This week’s Highlights:
- Tim’s Tips for first time home buyers
- An update on last week’s FHA loan client experience & why condos aren’t his best move
- WHEDA Loans: What has changed?
- Getting approved for a loan as a self-employed home buyer
How to write a winning home offer
First thing’s first: Some quick data to help us understand the current market. The average first time home buyer has a budget of $100k and $250k. There are currently 599 listings in that price range in Milwaukee County. The issues? Only 190 of those listings do not currently have a pending offer. Even if you put in an offer today, you’re not likely to close until March.
So, what do you need to do to get that winning offer? Tim’s got a quick step-by-step guide for just that:
- Get a rock-solid pre-approval: We’re not just tooting our own horn. Having a pre-approval will really help you stand out more than those who do not have an income guarantee.
- Prove you can provide a larger down payment percentage: This doesn’t mean you NEED to put down a bigger percentage; you just need to be able to prove you’re able to. Sellers will be more confident in your payment ability if they can see you can
- Have a healthy debt to income ratio: We like to call this the “financial blood pressure.” Essentially you’re just making sure you can prove you don’t have too much debt to overpower your income and you’re still able to make your monthly payments.
Learn how to get the best rate for you with Accunet Mortgage and our team of refinance experts—click here to get started.
Real Client Experience Update: FHA Loans
Quick recap: Last week we talked about a client who’s a first-time home buyer who was pre-approved for a single-family detached home and we talked him up to being able to put 10% down. He has since had two family members commit to paying $10k each, plus $10k of his own money (stellar savings!). If you remember, he was also thinking of using the listing agent to find a home. DO NOT DO THIS. This would be like Giannis using the Milwaukee Bucks agent to negotiate his contract: Not in the buyer’s best interest.
Our client was able to secure a buying agent, and every house they were interested in was an outdated listing with an accepted offer. They decided to pivot to looking at condos instead of single-family detached homes.
Important: This changes a LOT. Getting approved for a single-family mortgage loan is way different than getting approved for a condo.
Learn more about the rules of refinance with Accunet’s refi rules of thumb.
Why are condos riskier for mortgage loans?
Very simply put, there are a ton more variables for closing on a condo than there are for a single-family home. Because of the increase in variables, Fannie and Freddie are more hesitant to approve those loans. Freddie Mac used to allow home buyers to put 5% down on a duplex. This changed just a week ago. Now it’s 15% down. This really knocks our client out because he’s sitting comfortably at 10%. You also need reserves that equal 6 months of principle, taxes & insurance, plus closing costs.
For condos, if you put less than 10 down, there’s a rigorous review of the condo which takes a ton of time and money. You CAN put 3-5% down, but the extra time, money, effort, anxiety & hassle of a full condo review could cause so many issues that make Fannie and Freddie a little skittish.
What to know if you have a WHEDA Loan
About 2.5 years ago, we helped a couple purchase their first home with a 30-year fixed WHEDA program. At that time, we could do 3% down with no monthly PMI, but their credit wasn’t super high (600s). Their initial mortgage came out to 4.875, then WHEDA provided a second mortgage for closing costs, which we call a “piggie back” mortgage.
In case we haven’t mentioned (we have), home values are skyrocketing right now. Just last year, the median home sale price in Milwaukee went up 13%. That means this client’s home value increased, and they’re wondering what they can do about their rate.
If her credit is now above 680, we can lower payment by $150 by lowering rate down to 3.25%. We’re also able to pay $500 in closing costs, so it’ll only be $735 IF we need an appraisal, which we might not. If they can lower their monthly payment and only pay $735 of total closing costs, they’ll make ALL that money back in only 5 months. Definitely worth it, if you ask us.
Should you use the listing agent to buy a home?
NOPE. You absolutely should not. The number one priority for listing agents is to get the highest price possible. The seller is their client, not the buyer. The higher the price they can squeeze out of you, the more successful they will have done their job. It’s in your best interest as a home buyer to get your own agent to help with the sale.
While we’re not real estate agents, we are connected to some talented folks and will be happy to make recommendations for you!
Self-employed and buying a home
Another instance where Fran and Fred get a little shy about lending. We had a self-employed lawyer client looking to get a mortgage for a condo in a new development. As previously mentioned, condos are harder to get approved for, but adding on the additional layers of a new build plus self employment makes it even tougher.
We told our client that we won’t be able to do a 30-year fixed. Because of how strict Fannie and Freddie are with condos, it’ll need to be 15 year with a 30% down payment, or some sort of adjustable mortgage, meaning the rate is fixed for 5, 7 or 10 years. They’re portfolios, and not affected by Fannie or Freddy, so that could work out in the buyer’s favor. Our client decided to go with one of the adjustable mortgages.
As far as proof of income for independent business owners is concerned, the required income documentation is insane (actual words we use to describe it). You will need:
- YTD signed and dated profit & law statements for 2020
- 2019 & 2020 business tax returns
- January & February 2021 statements (since the client is not closing until April)
- Business account bank statements for November & December, and January & Feb when available
Part of why this can be a headache is the fact that just one document can lead to the request of additional documents. If you’re an independent business owner, don’t be surprised if you feel like you’re giving the same information over and over again. The vetting process for a self employed person buying a home is a lot more rigorous than company employment because there’s so much more room for error.
Buying a new home? Start here so you know what to expect from the process!