Is the Housing Market Both a Seller’s and a Buyer’s Market?

 The pandemic hit and the housing market went crazy with buyers. In fact, many potential home buyers felt desperate and defeated due to all cash offers and multi-bidding wars. Those in the industry say that this is not the case anymore as the market is starting to become an even playing field.

“Those moments of…..there are 20 offers coming in are gone now. Buyers can take a bit more time . The buyer has a little bit more power or control on their side, ” says Jay Farner with Rocket Mortgage.

This is the 10th month in a row that home sales have dropped due to the rise in the mortgage rates. This has been the longest decline in home sales since around 1999. The market is not as hot as it was during the pandemic for sellers, but still is not a buyer’s market either due to the still historically low housing inventory.

“I’d say it’s an even market. A few years ago, it was clearly a seller’s market. We were doing verified approvals, people were getting a full underwrite within 24 hours to ensure they could present almost like a cash buyer to make an offer on that home. Now, they have a bit more time. They have more homes they can look at…..We’re not seeing 15 offers on one home,” replies Farner.

Even though the home prices are slowing down, they are not dropping. Since the demand is decreasing a bit, so is the supply. Higher mortgage interest rates have caused a slump in the market due to high inflation. The 30-year fixed at the week ending January 12 was around 6.33% which was down from last fall but up from this time a year ago.

“A recession here is on the horizon. People are changing their spending habits, credit card debt is rising, savings and bank accounts are dropping. All of those things tell me that we’ve set the table for a recession here in 2023,” says Farner.

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Tips and Strategies for Building and Managing Your Credit

 Good credit has lasting financial benefits but building credit can look like a huge task. The trick is the more you practice good credit habits, the better your credit will get. There are several things you can do to build, rebuild and improve your credit. Here is what you need to do to start the process.

Build Your Credit

One of the best ways to do this is to apply for a secured credit card. A secured credit card is guaranteed upfront by a cash deposit. If you deposit $500 then your credit limit will be $500. You will want to make payments on time and keep a low balance to ensure you are building your credit.

Another good way to help boost your score is to ask a family member to add you as an authorized user on their credit card. You will get a credit card with your name on it and the primary cardholder will set a limit on how much you can charge. This is a good way to manage a credit line.

A major loan like a student loan or car loan is reported to the major credit bureaus making this a great way to build up your credit. Paying your loan payments on a car or student loan will build good credit. Creditors like to see a history of on-time payments which shows you can manage your line of credit responsibly.

Keep Up Good Credit Habits

Make payments on time on everything such as your utility bills, credit card companies and other accounts. Also, you want to have different types of credits because having different types of credit improves your credit score. Accounts like cell phone bills cannot be included.

Don't just apply for a card and let it sit, use it on a regular basis. This keeps your credit utilization low. Your credit utilization ratio is the percentage of your available credit that you actually use.  For example if you have a $1,000 credit limit, ty to keep your balance under $300 which is around 30% of your credit limit.

Get Your Credit Back on Track

To do this, you need to make sure your credit report does not have any errors. Knowing your credit score is a big plus to having an idea of your financial holdings. Getting a credit report from one of the credit bureaus will show you your credit activity, your credit history, and the status of your accounts. If there is an issue or a change in your financial situation, contact a creditor directly. They will work with you to create a payment plan.

Overall remember, that the best way to handle your credit is to live within your budget and avoid bad credit. If you do find yourself with bad credit, catch the problems early.

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Freddie Mac Wants To Help Renters Build Up Their Credit Through

 Renters now have a chance to use their rental payments to help build their credit scores. Freddie Mac has a new program that allows renters to use their on-time monthly rent payments to build up their credit. This is good news for the renters but also for the owners or managers of rental properties as an incentive. Property owners or rental managers can now report on-time rental payments to the credit bureaus.

This new program's purpose is to help those who do not have a credit score. It is reported that 45 million U.S. adults have no credit score. In fact, less than 10% of renters currently see their on-time rental payment history reflected in their credit scores. This is preventing many U.S. adults from getting some of the best mortgage rates in order to purchase a new home.

“Rent payments are often the single largest monthly line item in a family’s budget, but paying your rent on time does not show up in a credit report like a mortgage payment,” says Michael DeVito, CEO of Freddie Mac. “That puts the 44 million households who rent at a significant disadvantage when they seek financing for a home, a car, or even an education. While there remains more to do, this is a meaningful step in addressing this age-old problem.”

