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Expert Homebuying Tips for Buying in a Seller’s Market

Buying a house is a big decision, but it can feel especially overwhelming to place an offer on a home less than 24 hours after seeing it for the first time. Plus you’re under pressure to outbid several other buyers — or risk losing the house.

While these circumstances might sound extraordinary, they’re not. With housing inventory nationwide at an all time-low — down 22% from last year according to the National Association of Realtors — it’s no wonder buyers are competing for the same few houses.

I was in this exact position last fall. Here are seven key takeaways from my experience buying in a seller’s market.

Get a Pre-Approval Letter

In order to be competitive in a hot seller’s market, you will need to line up your financing in advance.

Besides all the usual suspects, like saving up for a down payment and improving your credit score, you’ll also want to get a pre-approval letter from your bank. It states that a bank would approve you for a mortgage of a certain amount, and acts as a guarantee to the seller that you can actually afford to buy their house.

This is where it helps to know your budget up front.

“It’s important to understand that the strength of financing is a key consideration a seller takes into account when selecting an offer,” said real estate developer Bill Samuel.

No seller wants to risk accepting an offer that might fall through. Aand since pre-approval letters can take some time to get, have one ready before you find your dream house.

Be Friendly With Neighbors

This might sound crazy, but making a good impression on your new neighbors can actually make a difference when it comes time for a seller to review offers.

Since you’ll likely be visiting the home at least once before making an offer, be prepared to talk to any neighbors you might run into. In close-knit neighborhoods, or ones where people share resources (like an HOA), sellers might care a bit more about the type of person they sell the house to.

If you happen to meet a neighbor when visiting the home, introduce yourself and make a good impression. You never know how much their opinion of you might factor into any final decisions.

Submit an Offer Quickly

After you’ve seen a house, and decided you love it, be prepared to submit an offer quickly— as in, ASAP.

Work with your real estate agent to determine how many other offers the seller already has (or expects to get) and then be prepared to draft something up that day. In our case, we toured our home for the very first time at 11 a.m. on a Monday — it came on the market the evening before — and made an offer by 4 p.m. that same day.

If that sounds fast, it is. But by the time we submitted our offer, the seller already had three others. This is where it helps to have a great real estate agent on your side.

“Having a realtor who can get your offer submitted quickly is crucial,” said Erik Wright, owner of New Horizon Home Buyers. “You want to get your offer in front of the seller first, and make it strong. Purchase price is the obvious factor and in a competitive market, houses often go for over asking price. However, a strong offer has several factors and it depends on what’s most important to the seller.”

Work with your real estate agent to find out what matters most to the seller — is it money, closing quickly, something else entirely? Then make sure your offer addresses their needs.

Minimize Your Contingencies (Within Reason)

Another way to win over your seller (and prevail in any bidding wars) is by keeping your contingencies to a minimum.

Contingencies are the contractual stipulations buyers and sellers must meet before the deal can close. Unsurprisingly, sellers don’t like to have too many of them to deal with. Contingencies can include such things as requesting a seller to make certain repairs, getting a home inspection, or even the fact that you’ll need to sell your old house before being able to buy the new one.

“In a really aggressive seller’s market, a home buyer who has to sell a current property should do so before placing an offer on another home,” said Jason Gelios of Community Choice Realty. “Don’t always assume that the seller will take the highest price. Other conveniences can play a factor in gaining the seller’s attention, especially things like faster closing times and less restrictions.”

While my partner and I didn’t make the highest offer on our house, we did have the fewest contingencies — mainly, we didn’t ask too much of our seller in the way of repairs, or have another house to sell in order to afford the new one.

All that said, there are certain contingencies you should never forgo, and a home inspection is one of them. Getting your home inspected is hugely important, since inspectors will often find things even the sellers weren’t aware of. No matter how much you love a house, don’t be afraid of exercising your right to an inspection.

