Time to upsize? 4 ways to determine if the move is right
These days, there really isn’t such a thing as the “typical” family. By most indications, people are having fewer children, based on Census Bureau figures, but they do have greater generational diversity.
According to the Pew Research Center, approximately 20 percent of Americans live in a multigenerational household - up from 12 percent in the 1980s. Although frequently consisting of grandparents, married couples and children, multigenerational families' most common construct includes parents and their adult children, ranging from their late teens to early thirties.
But no matter the occupants of your home, "Should I buy a bigger house?" is probably a question that has crossed your mind at one time or another. Coming to a decision on this isn't easy, especially in an ever-changing residential real estate environment with multiple market forces at work, chief among them supply and demand.
With that in mind, here are four ways to help you decide if upsizing is the right move for you:
1. Outline your goals
The reasoning behind wanting to upsize isn't usually as plain as "I want more space." Rather, there are multiple, specific reasons that contribute to wanting a larger home - and specific questions to ask.
For example, is the kitchen too confining? Are your kids getting bigger, thus no longer fitting in their formerly ideally sized bedrooms? Perhaps you have a child on the way who will need a room of his or her own? There are countless reasons to want to upsize - it's simply important to outline all of them to determine if making such a move has merits.
2. Understand bigger may not always be better
Just as timing is a core component of home buying, the same standard applies to your current family situation. For instance, if you live in a multigenerational household, cramped quarters may be inconvenient. However, it may also only be a temporary annoyance, if someone will move out of the residence soon. In short, consider the timeline of your family's construct before upsizing.
3. Run the numbers
A host of factors go into where you should enter or re-enter the housing market, but the overarching one should be your financial situation. You may be comfortable with what you're spending now for monthly mortgage payments, but going larger will almost certainly cost more.
Be sure to take advantage of online mortgage calculators and assess your other expenses to determine if spending a higher dollar amount is something you can manage.
4. Assess the potential downsides
Almost every housing decision you'll make comes with potential drawbacks. For example, a common one associated with buying a bigger place is a longer commute, as larger houses tend to be in the suburbs, farther away from cities where most employers reside, as Realtor.com notes. A longer drive into work may be immaterial, but be aware of the possibility that your drive time could increase.
Just as no two families are alike, the same goes for housing needs. By understanding your current situation and recognizing how going bigger aligns with your overarching goals - both from a family and financial standpoint - you're more likely to make the sizing decision that makes sense.
With the economy in sounder shape in recent years, foreclosed property filings have fallen rather precipitously. Indeed, if you look at the numbers from 2017, foreclosures in the U.S. totaled roughly 676,500, according to figures from ATTOM Data Solutions. That's a decrease of 27 percent compared to the previous year and down a whopping 76 percent back in 2010 during the immediate aftermath of the recession when foreclosures hovered at around 2.9 million across the country.
That said, more than two-thirds of a million foreclosures is a sizable figure, especially when you consider the overall housing situation, where demand is high and inventory is low.
So is buying a foreclosed house something you should consider? As with many aspects of buying a home, there's no easy answer. But you should be able to draw your own conclusions after evaluating the pros and cons. Here are a few of them:
Lower asking price
The abundance of demand and scarcity of property has caused home values to rise. In fact, they've increased year over year for 73 months in a row through March, the most recent month for which data is available, with the median cost per house at around $250,400, according to the National Association of Realtors (NAR). Foreclosed houses, on the other hand, tend to be priced lower than market value because sellers want to move their properties as quickly as possible. Pricing alone can be a compelling reason to buy.
Potential for greater return on investment
Buying a home could easily be the biggest investment you ever make, so it's important to make it wisely. If a property was initially sold at a high price point but now is lower because of its foreclosed status, buying might present an opportunity for a greater return on investment.
Home may be in a state of disrepair
All properties will have some wear and tear. But the former tenants of a foreclosed home may have struggled financially, which means they probably haven't paid for needed repairs. This is part of the reason why foreclosures sell for less. New tenants will likely have to spend money on substantial upgrades or renovations.
Owners may still reside there
The foreclosure process is a lengthy one, especially when buyers follow the traditional method: going through a mortgage lender. It takes time for a property to go from mortgage delinquency to full foreclosure status, and there may be a considerable amount of paperwork waiting on the other side. It could be several weeks, or even months, before the previous tenants actually move out.
