First time home buyer assistance

home for sale

Are you a first time home buyer worried, overwhelmed, or intimidated by the process? You’re not alone.  First time home buyers have had the most difficulty getting back into the real estate market after the Great Recession.  Many would-be first time home buyers lack the financial resources, while others worry about the long term value.  However, there is probably no better time than now to buy your first home.

This is a first time home buyer market

first time home buyer
First time home buyer assistance (infographic from mgic.com)

You may be one of the many would-be first time home buyers who opted to continue to rent or live with their parents until the timing was right.  Many would-be home buyers did the same, as a 2106 Pew Research Center report pointed out the millennial housing trend that may be associated with the decline in the homeownership rate since the Great Recession (For First Time in Modern Era, Living With Parents Edges Out Other Living Arrangements for 18- to 34-Year-Olds; pewsocialtrends.org; May 24, 2016).  However, economic factors have significantly improved, and the housing market has stabilized.  So what’s holding you back?

Are you overwhelmed or intimidated by the home buying process?

First time home buyer
First time home buyer (infographic from keepingcurrentmatters.com)

Buying a home can seem intimidating, and overwhelming.  But it doesn’t have to be. On the Holmes and Rahe Stress Scale (Holmes & Rahe 1967), having a mortgage over $10,000 rates 31 (just above being foreclosed upon) and moving is rated as 20. This commonly used stress scale is cumulative, so the rating for buying a home is at least 51. However, being prepared can help you anticipate and deal with most circumstances that may arise.

Finding a professional and competent Realtor who will “be” with you throughout the process is highly important.  Of course, finding an agent whom you trust can be a process too.  It’s important to know your agent will be there for you, not only to answer questions and resolve your concerns, but to also represent your best interests.

What are your expectations?  Your home buying expectations are influenced by your experiences.  However you are also influenced by a combination of the media, relatives, friends, and co-workers.  Having very high and unrealistic expectations can not only increase your stress, but can but a wrench in the transaction before it starts. Discussing your expectations with your Realtor will determine if they are realistic or not.

Choosing your Realtor

Before deciding on the realtor you want to work with, informally talk to several about how they help first time home buyers.  Unfortunately, home buyer surveys (such as the annual National Association of Realtors Profile of Home Buyers and Sellers (nar.realtor)) suggest that the majority of home buyers and sellers typically hire the agent they first encountered.

Besides assisting in home searching and negotiating sales contracts, your agent should be by your side throughout the transaction.  Your agent should be available to you to help you maneuver the bumps and surprises that can derail your home purchase.

Even though you may not place an agent’s experience high in your list of agent characteristics,  a research study by Bennie Waller and Ali Jubran (“The Impact of Agent Experience on the Real Estate Transaction.” Journal of Housing Research 21, no. 1 (2012): 67-82) suggests otherwise.  They concluded that an experienced real estate agent can yield a better result than an agent with little or no experience.

Check your agent’s license.  Make sure your agent is a full time agent (meaning that the only job they have is selling real estate).  Don’t be shy about asking and calling your agent’s references.

First time home buyer down payment and closing cost assistance

If affordability, down payment and closing costs are a concern, apply for a first time home buyer assistance and/or grant program.  There are many programs available offered through local and state organizations. Your lender can help you find and apply to the programs for which you qualify.  Regular communication with your loan officer is important because the funding is limited annually and can quickly run out.

Locally, one of the mainstays for first time home buyer assistance is the Maryland Mortgage Program (mmp.maryland.gov).  The MMP is provided through the Maryland Department of Housing and Community Development, and funded by the Community Development Administration.  It is described as “…providing home loans and down payment assistance to Maryland’s working families to encourage responsible homeownership and build strong communities, working through a network of Maryland Mortgage Program lender organizations.”

MMP loans are just like other mortgages, except that they offer competitive rates and offer additional assistance in the form of Down Payment Assistance and Partner Match Programs (up to $8,500 from the Department and possibly more from partner organizations).  Some Partner Match programs offer homebuyer grants.  However, other Assistance programs are generally in the form of deferred, no-interest loans.