According to buyer protection laws in most states, sellers are required to report any findings in home inspections to subsequent buyers. In other words, if an inspector finds something wrong with the house, the seller will have to deal with it one way or another— either with you, or the next buyer should you choose to drop out of the deal.

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Make a Generous Earnest Money Deposit

When trying to woo your seller in a competitive market, it helps to make a generous earnest money deposit. An earnest money deposit is a good-faith deposit requested by the seller when you enter into a contract to buy the house and typically run anywhere from 1% to 3% of the sale price of the home.

When deciding how much of an earnest money deposit to include in your offer, keep in mind that whatever amount you give comes off the price of the home (and is returned to you if the deal falls through). In other words, there’s no reason to be cheap. If you can, go slightly above the seller’s requested deposit amount. Even if it’s just a little more than what they’re asking, that gesture of good faith might just be what gets you the house.

A row of houses on a cul de sac in a suburban neighborhood.

Offer Above Asking Price

Wait. Why would anyone make an offer that’s above asking price? Because the competition did it first, and in a hot seller’s market, offering above asking price is often what it takes to even be considered.

Upping your offer may not break the bank as much as you’re fearing. “With interest rates so low these days, offering more than what the seller is asking may not make a drastic difference in your overall monthly payments,” real estate agent Pavel Khaykin of Pavel Buys Houses said.

Let’s say the listing price on your dream home is $320,000 and you’re able to put down a 6% down payment. That leaves you with a mortgage of roughly $301,000. For a 30-year fixed mortgage at an interest rate of 3%, that translates into $1,269 monthly payments. Now let’s say you decide to bid a little higher on the home and offer $10,000 over asking price. This would only bump up your monthly payment (assuming you qualify for that low interest rate) by $42.

Lace Up Your Running Shoes

In a hot seller’s market, you’ve got to be ready to move fast. Often this is more of a change in mindset than anything else. When my partner and I first started looking at homes, we considered ourselves casual buyers — that is, until our dream home came on the market late one Sunday night. From there, things moved quickly. We saw the home, made an offer, were under contract by morning, and spent the next month and a half going through the process of closing on the house.

If you’re serious about finding your dream home in the next few months, the best thing you can do is know what you want from the outset, and get your ducks in a row to make a compelling offer when you find it. Maybe this means making a list of your must-haves in a house, and working to improve your credit score. It might also mean reaching out to a real estate agent before you need one, and getting that pre-approval letter in place.

Although inventory is low, new houses come on the market all the time.

Larissa Runkle is a contributor to The Penny Hoarder.

This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.

Source: thepennyhoarder.com

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How a CFP Celebrates Her Money Wins

People may often imagine that when they reach their milestones, there will be fireworks and party buses along with a huge celebration. And while sometimes there are, most wins are simply small steps you take every day until one day you wake up where you visualized you would be. That is why it is important to celebrate it all — the ups, the downs, the wins, the steps forward, and sometimes even backward. Without awareness and reflection, you might miss out on celebrating how much progress you have made in your financial life. By acknowledging even the so-called small things, you can keep the momentum alive and feel good about yourself.

Here are some ways I celebrate my money wins, no matter how big or small:

Tell my family and friends.

By sharing my money wins and even challenges with my closest friends and family, it opens me up to receive the love and support that is needed to sustain the financial journey. I think because money is still a topic most do not feel comfortable talking about, getting vulnerable with close family and friends allows them to do so with me in return. That kind of give and receive is part of living an open, abundant life. If you’re comfortable, you can even share on social media about your wins, which could inspire others. Sharing your money goals and personal finance journey also helps you stay out of the “I am all alone” mindset, which is not true and can actually hold you back from receiving more in your financial life.

Pause and feel proud of myself.

