Buying a Home in 2014
Considerations for Buyers
What does it take to buy a home in this market?
We are currently in a deep “sellers market.” What does this mean and how does it affect someone wanting to buy a home?
Here are the current characteristics of this market:
- The “Months Inventory” number is the determining statistic that defines whether a market is balanced, buyer or seller oriented. The statistic tells how many months of inventory (available homes) exist in the market based on current activity. Less than four months is considered a Sellers Market. Four to six months is considered balanced and more than six months is considered a buyers market.
- Current inventory levels are extremely low. In fact, in some price ranges, there is only one half month or less of inventory based on current buying levels. This basically equals zero inventory. This translates into a very strong (some have described it as “severe) sellers market.
- Low inventory levels, particularly in an active market like DFW, means more buyers chasing fewer homes. Since most buyers in a price range are able to distinguish between a home that is in poor condition or may have other limiting characteristics (school district, location, etc.), the quality homes that are offered do not last very long. In some cases first offers are received within hours.
What is the purchase process like for buyers when a sellers market is present?
- Most homes for sale will receive multiple offers within a short time of going on the market. Agents are recommended by the Texas Association of Realtors to establish a cutoff date and take “best and final” offers from all submitting parties on that date. At that point the seller is able to choose the offer they most prefer.
- Prices are accelerating due to high demand and low inventory. Additionally, the bid process for multiple offers tends to drive up prices, sometimes significantly, above the list price of the home. This puts pressure on buyers to move quickly to avoid higher costs.
- Negotiation strategies are limited when working with sellers. In multiple offer situations, a simple, straightforward, price-oriented offer gets the most consideration.
- Cash deals many times lower the risk to sellers as no appraisal is required to get financing. If the winning bid exceeds the list price, the buyer may be required to put more money down in order for the financed amount to appraise. Additionally, with cash, closing times are shortened for sellers who are ready to move.
- In a market like this, all buyers must be pre-approved – not pre-qualified – to purchase with their lender of choice. Sellers will not entertain any offers from a buyer who is not pre-approved. There are too many others who are. Pre-approval gives the financing buyer the power of a cash offer to the seller.
- Buyers must be completely clear on what they desire in a home. What features are deal-makers and what features are deal-killers. With this information a buyer can look at a home, compare it with their identified needs quickly, and be in position to make an offer in the least amount of time.
How can a professional Realtor help their buyer in a market like this?
- Through the MLS system, Realtors are able to provide an “informational advantage” to their clients. Third party sites do not update their information but about every three days to two weeks. In this market that level of information reliability will be meager. Many homes listed today will be under contract or past final bid date, accurately reported in MLS, while still showing active in a third party search.
- Well-trained Realtors often are able to provide negotiation advantages for their clients because of their currency in the market, familiarity with the circumstances involved, and knowledge of the possibilities that still exist for negotiation.
- A professional (full-time) Realtor will help coach their clients to position them for a quick strike when they find the home they desire. This maximizes their opportunity to acquire that home in a very competitive market.
- Just because you make an offer on a home that looks good, there may be hidden issues with the home that get revealed in the inspection. Professional Realtors are skilled at navigating the inspection process, evaluating the criticality of issues, negotiating repairs effectively, and providing sound advice to their clients throughout the process.
- Finally, a strong realty team will make sure that all aspects of the purchase including title work, inspection, lender coordination, etc., are all on schedule so that closing occurs when it should and the process is as smooth and pleasant as possible for all sides.
The Team here at AMX Realty, is committed to you, our client, to make sure you get all of the resources and information you need to successfully acquire the home of your dreams. Our motto, “Inspired Excellence”, simply means that we believe, and acknowledge, that our vocational calling is real estate. Our ability to do a great job for you derives from our desire to serve the One who gave us the opportunity as a part of His plan for our life.
Buying a home is the largest purchase most people will ever make. Homeownership has great benefits. Homeownership also comes with certain responsibilities.
Are you ready for homeownership? Look at your current situation and determine if:
- You have a continuing and reliable source of income prior to applying for the loan.
- You have a credit history that shows you're ready for homeownership.
- Your total debt is manageable and you can afford to take on the costs associated with homeownership.
