Category Archives: mortgage

Should homebuyers get approved for a mortgage before home shopping?

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Do you typically encourage your homebuyers to get a mortgage approval before home shopping?

According to Carrie Niess, business analyst at American Financing, most homebuyers are doing it in reverse, finding their dream home and then hoping to get approved for a mortgage to afford that home. “The best thing to do is get an approval 30 to 60 days prior to shopping.  That way any potential issues can be addressed before going under contract, you can determine an appropriate price range for your search, and you’ll have access to a pre-approval letter acknowledging what you’re financially approved for, so your offer can strongly compete against others,” said Niess.

Niess also said it’s imperative for homebuyers to have a “trustworthy” home inspector. “The cost of a detailed home inspection is easily justifiable when considering the cost of defective major structural or mechanical issues. A home is an asset. You should never intentionally owe more than it is worth. Even in aggressive home markets, buyers should not pay over the home’s appraised value. It’s not financially beneficial to be underwater on a home starting day one,” she added.

“We’re not seeing homes on the market for very long, no matter what market you live in. High buyer demand and low home inventory equates to higher pricing , which is great for the seller and economy, but can be discouraging for the buyer. First-time homebuyers can feel particularly overwhelmed having never been through the process before. The good news? Taking the time to get pre-approved with a mortgage lender before talking terms can make even the most inexperienced buyer more attractive to a seller looking to move.”

Niess said homebuyers should make an offer as soon as they find a home they like. She doesn’t believe mortgage rates will be moving too much in the near future.

Across Pennsylvania, millennials are buying, she said. Data from Ellie Mae’s Millennial Tracker shows the majority of young Pennsylvania homebuyers were single and 29, as of the first half of 2017. Most chose conventional loans over alternative products such as FHA loans to fund home purchases. On average, they spent $157,000 to get a home and waited 47 days to close the deal, she stated.

Homebuyers still relying on referrals, in-person meetings for mortgage lenders

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Despite technological advances, referrals are still the main way homebuyers choose their mortgage lender.

Ellie Mae’s 2017 Borrower Insights Survey found that 23 percent of homebuyers picked their mortgage lender based on a referral from a friend or family member, 17 percent a referral from a bank and 16 percent a referral from their agent.

The survey also found that homebuyers are still mostly applying for their mortgages completely in person.

Fifty-seven percent of homeowners applied for and completed their mortgage in person, while 28 percent applied for and completed it partially in-person and partially online. Eleven percent reported that they applied for their last mortgage completely online. When asked what factor would have improved the mortgage process, approximately 40 percent of homeowners indicated they would have liked a faster process with fewer delays. Twenty percent indicated that a shorter, easier to understand application would be preferable, while 11 percent asked for more communication with their lender throughout the process.

The half and half solution, doing some of the process online and some in-person, was most popular with millennials (30 percent). Still, 28 percent of Generation X and 20 percent of baby boomers opted to go this route as well.

When going through the mortgage process, homebuyers are looking for speed, security and simplicity. Millennials and women both think security is the most important factor, while Generation X and baby boomers looked for speed. All cited simplicity as a big help.

“There’s no question that technology is playing a larger role in the home buying experience,” said Joe Tyrrell, executive vice president of corporate strategy at Ellie Mae. “As we expected, many homeowners are seeking a faster and more streamlined experience. And it’s not just a millennial phenomenon; it’s homebuyers of all ages and both genders.”

“But what’s even more telling is that homeowners still want a personal interaction with their lender. They want someone who can answer important questions, and make them feel confident that everything will be handled correctly and on time. While 27 percent of millennials identified the speed of the process as the top area to improve their experience, surprisingly 23 percent cited more face-to-face interaction as the second-greatest opportunity for improvement. By leveraging technology, lenders can provide a more high tech experience to simplify and speed the overall process, while still having the high-touch interactions when and where homebuyers want,” Tyrrell added.

Homebuying, mortgage process stressful for many consumers

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Forty-two percent of homebuyers reported that the homebuying process was stressful, according to NerdWallet’s Home Buyer Reality Report.

Nearly one-third said it was complicated, while 21 percent reported it was intimidating. However, 30 percent described the experience as rewarding, while 41 percent it was manageable. Yet, 49 percent reported they would do something differently if they were homebuying again.

Mortgage applications are still confusing many homebuyers, as 58 percent of homebuyers applied for one. Forty-one percent of homebuyers who did apply said they were not sure of all the options available to them. And 28 percent said they did not feel like a priority to their mortgage professional during the loan process. Overall, 89 percent of applicants were approved for a loan to buy their house.

Among generations, 27 percent of millennials believed their mortgage rate was affordable when they purchased, and 39 percent said the mortgage process was positive. Eighty-nine percent of millennials who applied were approved. However, 11 percent of millennials said that after purchasing their home, they didn’t feel financially secure anymore. More than half (57 percent) said they had regrets in their homebuying experience.

Only a quarter of Generation X members reported a positive experience with the mortgage process, but 91 percent of Gen Xers were approved for one. Twelve percent reported not feeling financially secure after homebuying. Sixty-one percent reported that they would do something differently when homebuying again.

As for baby boomers, 25 percent found the mortgage process stressful, but 42 percent said it was manageable. Sixty-five percent said they believed they were aware of all their options for mortgages during the process. Only 6 percent said they did not feel financially secure after they bought their house, but 38 percent of baby boomers would act differently when homebuying again.

Single women unable to afford rent and mortgage in most major metros

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Single people, especially women, are struggling to afford homeownership and rent in most major cities.

Since single women’s median income is lower than men’s on average, they are priced out of several major cities.

PropertyShark and  RENTCafé recently priced the 50 biggest metros in the country to determine where single people could afford housing on their own. Being able to afford housing is defined as spending no more than 30 percent of one’s monthly income on rent or mortgage payments. They defined homes as starter units, such as studios and one-bedroom rentals, condos or houses.

Results found that in nine of the 50 cities, single men could afford mortgage, but single women could not. Fourteen cities, including Philadelphia, have priced out all singles. Philadelphia does have lower costs than other cities on the list, such as Manhattan and San Francisco, but based on the average salary, single people of both genders would struggle to afford housing. Women, more so, have a tough time in Philadelphia, the study found that it costs 54 percent of the average woman’s salary to pay a mortgage.

Renting is even worse, according to the study. For single men, they can afford the mortgage in 35 out of 50 cities. But rent? Not so much. They can only afford the rent on a similar building (typical one-bedroom or studio) in 18 cities. Single females can only afford rent in two of the 50 cities analyzed.

In Philadelphia, neither gender is likely to be able to afford a rent or a mortgage solo on the average salary.

Wichita, KS and Tulsa, OK are the lone two cities where both genders can afford a rent and a mortgage with their average salary.