There are so many specific times in my life where I felt my money wins viscerally and just paused to take a moment to feel proud of myself for doing it. Whether it was saving a certain amount of money, negotiating a specific compensation package, or changing a mindset pattern holding me back from living abundantly, I can recall the memories specifically and feel great about them and myself. I remember years ago when I sold my first business and received the payment in my bank account, I felt amazing to know that I actually did it. I had finally reached my financial goal. It was just a regular workday and I was alone doing my weekly money date. And I distinctly remember feeling all the excitement and joy knowing I had accomplished something I worked on for years. The irony is when we reach our financial goals such as buying a home, paying off our student debts, or reaching our cash cushion goal, there aren’t actually big fireworks. Instead, you feel a deep understanding within yourself that you finally reached a goal you may have been striving toward for years.

Remember I can keep doing what it takes.

When celebrating my money wins, it also reminds me that I have the power to do and create what I want in life. By using my real-life experiences of achieving something I have worked for, I am reminded that I can continue doing so to achieve whatever next financial goal I have. When I reached my cash cushion goal years ago, I remembered that I have the power to keep creating my financial life as I desire and have the discipline to save for my goals. These reminders are key because no matter where we start financially, we all have the power to create our lives as we want, and choose how we show up, behave, think and act with our money. We are not victims. When I feel that and know that in my being, I feel anything is possible and am able to stay in the positive, “I can,” mindset.

Buy something memorable to acknowledge my hard work and effort.

This does not always have to be something major but can even be something that you have been wanting for a significant amount of time. When I reached my own financial goal last year of making a certain amount of business revenue for the year, I decided with one of my larger incoming checks to my business, I would take a portion and buy myself a designer handbag I had wanted for a few years. It was a gift to myself that I could enjoy and remember my hard work to achieve it. But you don’t always have to spend a lot. I also treat myself to smaller things like a massage or treating my family or friends out to a nice dinner. I just try to take time to celebrate by enjoying something nice whether it is a material item or a nice experience with my loved ones.

Journaling my accomplishments.

Every year, I take time to reflect on my total accomplishments for the year by journaling them out. This activity is solely for me to remember all I have achieved and to feel good about my accomplishments. By reflecting, I am able to connect to the positive aspects and blessings in my life to acknowledge how incredible I am. We tend to focus on what we are lacking or what we are not. By doing this activity, you are shifting your mindset and balancing the scales in a sense.

It’s common to look internally and criticize ourselves. Our mind jumps to comparing, thinking, “I don’t have this or that or I didn’t do this or that” or even feeling like a failure. With that mindset, you can get stuck only focusing on what you are not and have not, instead of embracing all that you are and all that you have. Having an attitude of gratitude goes a long way, especially with money. So take time to celebrate and feel grateful for what you have and all that you have accomplished. I truly believe this will also help you continue to attract more in your life.

The post How a CFP Celebrates Her Money Wins appeared first on MintLife Blog.

Source: mint.intuit.com

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Check-In: Expecting Couple Struggling with Debt, But Future Looks Bright

When I first connected with Julia and John, the Queens, NY couple was expecting their first child and grappling with some debt, a lack of savings and income prior to the baby’s arrival. The couple was basically living paycheck to paycheck and in need of some advice to break through that cycle.

We reconnected this month to see how they’ve been doing. Julia is now nearing the end of her third trimester. The baby is due to arrive in two months.

I was hoping that with a baby on the way the couple would have found some ways to chisel away their debt or bulk up savings. Unfortunately, fie months later, they’re more or less still in the same money boat.

But they did act upon a couple of my tips and are benefiting from the goodness of New York and their parents, which has their futures looking brighter.

First, John, who lacks a college degree and was struggling to find full-time work, is going back to school. Not to a college or university, but to a 9-month software boot camp in New York that’s going to give him the skills and network to become a software developer. His potential earnings in the first year in the market could be as much as $75,000 (based on some people I know who’ve gone through similar programs in New York.)

The program will be about $15,000, a fraction of what it would cost to earn a bachelor’s degree. John’s parents have agreed to loan him the money. The couple’s decided to place that $15,000 family loan in savings and, instead, take out a small student loan to pay for John’s school. I agree with that strategy, given that their family is about to increase in size and having some cash on hand will be very important.

