July 26th, 2018 8:26 AM by Jackie A. Graves, President
It requires a loan preapproval, navigating rising
interest rates and making a bigger down payment in competitive markets.
a house is a minefield full of “I didn’t know thats.” From choosing the right
home to qualifying for the best mortgage, you want to minimize the things you
your “didn’t-know” ratio. With a shifting lending landscape, rising
interest rates and down payment priorities based on your local market, here’s
what you’ll need to know about buying a home this year.
With acute shortages of
homes for sale in so many markets throughout the nation, getting a preapproval for a home loan is more
important than ever. Cash buyers used to give sellers confidence that a deal
would close quickly, but there are fewer cash buyers. And when houses weren’t
in such short supply, buyers didn’t face the pressures of intense seller’s markets.
With a lender
lined up and a preapproval letter in your pocket, sellers know you’re serious.
preapproval, [sellers] feel comfortable that, ‘Hey, this guy is a legit person
who is going to buy and close,'” says Mat Ishbia, CEO of United Wholesale
Mortgage in Troy, Michigan.
[Some buyers] don’t realize how many
underwriting deal breakers there are.
Real Estate Agent in Hinsdale, Illinois
“[Prospective buyers] need to immediately start
with the lender,” agrees Patti Michels, a real estate agent in Hinsdale,
Illinois, a suburb of Chicago. “See what you can afford and see what your
hurdles are going to be.”
Michels says shopping for
homes before gaining a loan preapproval is a big home buyer mistake. “[Some buyers] don’t
realize how many underwriting deal breakers there are" that can hijack —
or significantly delay — getting a mortgage.
Those home loan approval pitfalls can include
issues with student loans, significant recent cash deposits, and the manner in
which self-employed income is reported.
‘How much house can I afford?’ is the first-time
home buyer question Ishbia says he is asked most often. He offers a
rule-of-thumb to help.
telling them about debt-to-income ratios,” Ishbia says he tells first-timers to
consider three times their income as a starting point.
So, if you and
your spouse have a combined annual income of $110,000, “most likely $330,000 is
your price range, plus or minus a couple of percent,” he says.
But rather than
guessing, you can simply take the first step — talking to a lender.
“That’s why you
get the mortgage first,” Ishbia adds.
impacting the real estate market is rising interest rates. Michels says
it’s definitely a concern for prospective buyers she’s talked to, who are
thinking, “let’s do this sooner rather than later.”
In fact, 82% of
millennials (ages 18-34), the largest share of current first-time home buyers,
say buying a home is a priority, according to NerdWallet’s 2018 Home Buyer Report.
A credit score
of 620 is typically the minimum that mortgage lenders are looking for, Ishbia
says, though some lenders will go as low as 580 or below.
“What I would
consider is average credit is 620 to 680,” Ishbia says. “Very good credit is
680 to 740, and if you’re over 740, you’re spotless.”
think they need 20% down,” Ishbia says. “Three percent down, 5% down are the
ways people are buying homes. Ten percent down is the average in the nation
right now. You don’t need 20% down to buy a home. It’s the biggest myth out
you’re in a competitive real estate market, Michels cautions.
“I think 20%
down — especially in a tight market — is going to come into play,” she says.
“If somebody else has 10% and you’ve got 20, that’s going to be a factor.”
Michels says listing agents will usually advise sellers to go with the buyer
who has the most cash on the table.
“When it comes
into play is when you’re up against someone else on a home you really want,”
what’s changed in the last three years in mortgages? Speed to closing is more
important now than ever,” Ishbia says.
times are shrinking. For the 12-month period ended in May 2018, average closing
times for purchase and refinance loans combined were about 42 days, according
to Ellie Mae, a mortgage industry technology provider. For refi loans alone,
the average was about 39 days. For the same period in 2012-2013, the averages
were 49 days for all and 50 for refis.
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