homebuying

, , , , ,

This factor can get your mortgage application denied — even if you’re a high earner

, , , , ,
 

If you need to get a mortgage to buy a house, make sure your finances are in order — especially your debt to income ratio.

Your debt-to-income ratio is all your money debt payments divided by your gross monthly income. It’s the “number one way” lenders measure your ability to manage the monthly loan repayments, per the Consumer Financial Protection Bureau.

The debt-to-income ratio was the most common reason for a denied mortgage application, at 40%, according to the 2024 Profile of Homebuyers and Sellers report by the National Association of Realtors. 

Other factors that affected homebuyers in the approval process were a low credit score (23%), unverifiable income (23%) and not enough money in reserves (12%), the report found.

The NAR polled 5,390 buyers who purchased a primary residence between July 2023 and June 2024 and found that 26% of homebuyers paid all-cash — a new high.

Lenders look for a ‘healthy’ debt-to-income ratio

Repeat buyers who gained record home equity in recent years drove that trend, according to the NAR.

But for those who need to borrow in order to buy, lenders and institutions look at your debt-to-income ratio to see if you may struggle to add a mortgage payment on top of other debt obligations.

“The higher your debt-to-income ratio is, the less chance they’re going to feel comfortable lending to you,” said Clifford Cornell, a certified financial planner and associate financial advisor at Bone Fide Wealth in New York City.

It’s a factor that affects home applicants of all income levels, said Shweta Lawande, a certified financial planner and lead advisor at Francis Financial in New York City. 

“If you’re a high earner, you might not experience an issue saving towards a down payment, but that doesn’t mean you have a healthy debt to income ratio,” she said. 

Here’s what you need to know about your debt-to-income ratio.

How to calculate your debt-to-income ratio

If you’re looking to apply for a mortgage, the first step is to know what your current DTI ratio is, said Lawande.

Take your total required monthly debt payments, like your monthly student loan or car loan payment. Divide that sum by your gross monthly income, she said. Multiply the result by 100 and you have your DTI expressed as a percentage.

A DTI ratio of 35% or less is typically considered as “good,” according to LendingTree.

But sometimes lenders can be flexible and approve applicants who have a debt-to-income ratio of 45% or higher, Brian Nevins, a sales manager at Bay Equity, a Redfin-owned mortgage lender, recently told CNBC.

A way to figure out your housing budget is the so-called 28/36 rule. That guideline holds that you should not spend more than 28% of your gross monthly income on housing expenses and no more than 36% of that total on all debts.

For example: If someone earns a gross monthly income of $6,000 and has $500 in monthly debt payments, they could afford a $1,660 a month mortgage payment if they follow the 36% rule. If the lender accepts up to 50% DTI, the borrower may be able to take up a $2,500 monthly mortgage payment.

The ‘better’ debt repayment strategy

You can improve your debt-to-income ratio by either shrinking your existing debt or growing your income.

If you have existing debt, there are two ways you can work to pay it off, experts say: the so-called “snowball method” and the “avalanche method.”

The snowball method is about paying off the smallest debt balances first no matter what the interest cost is, which can feel less overwhelming, said Shaun Williams, private wealth advisor and partner at Paragon Capital Management in Denver, the No. 38 firm on CNBC’s 2024 Financial Advisor 100 List.

“One is what’s best on a spreadsheet, and the other one is what makes someone feel best from a behavioral finance standpoint,” Williams said.

Yet, “the avalanche is better because the true cost of debt is your interest rate,” he said, as you’re more likely to pay down the debt faster.

Let’s say you have student loans with a 6% interest rate versus an existing credit card balance accruing a 20% interest rate. If you’re sitting with credit card debt, consider tackling that balance first, Cornell said.

“Whichever one’s costing you the most to borrow is the one that you want to pay down as quickly as possible,” he said.

If you’ve already done what you could to either consolidate or eliminate existing debt, focus on increasing your income and avoid other large purchases that would require financing, Lawande said.

“The goal is to just preserve the cash flow as much as possible,” she said.

Read more at CNBC

Related Links

If there is a home that you would like more information about, if you are considering selling a property, or if you have questions about the housing market in your neighborhood, please reach out. We’re here to help.