Once John completes school and finds work, I’d recommend the couple prioritize the credit card debt by paying at least double the minimums each month. Be most aggressive with the highest interest credit card debt first. Their student loan will likely have a smaller interest rate and can be paid over a 10-year period, making the monthly minimums relatively manageable. Automate those payments as soon as possible and benefit from a 0.25% interest rate reduction when they do.

While they’re taking on more debt, I’m okay with it. Investing in John’s education is one of the best ways this couple can get ahead and better secure their finances in the future – so long as they commit to earning more and paying it down.

Ahead of that program starting, John’s also taken on a side hustle (per my advice). He’s been working a few shifts here and there at Julia’s company, working with special needs patients as a social aide, taking them to community and outdoor events.

Some other good news that’s developed since we last spoke is that New York State has enhanced its Family and Medical Leave Act by implementing Paid Family Leave. In the past, certain employers were only required to provide workers with their jobs back after taking a leave of absence for up to 12 weeks. Now, qualifying private employers must provide paid time off and a continuation of health insurance for 8 weeks in 2018.

This came as a surprise bonus for Julia, who was preparing for zero paid time off from her employer.

It would be my recommendation to use part or all of that extra money to pay down their high-interest credit card debt.

Once Julia returns to work after her maternity leave, her mother-in-law will be the go-to caretaker during the day, another huge help.

They’re fortunate to have free childcare from a trusted, loved one. With that very big expense covered and John’s schooling about to start, I feel confident that the couple’s future is a financially bright one.

The post Check-In: Expecting Couple Struggling with Debt, But Future Looks Bright appeared first on MintLife Blog.

Source: mint.intuit.com

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What Is a Jumbo Loan? Finance Your Property in a Competitive Market

After years of building a stellar credit history, you may have decided you’re finally ready to invest in that vacation home, but you don’t have quite enough in the bank for that eye-catching property just yet. Maybe you want to begin your investment journey early so you don’t have to spend years bulking up your life’s savings.

If an aspiring luxury homeowner can’t sufficiently invest in a property with a standard mortgage loan, there’s an alternative form of financing: a jumbo mortgage. This mortgage allows those with a strong financial history who may not necessarily be a billionaire to get in on the luxury property market. But what is a jumbo mortgage (commonly known as a jumbo loan), and how exactly does it work?

Jumbo Loan Definition

A jumbo loan is a mortgage loan whose value is greater than the maximum amount of a traditional conforming loan. This threshold is determined by government-sponsored enterprises (GSE), such as Fannie Mae (FHMA) and Freddie Mac (FHLMC). Jumbo loans are for high-valued properties, like mansions, luxury housing, and homes in high-income areas. Since jumbo loan limits fall above GSE standards, they aren’t guaranteed or secured by the government. As a result, jumbo loans are riskier for borrowers than conforming mortgage loans.

Jumbo loans are meant for those who may earn a high salary but aren’t necessarily “wealthy” yet. Lenders typically appreciate this specific group because they tend to have solid wealth management histories and make better use of financial services, ensuring less of a risk for the private investor.

Due to the uncertain nature of a jumbo loan, borrowers need to present an extensive, secure credit history, as well as undergo a more meticulous vetting process if they’re considering taking out a jumbo loan. Also, while jumbo loans can come in handy for those without millions in savings, potential borrowers must still present adequate income documentation and an up-front payment from their cash assets.

Like conforming loans, jumbo loans are available at fixed or adjustable rates. Interest rates on jumbo loans are traditionally much higher than those on conforming mortgage loans. This has slowly started shifting over the last few years, with some jumbo loan rates even leveling out with or falling below conforming loan rates. For example, Bank of America’s 2021 estimates for a 5/1 adjustable-rate jumbo loan were equivalent to the same rate for a 5/1 adjustable conforming loan.