Combining Down Payment Assistance with a Partner Match program can significantly reduce the amount you need to buy your first home!  The Down Payment Assistance program is a loan of up to $5,000.  The loan is a zero-percent deferred loan, which is repaid when you pay off the main Maryland Mortgage Program mortgage when you refinance, or sell the home.

Department of Housing and Community Development has partnered with many organizations and employers that can provide you with additional assistance.  Your current employer may be a participant with the Partner Match program (check the Partner list at mmp.maryland.gov).  Local organizations also offer home buyer assistance (including the Moderately Priced Dwelling Unit Program) as well, such as the Housing Opportunities Commission (hocmc.org) and The City of Gaithersburg (gaithersburgmd.gov).

Copyright© Dan Krell
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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

Buyers and sellers – Mentally prepare to be in real estate market

from stress.org

Realtors® are guilty of romanticizing, if not glorifying, the idea of buying and selling a home.  And it’s probably true for many, that initial thoughts of buying or selling a home (and everything that goes along with it) are sanguine.  And yet, shortly after they are faced with details of the move, many are hit with the reality that the process is full of potential pitfalls and setbacks.  Buying and selling a home can be a confusing endeavor, that can become overwhelming if you’re not mentally prepared.

Getting through the process of buying and selling requires organization and planning to seek the best outcome.  As a home buyer you organize before viewing homes by having a mortgage approval in hand, as well as determining a price range and area in which you are looking.  As a home seller you have a plan in place before the home is on the market; which includes a pricing and marketing plan, as well as having your home in its best possible condition so as to give the best impression.

Even though the process of buying or selling a home is straightforward (after all it’s not rocket science), being prepared for various stages can help you through potential issues.  If you’re a first time buyer or seller, having a checklist helps you be aware of where you are in the process.  Even if you’ve bought or sold a home before, you should be aware of changes to the process that have been made in the last eight years.

You should also be aware that every transaction is different; each transaction has a different set of personalities, conditions, and issues.  You no doubt have heard your relatives’, friends’ or coworkers’ account of their buying or selling experience.  But chances are that they may not remember the snags they endured.  Reactions among buyers and sellers, as well as their real estate agents, vary depending on their personalities and life circumstances.  So, your experience may be similar to others’; however, be prepared that it could also be very different.

Additionally, many never realize how many individuals are involved in getting their transaction to settlement.  Besides the buyer, seller and real estate agents, there is a lender, a title company, and a home inspector, (among others); each increasing the number by a factor of their employees, and increasing the opportunity for Murphy’s Law to interrupt your smooth settlement.

Although the process of buying or selling a home appears to be task oriented, there is also an emotional component.  Did you know that having a major change in living conditions and taking on a mortgage are rated in the Holmes and Rahe Stress Inventory?  This acknowledges that buying and selling a home is an emotional investment that could impact your emotional wellbeing (positively and negatively).  Chances are that at some point you may feel the added pressure of your sale/purchase.

Mental preparation for your home purchase or sale may include moderating expectations and anticipating how you may cope with various circumstances that may arise.  Mental preparation can help maintain a feeling of control over your transaction.  It can be helpful to work with an agent who can address your worries and fears about the transaction through listening and empathy.  Most of all, hire an experienced real estate agent, who not only has the ability to problem solve and work through problems, but will help you organize and prepare.

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Housing affordability in a post recession world

HomesI talk to lots of people at open houses. You shouldn’t be surprised to hear that although some express concerns about increasing home prices and their ability to buy a home, many also express their exasperation with increasing rents. And although home prices and ability to get a mortgage are among top concerns for home buyers, according to Realtor® Magazine (Top 6 Home Buyer Concerns, realtormag.realtor.org, August 24,2015); buyer apprehensions have not changed much over the years. There is always a group of buyers who fuss over home prices, down payments, and mortgages. So much so, that it seems as if it is a permanent part of the housing landscape.

