Buying a house – in a year? Here’s your financial checklist – Orange County Register
“Tanking” perfectly describes the first few months of the 2023 home buying season.
Homebuyer confidence is the lowest I’ve seen in my 35-year career as a mortgage originator. The current market makes the Great Recession selling days seem like a rush. Few want to buy now. Only the most motivated pull the trigger.
RELATED: Mortgage costs are locking out California homebuyers
According to the Mortgage Bankers Association, the purchase index fell 43% on Feb. 15 from a year ago.
“Purchase applications fell to their lowest level since the beginning of this year and were more than 40 percent lower than a year ago,” said Joel Kan, the MBA’s deputy chief economist. “Prospective buyers remain very sensitive to current levels of mortgage rates, which are more than 2 percentage points higher than last year’s levels and have significantly reduced buyers’ purchasing power.”
CONTINUE READING: Home prices fell in 90% of US markets in the 2nd half
Mortgage affordability is just the tip of the inflation iceberg. The consumer price index rose 0.5% in January after rising just 0.1% in December, the Bureau of Labor Statistics reported. Undoubtedly, this means that mortgage rates will rise and house prices will fall more.
Everything from eggs, energy, and insurance eats up hard-earned paychecks. In his view, Fed Chair Jerome Powell will not be happy until he raises enough rates to bring inflation under control. That’s a job killer. This also points to a spiral in consumer confidence.
Similar to setting goals and working towards a promotion or a raise, now is an excellent time to start preparing for your first or next real estate purchase.
Don’t expect mortgage rates to improve significantly by the end of 2023. Don’t be surprised if mortgage rates hit 7% by the summer. Don’t expect house prices to bottom out until early 2024. The preparation time is on your side.
MORE ABOUT LIVING: Inflation continues to weigh on household budgets in Southern California
Here is my checklist for funding readiness:
— How much money can you cobble together for your down payment? Write it down.
— Review your stash monthly and stay on track.
— Set a realistic monthly principal and interest, property tax, home insurance, and HOA appraisal budget for the home payment; Don’t forget to include utility bills.
Real estate agents and mortgage loan originators tend to inflate their numbers because their paychecks are based on sale price and loan amounts. Stay in your middle and comfort zone. Nobody will be there to help you after the escrow has closed.
— Consider non-obvious sources for the down payment and closing costs. For example, some banks offer generous assistance to low- to middle-income borrowers and certain neighborhoods. Municipalities also offer programs. Nonprofit organizations and employers are also potential sources. Real estate agents and mortgage lenders may be able to contribute to your comparison fees. Always ask.
— Speak to a mortgage expert now to learn how to optimize mortgage origination costs relative to your down payment and FICO credit score.
“This is Robinhood pricing with no real justification,” said John Ulzheimer, credit expert and president of the Ulzheimer Group.
— Be wary of hard-line recommendations from real estate agents to mortgage lenders. It’s been a famine in home and mortgage sales for almost a year. It’s getting worse. Bribes are everywhere. It always costs the borrower more in mortgage interest or expense when mortgage lenders pay referrals.
– If you don’t have money to burn, or really come across a unique home, don’t buy a property for the next 10 months unless you can strike a deal that’s at least 10% cheaper than the property’s fair value today. There is no doubt that home values will continue to fall.
— California rents have fallen for five straight months. Talk to your landlord about a rent reduction. Or calculate the savings potential if you find significantly cheaper accommodation. For owner occupiers looking to move up, does it make sense to do two moves? Rent out your home with significant financial benefits while renting temporarily. In both cases, what about the parasite on mom and dad?
— Hide your credit cards. Stop spending except for real necessities. Larger purchases such as cars and appliances should be delayed until after the home purchase.
“Avoid taking on new debt commitments before applying for a mortgage. This will help control the DTI (debt-to-income),” said Ulzheimer.
— Find neighborhoods you like. Consider issues like schools, crime rates, time and distance to your work. Gather flyers and knock on the door. A year in advance is not too early. Plant seeds with potential sellers. Most of the best bargains are premarket and over the counter finds.
You don’t have to pay an agent to buy a home. A good trustee can help you with the few documents required free of charge. Or you can pay a real estate attorney for an hour or two of his time.
– Pass it on. Your family, friends, and sphere of influence can be valuable observers for you.
— Find a great real estate professional to make your real estate dreams come true. In my experience, 20% of salt-of-the-earth remedies are excellent and 80% are not very good. Be patient in your search.
Freddie Mac evaluates news
The 30-year fixed rate averaged 6.32%, up 20 basis points from last week. The 15-year fixed rate averaged 5.51%, up 26 basis points from last week.
The Mortgage Bankers Association reported a 7.7% drop in mortgage applications from last week.
bottom line: Assuming a borrower receives the average 30-year fixed rate on a $726,200 conforming loan, last year’s payment was $1,070 less than this week’s payment of $4,504.
What I see: Locally, well-qualified borrowers can obtain the following one-point fixed-rate mortgages: A 30-year FHA at 5.5%; a 15-year-old conventional at 5.25%; a 30-year-old conventional at 6%; a 15-year conventional high balance at 5.875% ($726,201 to $1,089,300); a 30-year high conventional balance of 6.5%; and a 30-year jumbo with a 6.5% fixed rate.
Note: The 30-year FHA-compliant loan is limited to loans of $644,000 in Inland Empire and $726,200 in LA and Orange counties.
Eye-catcher rental program of the week: A 30-year FHA fixed rate of 5.25% with a 2-point cost.
Jeff Lazerson is a mortgage broker. He can be reached at 949-334-2424 or email@example.com.
https://www.ocregister.com/2023/02/16/want-to-buy-a-house-in-a-year-heres-your-financial-checklist/ Buying a house – in a year? Here’s your financial checklist – Orange County Register