The Federal Housing Finance Agency (FHFA) has set the new baseline limit for a conforming loan to $548,250 for 2021, which is an increase of nearly $40,000 since 2020. This new conforming loan limit provides the new minimum jumbo loan limits for 2021 for the majority of the United States. As the FHFA adjusts its estimates for median home values in the U.S., these limits adjust proportionally and apply to most counties in the U.S.

Certain U.S. counties and territories maintain jumbo loan limits that are even higher than the FHFA baseline, due to median home values that are higher than the baseline conforming loan limits. In states like Alaska and Hawaii, territories like Guam and the U.S. Virgin Islands, and counties in select states, the minimum jumbo loan limit is $822,375, which is 150 percent of the rest of the country’s loan limit.

Jumbo Loan Rates for 2021

Ultimately, your jumbo loan limits and rates will depend on home values and how competitive the housing market is in the area where you’re looking to invest.

Jumbo Loan vs. Conforming Loan: Pros and Cons

The biggest question you might be asking yourself is “do the risks of a jumbo loan outweigh the benefits?” While jumbo loans can be a useful home financing resource, sometimes it makes more sense to aim for a property that a conforming loan would cover instead. Here are some pros and cons of jumbo loans that might make your decision easier.
Pros:

  • Solid investment strategy: Jumbo loans allow the investor to get a solid jump-start in the luxury real estate market, which can serve as a beneficial long-term asset.
  • Escape GSE restrictions: Jumbo loan limits are set to exceed those decided by Freddie Mac and Fannie Mae, so borrowers have more flexibility regarding constraints they would deal with under a conforming loan.
  • Variety in rates (fixed, adjustable, etc.): Though jumbo loan rates differ from conforming loan rates in many ways, they still offer similar options for what kinds of rates you want. Both offer 30-year fixed, 15-year fixed, 5/1 adjustable, and numerous other options for rates.

Cons:

  • Usually higher interest rates: Though jumbo loans are known for their higher interest rates, the discrepancies between those and conforming loan rates are starting to lessen each year.
  • More meticulous approval process: To secure a jumbo loan, you must have a near air-tight financial history, including a good credit score and debt-to-income ratio.
  • Higher initial deposit: Even though jumbo loans exist for those who are not able to finance a luxury property from savings alone, they still require a higher cash advance than a conforming loan.

Jumbo Loan vs. Conforming Loan- Pros and Cons

How To Qualify for a Jumbo Loan

As we mentioned before, jumbo loans require quite a bit more from you in the application process than a conforming loan would.

First and foremost, most jumbo lenders require a FICO credit score of somewhere around 700 or higher, depending on the lender. This ensures your lender that your financial track record is stable and trustworthy and that you don’t have any history of late or missed payments.

In addition to the amount of cash you have sitting in the bank, jumbo lenders will also look for ample documentation of your income source(s). This could include tax returns, pay stubs, bank statements, and any documentation of secondary income. By requiring extensive documentation, lenders can determine your ability to make a sufficient down payment on your mortgage, as well as the likelihood that you will be able to make your payments on time. Usually lenders require enough cash assets to make around a 20 percent down payment.

Finally, and perhaps most importantly, lenders will also require that you have maintained a low level of debt compared to your gross monthly income. A low debt-to-income ratio, combined with a high credit score and sufficient assets, will have you on your way to securing that jumbo loan in no time.

Furthermore, you will also likely need to get an appraisal to verify the value of the desired property, in order to ensure that the property is valued highly enough that you will actually qualify for a jumbo loan.

Key Takeaways:

  • Jumbo loans provide a solid alternative to those with a steady financial history who want to invest in luxury properties but don’t have enough in the bank yet.
  • A jumbo loan qualifies as any amount exceeding the FHFA’s baseline conforming loan limit: $548,250 in 2021.
  • Jumbo loan rates are typically higher than those of conforming loans, although the gap between the two has begun to close within the last decade.
  • To secure a jumbo loan, one must meet stringent financial criteria, including a high credit score, a low DTI, and the ability to make a sizable down payment.

