Are you thinking about buying your first home or maybe you are thinking about making an upgrade? With home values continuing to rise, waiting could cost you big or even price you out of the area you have been eyeballing for years. Let me explain this the best why I know how. You see in my opinion there are three types or phases of homeownership. You have a Starter Home, Forever Home, and Middle Ground Home. I would like to go over these three phases of homeownership to help you decide where you are and what your next step will be.
The term starter home always conjures up images in my mind of construction debris falling on Tom Hanks in “The Money Pit.” But starter home and “fixer-upper” don’t have to be synonymous. A starter home may simply be a small home that you can afford now — with or without making some improvements. There are benefits to buying a starter home now rather than waiting for years to buy a forever home. First of all, interest rates are at historic lows. Yes, they may be low next year or the year after that, but then again, they may not be low. A good mortgage rate isn’t everything, but your rate will impact your monthly payment and how much you’ll pay in interest over the life of the loan.
Another consideration is the inventory of houses on the market, which is low right now. This is making Texas homes appreciate at extremely high amount year over year. With more and more people moving to Texas I don’t foresee this appreciation slowing down anytime soon.
Of course, most of us won’t live in just one or even two homes our entire lives, but a forever home is something that you can see yourself living in for 20 years or more. Perhaps it’s big enough to accommodate a growing family and will be the kind of home that you envision making improvements to not just for resale value but to enjoy yourself over many years.
Here’s the problem: Not many 30-somethings let alone 20-somethings can afford their forever home right now. As home prices rise, your paychecks barely budged. In our grandparents’ day, one income bought a perfectly respectable home. Today, two professional incomes may not be enough to comfortably afford a home in some of the more desirable areas.
So, you may choose to rent something at a lower monthly rent in hopes of saving up a larger down payment on your forever home. The bigger the down payment, the smaller the loan. Right? One disadvantage of waiting for your forever home is that something that is not affordable now will most likely be even more unaffordable in a few years. Sure, you hope to earn more in the next few years, plus you can save a little bit of money every month, but they aren’t making more land. And if you want to see something frightening, just take a look at the projected population growth in Texas over the next few years. Though real estate goes through cyclicals with ups and downs, in the long run it always goes up.
Now to achieve your goal of that forever home let’s talk about the next home.
Consider how much of a price difference there is between your starter home and your forever home. If the difference can be saved up in a year, you may want to consider waiting. But if the difference between your starter home and your forever home seems like it would take more than five years, you may want to aim for a middle ground. Let me break this down even more so you can see how much it costs to wait.
I found these numbers using information provided by Zillow looking at the median home values from 2015 to December 31 2020.
Dallas 2015-$141k / 2020 $263k UP $122K
Fort Worth 2015-$138K / 2020 $245K UP $107K
Southlake 2015-$605k / 2020 $877k UP $272K
Grapevine 2015-$277k / 2020 $425k UP $148K
Argyle 2015-$397k / 2020 $585k UP $188K
Euless 2015-$167k / 2020 $290k UP $123K
You may not be able to afford a huge house in the best neighborhood right now, but what about a fairly large house in an area that’s 15 or 20 minutes further from your work or make a few sacrifices like going for that great home with a smaller yard. Instead of having the all-or-nothing mentality, you may be able to find something that suits your needs for the foreseeable future. Keep saving money as your new home rises in value, then when the time comes, sell the middle house and buy your forever home!
Personally, I’ve chosen the starter home route. I bought a starter home (which is now a rental property) then 5 years later bought a “middle ground” home. The home I’m in now will probably suit my family’s needs for around five or so years. Then I’ll work towards that forever home. I have found most people that keep trying to save for that forever home end up living in their starter home forever!
At the onset of the economic disruptions caused by the COVID pandemic, the government quickly put into place forbearance plans to allow homeowners to remain in their homes without making their monthly mortgage payments. Today, almost three million households are actively in a forbearance plan. Though 29.4% of those in forbearance have continued to stay current on their payments, many have not.
Yanling Mayer, Principal Economist at CoreLogic, recently revealed:
“A distributional analysis of forborne loans’ payment status reveals that more than one third (39.1%) of all forborne loans are now 150+ days behind payment, while as many as 1-in-4 (25.5%) are 180+ days past due.”
These homeowners have been given permission to not make their payments, but the question now is: how many of them will be able to catch up after their forbearance program ends? There’s speculation that a forthcoming wave of foreclosures could be the result, and that could lead to another crash in home values like we saw a decade ago.
However, today’s situation is different than the 2006-2008 housing crisis as many homeowners have tremendous amounts of equity in their homes.
What are the experts saying?
Over the last 30 days, several industry experts have weighed in on this subject.
“We may very well see a meaningful increase in the number of homes listed for sale as these borrowers choose to sell at what is arguably an intermediate top in the market and downsize to more affordable homes rather than face foreclosure.”