From Trulia.com

The housing market is experiencing year-over-year home price gains. The September 29th release of the S&P/Case-Shiller U.S. National Home Price Index (spindices.com) that indicated the 10-city composite increased about 4.5% year-over-year, while the 20-city composite increased about 5% year-over-year. And a recent report from Zillow Research (zillow.com) that indicated median national home prices increased about 3.3% year-over-year during August, while median national rent increased 3.8% during the same period. However, owning a home may be presently a lower percentage of income when compared to other historical periods: Zillow Research indicated that the U.S. Share of Income Spent on Mortgage was about 15% during June 2015, and the U.S. Share of Income Spent on Rent was about 30% during June 2015; while the Historic Share of Income Spent (during 1985 to 1999) was 21% and 24% respectively.

Infographic: Americans Living With Roommates: A Growing Trend | Statista
You will find more statistics at Statista.com

Home prices certainly affect housing affordability. However, affordability may also be affected by the cost of qualifying of a mortgage. Although there is a recent movement for lenders to loosen credit guidelines, qualifying for a mortgage is still more difficult today than it was a decade ago.

Laurie Goodman, Director of the Housing Finance Policy Center at the Urban Institute, recently wrote about how the lack of private-label mortgage securitization has affected many who don’t fit government backed mortgage guidelines. (Mortgage securitization is what provides the mortgage market liquidity, and allows banks to make the loans.) Goodman had this to say about the present lack of private-label mortgage securitization: “The disappearance of this market has affected the availability and cost of mortgages for one group of borrowers—those with less wealth and less than perfect credit who do not quality for government-backed loans” (Why you should care that private investors don’t want to buy your mortgage anymore, urban.org, October 9, 2015).

Goodman pointed out that prior to the great recession, the private-label mortgage securitization market was thriving; however post recession, private-label securitization has all but “collapsed.” Presently, mortgages are primarily government backed and or purchased by Fannie Mae, Freddie Mac, FHA, VA and others; which eliminates many borrowers with imperfect credit and/or don’t meet strict guidelines. However, if the private-label securitization further retreats or is eliminated, she predicts that borrowers with perfect credit and those living in “expensive” regions (such as Washington DC, New York, San Francisco) will be affected as well.

Tight credit guidelines may not be the only reason for many renters to rule out a home purchase. Not having an adequate down payment is another reason many don’t qualify for a mortgage. The lack of savings by Americans was documented by a survey conducted by the Consumer Federation of America (7th Annual Savings Survey Reveals Persistence of Financial Challenges Facing Most Americans, consumerfed.org, February 24, 2014).

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Home buyer survey predictive of spring housing market

home saleI think it’s safe to say that many of us have been anticipating spring’s warm weather; if not for a change of pace from arctic temperatures, it’s the season that the housing market swings into top gear. However, Fannie Mae’s March 2015 National Housing Surveymay support anecdotal reports of home buyer attitudes toward home prices and is making some re-think their estimation of the spring market.

The April 7th Fannie Mae (fanniemae.com) press release titled, “Lackluster Income Growth Weighing on Americans’ Housing Sentiment: Share of Consumers Expecting to Buy a Home on Next Move Reaches Survey Low” might convey that not all home buyers are looking to buy a home this year. However, the news is not all gloom and doom. Although the survey indicated that 60% of respondents said they would buy a home if they were to move, which is an all-time survey low; the percentage of those who responded that it was a good time to buy a home hit an all-time survey high. Additionally, there were fewer respondents in March’s survey who felt their financial situation would improve in the next year.

The survey is described by Fannie Mae as “The most detailed consumer attitudinal survey of its kind.” It polls 1,000 Americans on their attitudes about such things that include (but is not limited to) homeownership, the economy, household finances, and overall consumer confidence. Fannie Mae senior vice president and chief economist Doug Duncan remarked about the March survey: “… results emphasize how critical attitudes about income growth are to consumers’ outlook on housing.” However, consumer sentiment should improve as income growth is realized.

