Home Prices Continue to Rise

Benjamin Klar NMLS #937765

Benjamin.Klar@usmortgage.com

Direct 207-514-0753

www.KlarMortgage.com 

Why Are Home Prices Rising-

Statistics released this spring show that both new and existing home prices have risen significantly over the past twelve months. For example, the census bureau has indicated that the median price of a new home sold in April was $271,600, which was 8.3 percent higher than the previous month and 13.1 percent higher than one year ago. This is interesting news not only because it affects those in the market to purchase a home, but the economy in general. Wealth is created through rising home prices and this wealth has the potential to increase consumer confidence and thus consumer spending. Two questions arise from here--why are home prices rising and will they continue to do so? They are very interesting questions because just a few years back many were predicting that home prices would not recover for decades. In our opinion, it is also no coincidence that rates are rising at a time when home prices are rising and the real estate market gets stronger.

       

There are four reasons that home prices are increasing. For one, home prices dove down too low during the slump. In many areas the price of homes was below the replacement cost of purchasing a home. With so many foreclosures on the market, there was too much downward pressure on home prices. In addition, the cost of owning came in significantly below the cost of renting --especially when record low rates were factored into the equation. Investors across the nation recognized these economics and came in to purchase excess inventory to lessen the foreclosure issue and the equation quickly reversed. This caused the second reason for higher home prices--a tightening of inventory caused the price of homes being "bid up" in many cases. Across the nation, we have seen evidence of multiple bids on properties up for sale--especially at the lower or middle end of the market. This has created the opposite situation with regard to why home prices dove due to bank sales. In essence, reasons one and two have created a bounce in the market. The last two reasons? The economy and demographics. We will discuss these in part two of this series, as well as the future outlook for home prices.

Get in touch with me for a prequal or to ask questions you may have!

Benjamin Klar NMLS #937765

Benjamin.Klar@usmortgage.com

Direct 207-514-0753

www.KlarMortgage.com 

Can You Qualify for a Mortgage? And what rate can you expect?

This is the first, and biggest question. If you can’t comfortably manage the monthly mortgage payments, there’s no point in going any further. Notice we said comfortably – if you have to stretch to fit a mortgage in your budget, buying a home isn't for you, at least not yet. At the very least, you might consider a less-expensive property that won’t stretch your budget as far.

In evaluating a mortgage application, lenders look at two budget numbers. First, they’ll usually want to see that your monthly mortgage payment won’t exceed 28 percent of your gross monthly income. That includes the mortgage itself, along with taxes, homeowner’s insurance, mortgage insurance and any other fees that are billed along with the mortgage. Your gross income is your income before taxes and other deductions.

On top of that, they want to see that your other monthly debt payments – for car payments, credit cards, child support and any other long-term debt – do not exceed 36 percent of your gross monthly income if you’re applying for a standard mortgage.

These limits are for conventional mortgages. If you’re thinking about an FHA, USDA or VA mortgage, total debt can go above 40 percent, and up to about 31 percent for the mortgage payment.

You also need to take into account the down payment, which typically ranges from 3.5 percent to 20 percent of the home purchase price. But before we talk about that, you first have to consider your credit score.

Credit scores get a lot of attention, but many people worry about them too much. The fact is, only about one-third of U.S. consumers have a FICO credit score below 650, according to the company. Over half have scores over 700, generally considered the mark of good credit.

If you have at least three lines of credit – credit cards, auto loans or any other kind of loan-based debt – and have kept up with your payments, you’re probably in good shape. You can even have missed a payment or two and still have decent credit, provided you didn't go more than 30 days past due.

If you've got a credit score of 700 or better, you should be able to qualify for a mortgage, provided you meet the other requirements. However, the lower your score, the higher interest rate you’ll end up paying.

The best rates go to borrowers with scores of 740-760 and above. If you’re around 720, expect to pay about a quarter-percent more; perhaps a half percentage point higher if you’re at 700. You can still qualify for a mortgage with a credit score in the upper 600s, but be aware that interest rates increase fairly quickly once you get into that range.