“The foreclosure process is based on two steps. First, the homeowner suffers an adverse economic shock…leading to the homeowner becoming delinquent on their mortgage. However, delinquency by itself is not enough to send a mortgage into foreclosure. With enough equity, a homeowner has the option of selling their home, or tapping into their equity through a refinance, to help weather the economic shock. It is a lack of sufficient equity, the second component of the dual trigger, that causes a serious delinquency to become a foreclosure.”
“With a greater cushion of equity, troubled homeowners have dramatically improved options: a greater ability to access funding (e.g. home equity lines) to keep paying monthly expenses until family finances might recover, improved ability to qualify for and support a loan modification, and, if push comes to shove, the ability to sell the home and monetize their increased net worth while reducing monthly payment obligations. So, what should lenders and servicers expect: a large number of foreclosures or only a modest increase? I believe the latter.”
With today’s positive equity situation, many homeowners will be able to use a loan modification or refinance to stay in their homes. If not, some will go to foreclosure, but most will be able to sell and walk away with their equity.
Won’t the additional homes on the market impact prices?
Distressed properties (foreclosures and short sales) sell at a significant discount. If homeowners sell instead of going into foreclosure, the impact on the housing market will be much less severe.
We must also realize there is currently an unprecedented lack of inventory on the market. Just last week, realtor.com explained:
“Nationally, the number of homes for sale was down 39.6%, amounting to 449,000 fewer homes for sale than last December.”
It’s important to remember that there weren’t enough homes for sale even then, and inventory has only continued to decline.
The market has the potential to absorb half a million homes this year without it causing home values to depreciate.
The pandemic has led to both personal and economic hardships for many American households. The overall residential real estate market, however, has weathered the storm and will continue to do so in 2021.
Where do you want to live? That’s a big question that a lot of folks need to answer. As they say in Real Estate, “Location is everything.” So, the number one thing that I like to look at is distance from work. Maybe this is important to somebody. They want to be right down the street from their office, maybe they don’t mind driving you know 40 minutes to an hour to work. That’s going to really open your search area. The next thing is going to be schools. Schools are important even if you don’t have kids because that is going to affect the resale of a property. If you don’t have kids maybe it’s important for different reasons. I would say determine if you want a specific school, a specific school district, or maybe there are specific things that you want in that school or school district. That would be more for a lot of folks relocating in the area. Now, the next one is going to be community. What do you want in your community? Are you looking for a newer community? I do notice that you see a lot more younger folks in newer communities but I do see that you don’t have as many trees and it doesn’t have that older feel to it. More established is a better word than old. Or maybe you want a more established neighborhood with more larger trees or parks with larger trees and things of that nature. So determine what’s important to you in your community. The next one would be proximity to family. Maybe you want to be close to your in-laws, or maybe you don’t. So I would say determine how close you want to be to family if you have family in the area. So that would be the top 4 things that I see people use to determine their location for their next home.
Alright so the number one thing I think you need to do as a first-time home buyer is- Determine how much home you can afford. When I say “can afford” I mean how much can you realistically and comfortably afford. I see a lot of first time homebuyers speak to a lender and they’ll say “Oh I’m qualified for.. you know X amount!” And then once they get under contract, and they look at taxes, and all the things that go into that whole monthly payment, they start to freak out because they didn’t realize how much the payment really was.
So, I would say reverse engineer that. Determine a monthly payment that you’re comfortable with. So, let’s use easy numbers, let’s say your rent is $1,500 a month and you’re thinking that you can make a $2,500 a month payment. So, make your $1,500 a month payment, and make a $1,000 a month payment to yourself.
Now, this is going to do a few things..
1) Make you pay yourself some money so you can increase your savings.
2) You’re going to start making that $2,500 a month house payment. You’ll find out quickly if that amount is to hard to make each month or maybe that amount is just fine, and you may be comfortable with a higher future mortgage payment.
So, figure out the monthly payment that you’re comfortable with and determine how much money you want to put down or how much money you can put down. Then figure out the loan product you’d like to go with. AFTER THAT you’ll find the home price that you’re comfortable with.
Determine what you’re willing to spend each month for your mortgage. Determine how much money you want to put down. THEN you will know what price of a home you are comfortable with purchasing!
Hope this video was helpful, if you know of anyone that is thinking about being a first-time home buyer go ahead and share this with them.
This is probably one of the biggest questions I get from first-time home buyers!
Alright! Today we’re going to talk about 5 things that you need to do to get your home ready for an inspection. Alright, so you’re under contract and you’re excited but you’re also nervous because you know that the buyer is going to do an inspection during their option period, or inspection period, depending on where you are. It has different names.
So here’s some of the top 5 things that I see come up on an inspection report that a seller can do before hand that will save them a lot of money. These are in no order.