Search Homes in Colorado

Search Homes in North Carolina

Search Homes in Oklahoma

How Co-Buying a Home Helps with Affordability Today

 
 

Buying a home in today’s market can feel like an uphill battle – especially with home prices and mortgage rates putting pressure on your budget.

If you’re feeling stuck, co-buying could be one way to help you get your foot in the door. Freddie Mac says:

“If you are an aspiring homeowner, buying a home with your family or friends could be an option.”

But there are some things you’ll want to consider first. Let’s explore why co-buying is gaining popularity right now among some buyers and see if it may make sense for you too.

What is Co-Buying?

Co-buying means buying a home with someone like a friend, sibling, or even a group of people. And, with today’s high home prices and mortgage rates, it’s an option more people are turning to.

According to a survey done by JW Surety Bonds, nearly 15% of Americans have already co-purchased a home with someone, and another 48% would consider doing it.

Why Consider Co-Buying?

The same survey also asked people about the perks of co-buying a home. Here are some of the top responses (see graph below):

Sharing Costs (67%): From saving for a down payment to managing monthly payments, buying a home is a big financial step. When you co-buy, you split these costs, making it easier to afford a home.

Affording a Better Home (56%): By pooling your financial resources, you may also be able to afford a larger or higher-quality home than you could have on your own. This may mean getting that extra bedroom, a bigger backyard, or living in a more desirable neighborhood.

Investment Opportunity (54%): Co-buying a home can also be an investment. You could buy a house with someone so you can rent out, which could help generate passive income.

Sharing Responsibilities (48%): Owning a home comes with a lot of responsibilities, including maintenance and upkeep and more. When you co-buy, you share these commitments, which can lighten the load for everyone involved.

Other Co-Buying Considerations

While co-buying has its benefits, there’s something else you need to consider before deciding if this approach is right for you. As Rocket Mortgage says:

“Buying a house with a friend or multiple friends might be a great way for you to achieve homeownership, but it’s not a decision you should make lightly. Before diving in, make sure you understand the financial and logistical hurdles you’ll face, as well as the human and emotional elements that might affect the purchase or, more importantly, your relationship.”

Basically, make sure you and your co-buyer are on the same page about things like how costs will be split, who will handle what responsibilities, and what will happen if one of you wants to sell your share of the home in the future. Leaning on an expert can help you weigh the pros and cons to make that conversation easier.

Bottom Line

If you're looking to get your foot in the door but are having a tough time at today's rates and prices, co-buying could be an option to make your move happen. But, it’s important to plan carefully and make sure that all parties are clear on the details. To figure out if co-buying makes sense for you, connect with a local real estate agent.

Read more like this at Keeping Current Matters

Related Links

If there is a home that you would like more information about, if you are considering selling a property, or if you have questions about the housing market in your neighborhood, please reach out. We’re here to help.

Search Homes in Colorado

Search Homes in North Carolina

Search Homes in Oklahoma

Search Homes in Minnesota

, , , , , , ,

How Buying or Selling a Home Benefits Your Community

, , , , , , ,
 
 

If you’re thinking of buying or selling a house, it’s important to know it doesn’t just impact you—it helps out the local economy and your community, too.

Every year, the National Association of Realtors (NAR) puts out a report that breaks down the financial impact that comes from people buying and selling homes (see visual below):

 
 

When a house is sold, it really boosts the local economy. That’s because of all the people needed to build, fix up, and sell homes. Robert Dietz, Chief Economist at the National Association of Home Builders (NAHB), explains how the housing industry adds jobs to a community:

“. . . housing is a significant job creator. In fact, for every single-family home built, enough economic activity is generated to sustain three full-time jobs for a year . . .”

It makes sense that housing creates a lot of jobs because so many different kinds of work are involved in the industry.

Think about all the people involved with selling a house—city officials, contractors, lawyers, real estate agents, specialists, etc. Everyone has a job to do to make your deal go through. So, each transaction is a big help to those who work and live in your community.

Put simply, when you buy or sell a home, you’re helping out your neighbors. So, when you decide to move, you’re not just meeting your own needs—you’re also doing something good for your community. Just knowing your move helps so many people around you can give you a sense of empowerment as you make your decision this year.

