Real Estate Weekly: January 6, 2023

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Now could be the time to sell a new home and earn a slice of the real estate pie.

Record-low interest rates is renewing interest in the housing market for many people.

“When sellers are interviewing real estate agents to market their homes, their primary focus is usually on the advertising that the agent will offer them,” says Jessica Goodbody of Weichert Realtors.

Let us help you meet your marketing goals by advertising your listings in Real Estate Weekly.

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Is

the right time to move?

By Erik J. Martin CTW Features

The turn of the calendar may have come and gone, but it’s never too late to make New Year’s resolutions. Pledging to lose weight, get in shape, save more money, and better enjoy life are all well and good. But perhaps this is the year when your best resolution could be to purchase a home.

“Year-ends and year beginnings are always a good time to evaluate housing situations because they often coincide with tax planning,” says Brandon

Brown, a broker/owner with BayBrook Realty in Laguna Beach, California. “There are many tax advantages of owning a home versus renting, and depending on your income and expected future income, a purchase often makes a lot of sense.”

Earlier in the year can also be a smart time to consider a home transaction because the market is typically slower until the spring buying season begins, which can happen as early as February but typically closer to April when the weather improves and shoppers get

more serious about house hunting. A slower market with less competition can provide a considerable advantage to would-be purchasers, as sellers may be more willing to strike a deal at an agreeable price being that there are fewer buyer prospects.

And early 2023 could present a unique opportunity for buyers who were otherwise priced out of the market in past years.

“The end of 2022 saw the first decent decline in buyers’ demand in years.

The reason behind this was higher interest rates, which caused buyers

to lose a lot of buying power,” says Brown.

Higher interest rates have resulted in decreased interest in homes for sale and fewer listings as well. With less foot traffic and visitors to tour homes for sale, many sellers have been forced to lower prices and be more agreeable to concessions requested by buyers.

“As more millennials enter the market to buy a home, 2023 will be a good time to buy. Many buyers are sitting on the sidelines, waiting for rates and prices to drop. With buyer demand down, you will

experience less competition, more inventory, and the ability to negotiate with the seller,” notes Colleen Cassel, a real estate agent with Compass in New York City.

On the other hand, the timing may not be favorable to claim or finance a home in 2023.

“It may make more sense to stay put and wait things out,” advises Rick Albert, a broker associate/Realtor with LAMERICA Real Estate in Los Angeles.

“For example, let’s say you are in a three-bedroom home but really need a fourth bedroom. It would

be cheaper to stay put and build an addition, convert a garage, or rework the floor plan to get your fourth room than it would be to move.”

Another argument for postponing a purchase this year is that home prices have a long way before they hit bottom. By being patient and waiting until later in the year or next year, you stand a better chance of possibly paying less for a home, although there’s always the risk that home prices as well as interest rates may rise.

“The best candidates for considering a move this year are those with cash in the bank. These people don’t have to rely on interest rates and the increased cost associated with higher interest rates,” Cassel points out. “Other people who should think about moving are those with urgency reasons, such as those experiencing a divorce or death in the family or those relocating for work purposes.”

Before committing to a move in 2023 or at any time, “do your research. Create a budget and understand your buying power,” advises Liz Hogan, a real estate agent with Compass in Miami. “Speak with a licensed real estate professional and lender to learn more about your market and purchasing options.”

Having cash on hand

Question:

How much cash is really needed to buy a home? I know there is a need for a down payment, but realistically how much money should I have to buy?

Answer:

There is no set answer to such a question, which may seem strange because it is a central issue for virtually all borrowers. Instead, you have to look at your particular situation and options.

Down payments. Lenders are very particular about down payments. With some exceptions, they want the cash to come from you and only you. A down payment shows an ability to live within one’s means and the bigger the down payment the less risk to the lender. In fact, buy with 20% down and you almost always will not be required to carry mortgage insurance.

How much down you need to pay depends on how the property is financed. For example, look at a few possible variations if you borrow $200,000.

FHA: 3.5% down, $7,000 down.

VA and USDA: Typically, zero down, $0.00 down.

Fannie Mae or Freddie Mac 97% financing: 3%

down or $6,000.

Conventional financing with private mortgage insurance: 5% down or $10,000

Conventional financing with no private mortgage insurance: 20% down or $40,000.

But such numbers are not absolute.

For example, while lenders are vehemently opposed to down payment help from sellers and brokers, they’re okay with gifts from family and friends. The donor will be required to provide a “gift” letter showing the money is really a gift and that no repayment or interest are required.

Another way to cut down-payment costs is to get help through a down-payment assistance program. There are thousands of these plans, including some that are outright grants. You can find assistance programs by location at DownPaymentResource.com or through local real estate brokers, mortgage loan officers, and neighborhood housing organizations.

Closing costs are another big expense in addition to the down payment. Such final costs vary according to the agreement between the buyer and the seller and charges for such expenses as transfer taxes, origination fees, title insurance, etc.

Q&A Q&A

ASK OUR BROKER

By Peter G. Miller

While sellers cannot provide down payment money, they can cut into general closing costs, a process that effectively means more cash is available for down payments. Most mortgage programs allow so-called “seller contributions” to offset closing costs.

For example, the FHA program at this writing allows a seller contribution of as much as 6% of the purchase price while the VA is at 4%. This is a matter to negotiate with sellers. How much buyers get – if anything – depends on local market trends. In a market with strong sales and rising prices seller concessions are unlikely. If sales are slow and prices are falling, then perhaps owners will agree to concessions.

Given the need for a lower price or seller concessions some owners might prefer the concessions. Why? With concessions the recorded sale price seems larger and if nothing else that can appeal to seller egos.

For cash requirement details with individual transactions, speak with real estate brokers, mortgage lenders, and closing agents.

Email your real estate questions to Mr. Miller at peter@ctwfeatures.com.

Sellers pay to remove buyers’ rate worries

By Marilyn Kennedy Melia CTW Features

Home sellers can remove one of the big obstacles keeping buyers at bay: high mortgage rates.

Home building companies are already doing this in a big way. A recent survey from John Burns Real Estate Consulting finds that 75 percent of builders provide mortgage rate “buydowns.”

Individual sellers of existing homes can do the same, says Daniel Jacobs, managing director, TruLoan Mortgage, Charlotte NC, if they forgo some of their sale proceeds at closing.

Typically, a seller earmarks anywhere from about two to six percent of the purchase price, to “buydown” their buyer’s rate

one or two percent.

Two types of buydowns exist. One is a “permanent” buydown where sellers earmark a portion the sale price to lower the rate charge over the entire 30-year term of a fixed-rate mortgage. The other is a “temporary” buydown, where up to the first three years of a fixed rate mortgage is lowered.

For example, in a temporary “2-1” buydown on a $400,000 mortgage, the seller earmarks that $9,500 of his proceeds be placed in an escrow account that lowers his buyer’s rate from seven percent to five percent the first year, and then to six percent the next, and the third year the rate reverts to seven percent for the remaining term, illustrates Jacobs.

Buyers’ Money

A key difference between temporary and

permanent buydowns, besides the length of the reduction, is that a borrower receives any money left in escrow if he pays off the mortgage during the early rate reduction period. In the permanent buydown, the borrower can’t access funds contributed by the home seller.

Practical Concerns

Borrowers who have a temporary buydown must still qualify at the higher rate at the end of the reduction period. The permanent buydown, however, helps borrowers who can only qualify at the reduced rate.

Also, if a home seller has over-priced his home, notes Brian Weinberg of Planet Home Lending, Boulder, CO, the home’s appraisal value wouldn’t be enough to support a buydown if the buyer pays an inflated price.

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