Fannie Mae’s March survey is coming on the heels of news of a possible economic slowdown. The Wall Street Journal’s Kate Davidson reported on March 25th (GDP Growth Estimates Tumble, Again: wsj.com) that the latest Gross Domestic Product estimates may be a repeat of last year. While several Wall Street economists revised lower their Q1 2015 GDP estimates from 0.9% to 1.5%, the Federal Reserve Bank of Atlanta lowered their Q1 2015 GDP estimate to 0.2%.

If last year’s pattern is being realized, the survey’s consumer sentiment and economic news is just a blip on the radar. Remember that the Q1 2014 GDP was negative as the economy retracted, however rebounding with 5% third quarter growth. Likewise, 2014 home sales rebounded later in the year only finishing the year only 3% behind 2013 (according to the National Association of Realtors®). And as the NAR reported on March 30th that pending home sales rose during February, it is estimated that existing home sales will increase 6.4% during 2015 compared to 2014 (realtor.org).

The upshot of this data could be that consumers are saying is that it’s a good time to buy a home, but only if you can afford it. However, it’s not just about the dollar amount; home buyers are increasingly demanding value for their money. Buyers are looking at the bigger picture of the costs of homeownership including maintenance and commute to work. And this attitude can be reflected in home buyers’ push back on home prices.

If you’re a home seller, relatively low housing inventory is good news; but pricing your home correctly may be the definitive factor. And as you might anticipate home buyers competing for your home; consider that some have reported that that low appraisals have impacted their sale.

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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

Buying a home – is it a product or service?

house for saleIf you’re like many home buyers, your home search is focused on a home’s specific features that are limited to your price range. Your search may seem “product” directed, at least initially. And unless you plan to go it absolutely alone; you’re likely to be using a number of real estate related services as well.

Before the multiple list service existed, when card catalogs were used to keep track of homes for sale, real estate listings were proprietary and buyer agency did not exist. Cooperation between brokers was not guaranteed; and as a result, real estate brokers mostly sold their own listings. Because the broker was the source of information about the home, as well as the home sale/purchase process; the real estate broker’s services were perceived to be one and the same as the product (the house for sale).

Today, everyone turns to the internet for answers, which has become the “go to guy” for information. It seems as if the information found on the internet is treated as gospel, even when it is not verifiable. And this is particularly true for real estate. Home buyers, sellers, and owners use the internet to search all types of information including: homes for sale, home values, property tax, and the home buying/selling process.

Like some other service industries, you could say that the internet has contributed in separating the product from the service; consumers are no longer required to go directly to the real estate broker to search for a house or other real estate information, and consequently get their services too. Finding and viewing homes for sale without your agent has become easier; as is selling your home FSBO (for sale by owner). The resulting sentiment is the obvious questioning of the value of the real estate agent.

When asked what an agent can bring to your real estate transaction, the consensus is that they are housing market experts. Real estate agents are invested in knowing local listing and sale activity, as well as networking within the industry to keep on top of the latest trends. They can interpret the home sale data to help you formulate a buying/selling strategy (including price and terms). Experienced agents also typically have developed the ability to easily connect with buyers and sellers having a greater capacity to understand their specific needs to facilitate a smoother transaction. And although agents are often thought of as transaction facilitators; your Realtor® is a fiduciary, obligated to protect and promote your interests (while also obligated to treat all parties honestly). Agents are also required to be up to date on legislation that affects home buyers and sellers, which will help when structuring your transaction, including compulsory disclosures and obligations.

Unlike the consumer experience back in the day when there was little choice in real estate services, you now have the luxury of choice. But choose your agent carefully; agents are not all alike. Recent research indicates that veteran agents positively affect your transaction and are more efficient compared to rookies. Additionally, full-time agents have better outcomes than those who consider themselves as “part-timers.”

Savvy home buyers and sellers benefit from their agents’ experience and commitment. Smart consumers understand that experienced agents offer intangible services such as understanding the nuances of the housing market, as well as having an increased ability to engage the parties in the transaction.

© Dan Krell
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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. This article was originally published the week of July 7, 2014 (Montgomery County Sentinel). Using this article without permission is a violation of copyright laws. Copyright © Dan Krell.