Not ideal for first-time owners
Around one-third of those shopping for a home are in the market for the first time, according to the NAR. These families, many of whom are young, want to buy a property that's move-in ready. Obviously, that's generally not the case for foreclosed houses. The price may be right, which is good news for first-time buyers, but purchasing a foreclosed property could put them on the hook for liabilities that the previous owners left, such as debts or unfinished repairs.
By working in consultation with your real estate agent and debating all sides, you can come to the right decision on whether buying a foreclosed house makes sense for you and your family.
The four seasons: Which season is best for homebuyers?
When is the best time to buy a house? For some, this can be a stressful issue, as no one wants to enter the market when it may be better to remain on the sidelines.There's no easy answer regarding when to begin a home search, because each season comes with its own set of strengths and weaknesses, much like the weather and its changing seasons.
Here are a few tips on what to be aware of when conducting a listing search in each season of the year so you have an idea of what to expect with each:
After months of cold weather and being cooped up inside, people are eager to get out and emerge from winter hibernation mode. This same principle applies to the housing market.
Spring is generally considered to be the official kickoff to the homebuying season. In short, it’s an excellent time to start looking because new listings tend to pick up in volume. Any seasoned real estate agent knows this is the time to suggest their clients start their home search in earnest and head to open houses and private showings.
The only caveat to this time of year is the need for speed: Many homes for sale don’t tend to last more than a week or so, especially in “hot” markets, so homebuyers are wise to act quickly.
According to HousingWire, summer is usually the most popular time of year for homebuyers. You can understand why, given most kids are done with school, vacation season is underway and foot traffic rises. This makes it an appealing time for sellers hoping to sell high, which could be problematic for buyers on a budget.
Having said that, Realtor.com explains home prices don't always heat up when the weather does. Because inventory usually swells, buyers have a greater variety of options to choose from, which may not be the case when temperatures eventually go the other direction.
Leaf peepers come out of the woodwork when late September and October roll around, but not so much when it comes to would-be buyers. With the dip in demand, October is considered the best month to buy on the cheap, with the typical homebuyer spending 2.6 percent less than market value, per RealtyTrac analysis.
"For buyers looking for a better deal, fall is a great time to make offers," Joanne Douglas, a Realtor based in New York City, explained to Realtor.com.
It's the time of year when Americans hunker down, grin and bear it with school back in session and work deadlines fast approaching. This part of the year tends to see a pullback in both buyers and listings.
However, as the Washington Post reports, buyers often have an advantage when properties go up for sale, because it may be an indication that the seller needs to offload their property quickly due to something unexpected that's come up. Eager to sell, owners may be more willing to entertain bids lower than the asking price.
Whether the weather you prefer is hot, cold or somewhere in between, keeping these factors in mind can help you gauge the market and get a sense of when the time is just right.
Why should you consider a renovation mortgage loan?
Is your house in need of a makeover? You're not alone. According to data from the National Association of Home Builders, the median age of residential real estate in the U.S. is 37 years, up from 31 in 2005. But with renovations as expensive as they are, renovating your home may not seem like a financially feasible task.
There are, however, several mortgage products out there customized for people looking to update their current or soon-to-be digs, some of which lend off of the improved value of the home.
What are renovation mortgage loans?
From the Fannie Mae Homestyle Renovation to the Federal Housing Administration's 203k program, renovation mortgage loans are loans that enable borrowers to pay for home improvements without having to tap into alternative financial resources. In other words, instead of taking out a second mortgage loan or line of credit, home improvement financing is built into the original mortgage product, resulting in less runaround and rigmarole.
People refurbish their properties for a variety of purposes, whether to add curb appeal, increase their resale value or tailor them to suit their families or lifestyles. Renovations have become particularly popular among first-time buyers. Indeed, a 2017 survey from Houzz found that the average total spend for renovations in 2016 among first-timers was $33,800. That's a 22 percent increase compared to a similar Houzz poll from 2015. Interestingly, first-time home-owning baby boomers tend to spend three times more on renovations than millennials.
What types of renovations are the most common?
Just as the amounts spent on home renovations vary considerably from family to family, so too do the actual projects. For instance, in a more recent survey conducted by Houzz that queried 1,700 homeowners, approximately 75 percent of kitchen remodels were geared toward decluttering countertops by adding space-saving cabinetry or organizers. And in a separate poll done last year, more than half of bathroom restorations were geared toward making this all-important portion of the house a bit roomier.
These and many other home renovations are possible with a renovation mortgage loan. Eligible improvements may include repairing or replacing the roof, floor, plumbing, electrical systems, air conditioning, waterproofing the basement, deck installation or even adding a second floor for growing families.