- You have money saved for a down payment and closing costs.
Once you fully understand your current situation, it's important to look at the pros and cons of homeownership to make the best decision for you and your family.
Benefits of Home Ownership
Homeownership has many advantages - both financial and personal. But buying a home is an important decision. Look at the benefits and the differences between homeownership and renting to better understand if owning a home is right for you.
What are the benefits of homeownership?
- Tax savings.
You may earn significant tax savings because you can deduct mortgage interest and property taxes from your federal income tax and many states' income tax if you itemize your deductions.
- A more stable monthly housing expense.
Your monthly housing loan or mortgage expense can remain the same for the life of your mortgage, depending on the type of loan you choose.
You may build equity in your home over the life of your loan, which allows you to plan for future goals like your child's education or your retirement.
Homeownership is not right for everyone. It may not be the right time in your life or you may not like the commitment associated with owning a home. Here are some differences between renting and homeownership:
- Renters are typically free from maintenance obligations such as repairs or lawn care.
- Homeowners often have more freedom in decorating, landscaping, etc.
- Renters can move more easily and more quickly than homeowners and there are higher costs associated with buying and selling a home.
- Homeowners have a financial investment and may build equity in their home.
To get a quick idea of what you can afford to spend, multiply your annual gross income (before taxes) by 2.5. For example, if your annual household income is $50,000, you might be able to qualify for a $125,000 home. This is just a rough estimate - the actual number will vary based on factors such as your debt and credit history.
Mortgage lenders typically use the housing expense and debt-to-income ratios to more accurately determine how much you can afford to spend on your mortgage.
- Housing Expense Ratio
Mortgage lenders recommend that your monthly mortgage payment should be less than or equal to a quarter of your monthly gross income. This percentage can change based on the type of mortgage you choose and sometimes the area in which you're looking to buy.
- Debt-to-Income Ratio
You need to factor your other debts into determining an affordable monthly mortgage payment. Mortgage lenders look at whether your total debt is larger than 30-40% of your monthly gross income. Remember, debt is not just credit cards and student loans. It can also include alimony, child support, car loans, and housing expenses.
A mortgage lender, a housing counselor, or consumer credit counselor can help you better understand these guidelines. Before you talk to a financial professional, you can organize your financial picture by creating a budget. Don't forget that you also have to save for the down payment, closing costs, inspections costs, moving, and other related expenses.
What Are the Risks?
|Check For Properly Working Appliances/Fixtures:|
|Ensure House Is Well-Built & Systems Are In Working Condition:|
Lenders evaluate mortgage applications a lot differently today than they did even 10 years ago. And even more has changed in the last 20 years. What used to close the door to homeownership may not be a factor today.
Here are some common homeownership myths:
Myth: You need great credit to become a homeowner.
Fact: You may still be able to buy a home with less-than-perfect credit. And remember, you can improve your credit over time.
Myth: You need to put 20% down to buy a home.
Fact: There are many types of mortgage products and programs that allow low and no down payments. But remember to factor in other costs such as closing costs, property taxes, moving expenses, and repairs.
Myth: You can't buy a home in the U.S. if you're not a citizen.
Fact: If you're a legal resident, you can purchase a home in the U.S.
Myth: If you don't have a bank account or credit cards, you can't qualify for a mortgage.
Fact: Having a bank account is always a good idea and helps you establish credit. However, lenders can approve you for a mortgage even if you don't have a bank account or credit cards. You'll likely need to keep records showing a history of payments you've made for items such as rent, utilities, and car payments.
Myth: Lenders share your personal financial information with other companies.
Fact: By law, banks and other financial institutions are restricted in their uses and disclosures of information about you. In some situations, you may choose to restrict the disclosure of your information if you don't want it to be shared.
Myth: If you're late on your monthly mortgage payments, you'll lose your house.
Fact: If you have a financial hardship, like the death of your spouse or a medical emergency and fall behind, it's possible to keep your home and get back on track if you contact your lender early.
Myth: You can't get a mortgage if you've changed jobs several times in the last few years.
Fact: Not true. You can change jobs several times and still get a loan to buy a home. Lenders understand that people change jobs. The important thing is to show that you've had a stable income.