Esusu Financial Inc. technology is used by Freddi Mac to report rental payments and rental data to all three credit bureaus. When a renter misses a payment, it will automatically unenroll renters. As an incentive, Freddie Mac will allow closing cost credits on multi-family loans to those who chose to use the Esusu platform.

“At present, the most common way for rents to be reported to the credit bureaus is when there is a missed payment that has gone to a collections agency,” says Alexis Sofyanos, senior director of Equity in Multifamily Housing at Freddie Mac. “Freddie Mac wants to flip that script, so that renters who pay their rent on time and in full each month get credit for doing so, while also putting in safeguards for the most vulnerable.”

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Steps To Follow When Buying A Home

 

Purchasing a home is a big life step and with any big life change, it is always best to be prepared and knowledgeable in order to make the right decision. Below are five simple steps to take when buying a home.

1. Organize your finances

The first major task in this step is to save for a downpayment. Most conventional loans require a 5% - 20% downpayment at closing. In fact, a conventional loan will require PMI(private mortgage insurance) if you put less than 20% down. A good incentive is the larger the down payment the better rates a lender will offer. Putting a larger downpayment on a home will allow you to save money over the life of the mortgage loan.

Another factor that will determine your interest rate and the type of loan you qualify for is your credit score. A credit check is required by lenders in order to offer you a mortgage. Remember lenders do perform hard inquiries on your credit report which will impact your credit score. If you are shopping around for mortgage lenders, ask them to do a soft inquiry on your credit check so it will not impact your score.

You will also want to save up for closing costs which will be about 3% of the total home price. These costs include the loan, underwriting, and other fees associated with the purchase.

2. Determine how much house you can afford

When sitting down to determine how much you are able to afford on a house, look at your debt-to-income ratio. A lender looks at your debt-to-income ratio. Basically, this is comparing your income to your debt and usually, it has to fall under 43% to qualify for a mortgage. An example would be if your monthly debt totaled $3,000 and your monthly income is $10,000 your DTI would be 30%.

Not only should you understand your DTI but also how a mortgage payment is calculated. A monthly mortgage payment includes the principal payment (goes toward the amount you borrowed), interest, escrow (property taxes/homeowner's insurance) and if applicable PMI. A mortgage calculator is a great way to become familiar with the cost associated with a mortgage.

3. Understand your mortgage

There are several pieces that lenders use to determine your interest rate. The better your credit score the better your interest rate. Someone with a lower credit score could have a 1% higher interest rate on the same mortgage as someone with a higher credit score. The length of the loan also plays a factor. In some instances choosing a 15-year loan over a 30-year loan will allow you to get a lower interest rate. The Federal fund rate also determines the interest rate. If the federal funds rate is low, it means it does not cost a bank as much to borrow money. Those savings are passed to you from the bank in form of a lower interest rate. Different lenders will offer different rates so shop around for the best rate. A primary residence will also be in favor when it comes to a lower rate. A secondary or vacation home will bump the interest rate up.

Conventional loans have stricter qualifications than an FHA loan. An FHA loan allows for a smaller down payment and less stringent qualifications. This is a great way to go if you are a first-time homebuyer. To compare, a conventional loan minimum credit score is around 620, where an FHA minimum credit score is 500 - 579.

As mentioned before, PMI can increase your monthly payments. If you want to avoid PMI you have to put at least 20% down. If you cannot put 20% down, PMI can be removed off a conventional loan once you have a built-up 20% equity. On an FHA you will either have to pay PMI for 11 years or the life of the loan. This depends on the loan amount, length of the loan and the loan-to-value ratio (LTV). If you do decide to go with an FHA, you will also be required to have Up Front Mortgage Insurance (UFMI). This will be 1.75% of the base loan amount and can be paid at closing or rolled into your monthly mortgage payments.

4. Get pre-qualified or pre-approved for a mortgage

There is a difference between getting pre-approved vs pre-qualified for a mortgage. Sellers like to see a pre-approval letter from a mortgage lender. This means the buyer is serious and can afford the home.

• Pre-qualification is a quick process that tells you roughly how much you can afford to spend on a home, based on your self-reported income, debts and assets.
• To obtain pre-approval, you’ll have to provide verifiable financial documents to the lender. The lender will review your credit report, financial history, income statements and more to determine how much they would be willing to lend you.

5. Look for a property and make an offer

In today's market, there are more buyers than sellers making it hard for a buyer to sit and think on it overnight. If you like the home and it fits all your criteria, submit an offer.

A Realtor can help you with the process and help you navigate this hot market. They can negotiate your price and terms as well as recommend mortgage brokers, title companies and inspectors. A Realtor will be with you from your search to the closing.

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