Bottom Line

Every time a home is sold, it really helps out the local economy. If you’re ready to move, get in touch with a local real estate agent. It won’t just change your life—it’ll also do a lot of good for the whole community.

Read more at KeepingCurrentMatters.com

Related Links

If there is a home that you would like more information about, if you are considering selling a property, or if you have questions about the housing market in your neighborhood, please reach out. We’re here to help.

Search Homes in Colorado

Search Homes in North Carolina

Search Homes in Oklahoma

Search Homes in Oregon

Search homes in Minnesota

, ,

Is now a good time to buy a home? It depends...

, ,

Potential homebuyers should consider these important factors when deciding

This spring home-buying season is anything but normal. What traditionally has been known as the busiest season for buying and selling homes has been upended by COVID-19. 

The pandemic has spurred concerns about people entering homes and job security, all while potential buyers are hearing that interest rates are lower than ever but are being met with extremely tight credit restrictions. At the same time, a growing number of borrowers are filing forbearance requests. 

Despite the list of evolving challenges, one thing that is still true this buying season is that there’s a lot of pent-up demand. Although some of the conventional thinking on what makes now a good time to buy still remains true, there are new factors for home shoppers to consider, especially since the last recession was drastically different than this one. (Housing Wire)

This is particularly important for the largest group of first-time homebuyers – Millennials. Ralph McLaughlin, chief economist and senior vice president of analytics at Haus, explained that young households are going to be the most susceptible to recency bias when it comes to recessions.

“They basically only went through one, the Great Recession, and that sample size of one just happens to be the worst economy for the housing market since the Great Depression,” said McLaughlin. “It’s easy to look back and almost be triggered from an emotional standpoint.” But the positive news is that while the housing market is not going to get off scot-free, McLaughlin said, “It’s not going to look anything like the Great Recession. That was an anomaly.”

Housing 2020

New reports on the housing market predict that the recovery is likely to take the form of a flying W. Both Realtor.com and Haus forecast a W-shaped path forward, with McLaughlin stating that there will “be an initial sharp drop this spring, a noticeable rebound in the summer followed by another dip in the fall, and finally, a stable road to recovery by spring 2021.” 

His reasoning for the W comes down to two factors.

“First, we think that there were many homebuyers that had made the decision to sell and buy this spring, which is going to represent pent-up demand that will be released when the economy starts to open up, likely around the summertime,” he said. “However, once that pent-up demand goes away, we think the real steady state of demand will show itself, which is going to be lower than it has been over the last six/seven years, and that will lead to another drop in the fall after most of the repercussions from this pandemic have gone away.”

“The second reason why we think it’s going to be a flying W shape is that there is potential for a spot fire to emerge in the fall from COVID-19 coming back,” said McLaughlin. “We think there’s potential for that to emerge in the fall and is likely to lead to another noticeable drop in the housing market before a full recovery at this time next year.”

This wouldn’t be the first time the nation experienced a W-shaped recovery. The last example of this was the recession that came after the 1918 pandemic that was a result of World War I and the Spanish flu. However, McLaughlin added that this time around the recovery is not likely to be a wide W but instead a very narrow W.

National vs. regional 

The narrative on whether or not to buy a home and timing the market looks different at the regional level compared to the entire nation. As McLaughlin explained it, “There is no U.S. housing market. It is a collection of hundreds of small regional markets, not one big market, and every region is unique.” 

The most obvious difference right now is the disproportionate impact on housing markets in the areas hardest hit by the pandemic, which includes states like Florida and Nevada that are reliant on tourism. McLaughlin said that the “multiplier effect” of those sectors will cause other sectors within their own regional economies to be hit harder and will eventually translate into lower housing demand. 

For other markets, like the Dallas metroplex, the outlook for the housing market looks positive for potential buyers. According to Michael Cooksey, executive managing director of production for Addison, Texas-based Mid America Mortgage, markets always matter. 

“Take Dallas, or Texas in general, for example,” he said. “We’ve had businesses moving into Texas for the last several years so our local economy is very strong. Because of that, even with all the things going on right now, we’re still seeing a boom in real estate. I’m still seeing significant purchase contracts coming into our branch so there’s not really been much of a slowdown.”

