husband and I had ever lived in was just about 900 square feet and it was a garden apartment, so it remained pretty moderate temperature-wise throughout the year. Our utility bills were pretty low. That’s why our first bill for our considerably larger house came as a bit of a shock. We moved in the late fall, so we knew winter heating bills were ahead of us, but we weren’t expecting our first electric and water bill to be nearly three times what our apartment’s bill was.
After we got that bill, I had a much bigger appreciation for why my parents nagged my sisters and me about leaving the lights or TV on when we left a room. Kids, take it from me, parents just understand how expensive electricity is.
If you’re really worried about your bills, you can ask about budget billing or “levelized” payments. Those plans allow you to pay a similar amount each month, adjusted periodically depending on your use. We haven’t done that yet. I wanted to wait a year to see if it made sense— get a feel for how different every month can be and how we can just do a better job of being more efficient too.
3. Air filters — you have to change them more often than you think.
I’ve never had to own a heating and cooling system before, so maintenance was an expense I expected, but had no idea how to budget for. Air filters on your air-conditioning and heating units need to be changed every 4-6 weeks. We got that tip when we moved in and set reminders for ourselves so we won’t forget.
4. A big yard is beautiful, but hellish to maintain.
I loved the big, open green space at our house when we bought it. Then, when we finally moved in, we had a yard fully covered in leaves and the work began. That first weekend we were in our new house wasn’t actually spent inside the house. It was spent in the yard raking and leaf blowing and collecting sticks that had fallen from our big oak trees. It was a two-day, two-person job and, of course, the next weekend the yard was covered again. Maybe next year we’ll opt to get a lawn maintenance company to help with the work load, but it will all depend on the price.
5. Buy a snow shovel immediately.
You never know when you’ll need it and don’t want to be without one when you get a foot of snow. Trust me. That storm in January that dumped a foot of snow on the Mid-Atlantic? Yeah, that hit us hard.
6. You’ll be going to home improvement stores … A LOT!
We had one room we wanted to completely re-paint and freshen up. It had dark, glossy, stained-wood built-in cabinets all along one wall, with trim and ceiling beams to match. The walls were a yellow-beige and it was the one room that almost made us walk away from the house before we bought it. (It was literally marked “man cave” on our breaker box, as my husband discovered about a month after moving in.) We decided we wanted to paint all the trim, molding, paneling, built-ins and beams white and the walls and ceilings a light gray. It took four weekends of work to finish the whole project. But the real kicker was that it took probably half a dozen trips to a home improvement store to finish the job.
Paint brushes, drop cloths, caulk, more caulk cause we underestimated how much we’d need, liquid sandpaper, paint, more paint because we didn’t like the samples we got the first time, gloves, rollers, paint trays, and even more paint because we underestimated how much we’d need (again). It was a lot of trips back and forth. Luckily, we have some supplies now so the next home improvement project will go more smoothly.
7. Gutters fill up so quickly.
Think your yard is bad? The gutters are worse. We swore up and down when we cleaned them up the first time because we thought the previous owners had maybe neglected them for a while— they were filled to the brim with rotting leaves, twigs and sludge. Then we lived in the house for another two months and realized that was just a year’s worth (maybe less) of buildup. We’ll be encountering the same horrible sludge next year.
8. Make sure your home inspector looks at the outside of the house too.
Our home inspector did a great job, pointing out some potential trouble spots. One in particular was a tree that looked like it was distressed. We were able to get a credit for the tree, and about a month ago called out a tree trimming service to have the tree taken down. The problem? Our credit would only cover half of the cost of removing the whole tree. We opted to remove the branches that looked dead and maybe revisit it next year when we could see if that had fixed the problem or if the whole tree needed to go.
It was a lesson learned though. If our inspector hadn’t done a really thorough job and taken a look at the yard and other parts of the exterior of the house (often this is not required in an inspection) then we could have had a big problem the next time we had a major storm.