For any financially responsible individual, it’s important to always maintain that responsibility in any investment. Each decision made should be carefully thought out, and you should keep in mind any future implications.

While jumbo loans can be a valuable stepping stone to success in competitive real estate, always make sure your income and budget are in a secure position before deciding to invest. You always want to stay realistic, and if you aren’t interested in spending a few more years saving or financing through a conforming loan, then a jumbo loan may be for you!

Sources: Investopedia | Bank of America | Federal Housing Finance Agency

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5 Financial Goals to Start in 2021

 

Although many people start New Year’s resolutions in January, there’s nothing magical about January with regards to self-improvement. Still, the best time to make a change or set a goal is today, so if you’re ready to level up in your life, there’s no time like the present. Here are five financial habits that you might consider starting this year. 

Commit to a written budget (and review it often)

The very first thing that you’ll want to do is commit to a budget. Having a budget is the cornerstone and foundation for financial success. Knowing where your money is going (and not going) can help you understand where you’re at. If you’ve had trouble making or keeping a budget, resolve to start a budget this year. A tool like Mint can be a great way to put your budget on autopilot.

Remember that a budget is just a tool to help you to not spend money on the things you don’t find important so that you have money to spend on the things that you do find important. If you already have a budget, make it a habit to review your budget, at least monthly. That can help you identify where you might be able to make improvements.

As you start or recommit to your budget, make sure that it is written down. Budgets that are not written down, like goals, tend to fall by the wayside easily.

Start (or build) your emergency fund

Another great habit to get into in 2021 is starting an emergency fund. An emergency fund should be one of the very first things you do with any extra money you have in your budget. Even before working on eliminating your debt or saving for retirement, it makes a lot of sense to set aside money for emergencies.

A good rule of thumb is to start with a $1,000 emergency fund. It may not cover catastrophic emergencies, but it can help you to avoid having to spend on your credit cards when the unexpected happens. After you’ve started that basic emergency fund, then you can continue to build it up while also starting to pay off debt or invest for the future. If you can, it’s a good idea to have a couple of months of expenses in your emergency fund. That way you’re covered for a while in case you lose an income source or have a major emergency.

Make a plan to eliminate your debt

The next habit to start or continue this year is to eliminate your debt. Depending on how much debt you currently have, it may not be realistic to pay off all of your debt in 2021. But no matter what, you should have a plan in place. There are a variety of different debt repayment strategies – the debt snowball and the debt avalanche among many. It’s important to pick a debt payoff approach that works for you, and that you can stick to. Make it a habit to spend less than you earn and work towards becoming debt-free.

Spend with a purpose

Another great habit that can help you live within your means is to spend with a purpose. Spending with a purpose means that you are conscious with your spending. If you ever find yourself wondering where all your money has gone, you may benefit from being more deliberate with your spending.

Many people find success by setting a rule about any non-essential spending. For example, before you make any purchases besides essentials like rent, utilities, and debt payments, you must write it down. Just the act of writing it down (or taking a picture of it) is enough for many people to be more deliberate and conscious about what they choose to spend their money on.

Pay yourself first, and make sure to give yourself a raise

If you’re like many people, you may have good intentions of saving money each month, but at the end of the month, you find there’s nothing left over after all the bills are paid. One habit that people who are successful financially have is to pay themselves first. Put your savings money aside at the BEGINNING of the month. It’s a bit of a mental trick, but many people find that having that money out of sight helps them to save more.

Another financial habit to start is to always give yourself a raise. Whenever you get a raise at work or come across any “extra” money, IMMEDIATELY put it either in your emergency fund or use it to pay down your debt. Putting any raise or extra money towards your savings (instead of increasing your standard of living) is a great habit to start. 

This is a great habit to start, especially if you are young or just starting out in your professional life.  Of course, paying yourself first and giving yourself a raise, doesn’t mean that you have to only eat ramen or can’t have nice things. But thanks to the magic of compound interest, the sooner you start to save and invest, the better off you’ll be.

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