Cooksey added, “There seems to be more buyers in the market right now than there are sellers, and while there is a little bit of a shortage of inventory due to COVID-19, we are quite confident that we’ll see a significant amount of listings hitting the market as more stay-at-home orders start to expire over the next few weeks.”

Also commenting on the state of housing stock, Paul Marquis, a Kansas City, Mo.-based branch manager with Mortgage Solutions Financial, said, “Spring has always been the high season for the housing market. This year with unprecedented challenges facing all aspects of real-estate transactions, the quantity of homes on the market will play in the favor of the brave.”

Buying considerations 

Ultimately, when it comes to whether or not someone should buy a home right now, McLaughlin’s answer is that it depends on your life circumstances. 

For starters, if someone is looking for their perfect home, chances are slim they’ll find it. “If you’re trying to get your dream home, you want a choice. You want to see as many homes on the shelf as possible in order to best match your preferences. That’s not what’s happening now,” he said. 

On the other hand, he added that if you’re out there trying to get a bargain, now might not be a bad time to go out and buy a house. However, people shouldn’t expect to find Great Recession-like deals on homes. Plus, if buyers are planning on staying in the house for seven to 10 years and are based in a major U.S. market, McLaughlin said that the deal over a 10-year period makes such a small difference in their overall net worth.

Cooksey added a similar location caveat, stating, “If you were looking to buy in markets where you had very little industry or where local industries were the ones mostly affected by COVID-19 and the economic downturn, that could definitely change my opinion on it being a strong buy.”

But if that’s not applicable to their area, Cooksey advised that home shoppers should “make sure they are utilizing a professional real estate agent in making their decision to buy so that the agent can help them determine the true market value of the homes they are considering in case there is anything happening within those neighborhoods that can help them formulate a better offer.”

Overall, the one factor that many buyers look at – home prices – are still sitting at record highs. McLaughlin’s prediction even highlighted that Haus is not forecasting national price declines beyond a slight dip this spring.

For people still on the fence, Marquis said that the one thing that’s important to understand right now is that “now is the time for confidence.” 

“Make strong, well-informed choices and execute them,” he said. “When we rebound from this down turn, make sure you are at the head of the pack and don’t let fear be your guide.”

Thinking you should probably figure out how to tackle home ownership or make that move you’ve been thinking about? We’re here for you.

Search for Homes in Colorado

Search for Homes in Oklahoma

Down payment assistance program helps moderate and low-income families buy homes

As housing prices continue to go up in the Denver metro area, it can be hard to save enough money for a down payment.

However, there are programs to help.

Colorado Housing Assistance CorporationThe Colorado Housing Assistance Corporation provides low interest, flexible loans to low- and moderate-income (80% of the area median income [AMI] in most areas, 115% AMI in Arvada when using the Arvada program) first-time home buyers for down payment and closing cost assistance throughout Colorado. Interested individuals and families start the process by attending a first time home buyer class. 

Learn more here. 
See income limits here.

Metro DPA

Metro DPA offers down payment assistance as a zero-interest, forgivable 2nd mortgage. And you can make up to $139,500 and still qualify. 

Learn more here.

City/County of Denver

Denver’s Department of Housing Stability (HOST) has a program for first-time home buyers offered by the Colorado Housing Assistance Corporation.

“Denver’s affordable housing strategy includes critical investments at all points along the housing continuum from resolving homelessness to supporting affordable home ownership,” said HOST Executive Director Britta Fisher. “Our down payment assistance program has a strong history of helping hard-working individuals and families to attain the American Dream of home ownership. We’re proud to continue this critical wealth building tool throughout 2020.”

The program offers down payment and closing cost assistance of up to $15,000 to qualifying households that purchase a home in Denver. The program is limited to households earning up to 80 percent of the area median income (up to $52,000 for a single-person household, or up to $66,850 for a three-person household).

Learn more on Denver's Housing website.

Related Links:

Search all homes for Sale in Colorado.

Work at West + Main Homes.

 
W+M_Logo (1).jpg
 
Cart (0)