9. Don’t buy furniture just to fill space.
I already knew that new homeowners often over-extend themselves when they first buy a house by opening new credit cards and buying tons of furniture to fill the space — it’s an effect of working in personal finance. But what I didn’t realize is how strong the urge is to buy, buy, buy. You want to welcome friends and family into your home as soon as you buy it. You want them to get a sense for where you’ve settled down. But that urge can blind you to the fact that the dining room table you desperately want is out of your budget right now. Trust me— I knew better and still was tempted to splurge unnecessarily.
10. The first time you make a fire in your fireplace, make sure you own a fire extinguisher.
There are tons of YouTube videos that can help you figure out how to operate your fireplace. Be sure to look through them before you attempt it. After successfully making a fire in our fireplace for the first time (without incident), my husband and I both realized we hadn’t bought a fire extinguisher yet. It could have been a disaster, though luckily it wasn’t. We bought one the next day.
11. The local library has a wealth of resources for home and lawn care advice.
I know nothing about gardening. My mother and mother-in-law both have green thumbs, but now I have to put to the test whether that trait is genetic. I started by going on Pinterest to find some information on composting and some other gardening basics, but the best resource I found was the local library. Here’s why.
Every gardening book will tell you that lawn care and plant selection are dependent on knowing your environment. I found that our local library had at least a dozen books on the local climate and what grows best in the state. I don’t have the results of my efforts yet, but I would highly recommend hitting up your local library before you start a gardening project— it’s free (just remember to return your books on time!).
12. My credit score actually improved once we got a mortgage.
When I first applied for a mortgage, my credit score took a small hit because of the inquiry on my report. (I check my credit scores for free on Credit.com every month so I was able to see the impact almost immediately.) But, just a few months later, my scores are the highest they’ve ever been. Adding an installment loan to my credit history and a positive payment history has improved my score more than 25 points already, and I’m just a few months into homeownership. I would never recommend buying a home just to improve your credit, but I was surprised at how much it impacted me.
13. Renting is so much easier.
There are a lot of things I learned in just my first few months of homeownership, but the overarching lesson is that renting is way, way easier. There are so many things you don’t have to worry about when you rent. But— and this is a big “but”— it’s not nearly as rewarding as figuring out how to tackle the new challenges of owning a home. I was so proud of my work when I shoveled a foot of snow from my driveway. I looked at my yard and felt accomplished when we cleared out all the leaves that first weekend. I still look at the re-painted room we’ve now settled into and marvel at all the work it took and how great it looks now. Plus, I’m building equity in my house— this is an investment for us as well. We plan to be here for a while (even though our closing attorney said we’d be back in 6-7 years ready for a new place). In the meantime, I plan to keep challenging myself with new projects. Next up: how to lay a paver patio.
Prepare to go down a rabbit hole: Real estate data company RealtyTrac has just released the beta version of Home Disclosure, a new tool that puts a treasure trove of public data — on more than 115 million homes in the U.S. — at your fingertips.
There’s a ton of data, including estimated property values, environmental risks, public and private school rankings, tax history, neighborhood demographics and crime. In all, Home Disclosure explores 42 factors that can impact a homeowner’s “health, safety and financial security,” the company says.
Home shoppers could always access much of this info through government databases and other websites, but Home Disclosure puts it all in one place. For now, the tool is free, though RealtyTrac says there will be a “full launch early next year.” Currently, users can store reports for 30 days and print PDFs for comparison shopping.
The tool is designed to help homebuyers make educated decisions, but it’s fun even if you’re not looking (or don’t have enough cash yet). I now know how much my landlord paid for my building and that he borrowed more than its current estimated value. I also know how much he’s been paying in annual property taxes and where all the sex offenders live within a mile — and what they look like. Other fun facts: There are dozens of reports on environmental hazards and my apartment has never served as a drug lab.
You can have a field day searching loan information on your neighbors’ home, seeing how much your former house is worth and exploring the sex offender registry in your hometown. It’s like the real estate version of Facebook — and you may never want to log off.
If you’re looking to buy a home, there’s a lot of information you can harness to make your decision beyond home comparisons. You should know how much money you have saved for a down payment, how much house you can afford and where your credit stands. You can check your credit scores for free every month on Credit.com.