With the economy on firmer footing, many Americans are hiring experts to handle home updates. Some even take on renovation projects themselves. The NAHB's most recent Remodeling Market Index posted a reading of 57 for the first quarter. Any figure at or above 50 suggests there's a strong level of home improvement engagement or activity among consumers.
When you love your home but are less than enthusiastic about its interior or exterior features, a renovation can make a lot of sense. It's particularly useful in today's real estate landscape, where, even though supply levels are making some much-needed headway, properties aren't as plentiful as most would like it to be. According to the most recently updated figures from the National Association of Realtors, there were around 1.6 million residential real estate listings available in February across the U.S. That was a near 5 percent uptick from January but still down 8 percent on a year-over-year basis.
If you intend to renovate, Residential Mortgage Services can help you finance your next big project. What separates us from our competitors is, instead of a traditional home equity project, we lend off of the improved value of the home, giving you the most bang for your restoration dollar. Contact us to learn how you may be able to build the home you've always wanted.
Using gift money to buy a home
While it’s generally known that home buyers may use “gift funds” toward the purchase of their home, there is also a great deal of confusing information out there that can start your head spinning when you try to figure out what is or isn’t allowed and what documentation will be needed so the gift may be used in the transaction.
The Big Question: Why is gift money a big deal?
Yes, let’s talk about why gift money is such a big deal. It actually goes back to our government’s efforts to prevent money laundering through real estate transactions. This is part of our country’s fight against illegal drugs, weapons and even terrorism. Mortgage companies are required to document the source of all money going into a real estate transaction, and that especially includes money coming from someone other than their borrower(s). There is a wealth of great information on the efforts being made here: https://www.fincen.gov/history-anti-money-laundering-laws
“How much of the money I put toward my home purchase can be gift money?“
It depends on the mortgage program you’re going to use. Some programs allow for the entire down payment to be in the form of a gift. Others may require at least 5 percent of the purchase price from your own funds unless the total down payment is 20 percent or more. This is a question to discuss with your loan officer. They’re going to be familiar with the requirements of each mortgage program and will be able to show you your options.
“My parents are willing to give me twenty thousand dollars to help me buy a house. Is that okay? What do we need to do?”
Shouldn’t be a problem if everything is above board and documented well. First, write your parents a big, heart-felt Thank You card. Next, educate yourself on what to expect.
In most situations, the gift donor or provider must be a family member, fiancé or domestic partner. Additionally, they must be able to supply evidence that they can give you the gift. What does that mean, “supply evidence?” This can be a copy of their bank statement, a cancelled gift check or a signed letter from their bank attesting to the availability of funds in their account. Sometimes more than one of these items may be required. It’s important that you understand this and communicate it with your gift donor when arranging the gift, because they will be expected to supply documentation in order for the gift to be used.
The Gift Letter
Your mortgage originator will usually have a form that the gift donor can complete and sign, or a simple letter from your gift donor may be requested. Whether it is a form or a letter, these items usually need to be included:
- The donor’s name(s), address and relationship to you
- The donor’s account information (the account(s) where the gift money is being held)
- The property being purchased
- The dollar amount of the gift
- The date or approximate date of the transfer with a statement that the funds are a gift with no expectation of repayment
Properly documenting the transfer of gift funds is vital. Your mortgage loan team will give you the guidance you need to handle the transaction properly. When they do, try to follow their instructions to the letter. It may seem like a lot of silly details but see each one through. There’s no replacement for getting it right the first time.
Here is a typical example of what that guidance may look like:
- The donor should give the gift in the form of a check or wire
- If by check, make a copy of the check before depositing it into the account that will be used for verification of funds to close
- Keep the transaction simple - DO NOT combine this deposit with any other incidental deposits
- Provide a copy of the deposit slip or confirmation and either an online update or the next account statement as evidence that the deposit “cleared” (meaning the funds are fully available in the account now)
Handled correctly, gift funds can be a big help toward achieving homeownership. Handled incorrectly, there is the potential for gift funds to be ineligible, and you’re now researching other ways to afford the home you want to buy.
If you’re thinking of using gift funds to help buy your home, follow the guidance above. Talk with your gift donor about the documentation that may be needed from them so they aren’t uncomfortable or cause delays when it’s requested. Make sure the gift letter includes all the information needed by your mortgage company. Manage the transfer of the gift money exactly as instructed and provide documentation promptly. If any further documentation is required get it quickly. And ask your mortgage loan team any questions that come up! They’re going to want to help get this right so you can walk away from settlement with keys in your hand saying:
“that was a lot easier than I expected it would be!”