1) Your drains. So if there are ladies in the house or a guy with long hair if your sinks or bathtubs or showers are not draining properly, the inspector is going to mark that as deficient and most buyers are going to want that looked at and most plumbers aren’t the cheapest people in the whole wide world. So go ahead and put some drain-o down there. And don’t put just drain-o down there and think it’s good. Get one of those snake things, don’t be a cheap as here. Get the things that you need to take the hair out and it could potentially save you a lot of money. So go ahead and take care of those drains.
2) Doors. Alright, if you’re house is haunted and you have spirits that open and close the door periodically, there is a really easy what to take care of this. Most doors are going to have three hinges. You’ve got one on top, middle, and bottom. So you’re going to pop that middle pin out, lay it on the ground, I highly recommend that you don’t do this on your wood floors. Put it on some concrete, and just tap it with a hammer and you’re going to put just a little bit of a bend in it. You’re not trying to make a boomerang here. Clean it off with some WD-40 and put it back there, and that is going to create just enough friction that the door will not open and close freely. Now I’m not talking about covering up foundation issues! If you have foundation problems, that’s a different situation. I’m talking about a door that slowly opens and slowly closes.
3) Light bulbs. Now, the inspector probably knows that it’s just a lightbulb and you probably know that it’s just a lightbulb, but the inspector has to mark it as deficient and if they buyer says they’re not going to close on this house unless you have an electrician look at it then you’re probably going to pay someone $100-200 just to come out and put a light bulb in. So go ahead and make sure that all of your lightbulbs are working properly.
4) Air filter. Now this is actually pretty common. The AC filter might be really really dirty and this can do 2 things. 1- It’s going to show the buyer that you maybe don’t take care of your house, so that’s going to make them uneasy. 2- If that AC filter is really dirty, you’re not going to get enough air flow and that can actually keep the AC from cooling properly. The inspector is going to mark it as deficient and the great thing about this is an AC person is not going to come out and just replace the filter! They’re going to want the whole thing serviced so it’s going to cost you quite a bit of money.
5) Trim shrubbery and trees. If your buyer is going VA or FHA this can actually be something that the appraiser makes a note of by saying that it is a condition of closing. Meaning that it needs to be taken care of before that appraiser will sign off on that appraisal. The reason is if you have a lot of shrubs pushed up against your property it can be considers a conducive condition to wood destroying insects like termites or carpenter ants. So just make sure that’s trimmed back about 4-6 inches and you should be fine there.
That’s the top 5 things that I see come up on inspections that the seller could have taken care of and would have saved them a lot money because now they don’t have to pay a professional do it. In the contract, it states that a licensed person or person of that trade has to take care of any repairs unless otherwise agreed upon. And most buyers don’t want sellers doing their own repairs.
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Oh you know what I didn’t really anticipate that you’d see I have socks on. I took my shoes off so there wasn’t the “clankiness” on the ground. But uh, anyways, lets talk about these 3 options here.
So Option 1 is you can have the seller complete the repairs themselves. Now this is really nice for a buyer sometimes because you know, you don’t have to worry about getting those repairs done when you get inside the home. The only downside, potentially, could be as buyer you don’t know the quality of the work that that seller did.
Option 2 is you can have the seller reduce the price, right? Now, depending on what your loan is, this sometimes isn’t the best option. So let’s use some easy numbers here.. you bought a $400,000 home and a $5,000 repair comes up. So that’s $5,000 to the seller, but if you reduce the price your out of pocket down payment and your monthly payment as a buyer isn’t really going to change much. Which kind of leads me into my 3rd option.
Having the seller give the buyer closing costs in lieu of repairs. So basically that $5,000 repair comes up, the buyer says “Hey, you know what, I’ll get the repair done when I move inside the home, I just want you to cover $5,000 of my closing costs.” It’s essentially the same thing to the seller as reducing the price by $5,000 but now it’s a little but more equal. It’s $5,000 savings for the buyer and its $5,000 reduction to the seller.
So that’s the 3 different options. Sometimes you can use all 3 maybe just 1 or 2, it really depends on the situation. I hope that this video was helpful and that’s pretty much the end. I gotta work on my ending on the videos. So, ya, that’s the video, hope you enjoyed, see ya next time.
Great video guys!
In this short video I go over what the past 5 recessions have done to the housing market and what the next recession could potentially do to the housing market in Texas.
If you are thinking about selling, buying, or investing in real estate you have probably watched the news. Outside of the election, a very hot topic right now is when will the next recession happen and will it be anything like 2008/2009? Most experts say no. You see, the 2008 recession was caused by a housing crisis and subprime mortgages. The housing market is not in the position it was leading up to 2008.
I hope you found this video informative! If you are or anyone you know is thinking about selling, buying, or investing in real estate I'm here to help!