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How Interest Rates Affect Home Buyers
Last week, the real estate market was set abuzz by an almost 0.5% decline in the 30-year fixed-rate mortgage (FRM) interest rate. It dropped from a high of 7.08% to 6.61% in just one week. Why? Reports began to surface that inflation may have already peaked back in June. However, several Fed members tried to keep expectations in check. After all, one month of positive economic news does not a trend make. They even suggested that more prime rate increases should be expected in the near future. If you wish to buy an Inland Empire home anytime soon, you need to understand how interest rates affect you.
How Interest Rates Affect Home Buyers
Redfin conducted a survey that found just how much of an impact higher interest rates hit home buyers’ budgets. They found that home buyers could purchase a $517,000 home at 3% with a $2500 monthly budget for their mortgage. But when that rate rose to 6%, that same $2500 budget only allowed them to pay $400,000 for a home. With the current 6.61% rate, that sale price comes down even more. With an average sale price for a Riverside, CA home coming in at $577,000 last month, Inland Empire home buyers continue to feel the pinch.
How to Get Yourself in the Best Financial Position to Buy a Home
You cannot control interest rates. However, you do have some control over your finances. If rates go up again (and they might), you may need to increase your budget to accommodate your mortgage payment. That means getting your credit in tip-top shape. That way, you qualify for the best rates. It also means paying down as much debt as possible and coming up with a larger down payment. It also may mean looking outside of your dream neighborhood. And the old real estate advice of buying the worst house in the best neighborhood still rings true. Talk to your lender well before you start looking for your new Inland Empire home. They can provide you with an excellent roadmap of where to concentrate your financial efforts to prepare yourself for homeownership based on your current situation.
Muna Dionne, your Inland Empire specialist with Coldwell Banker Realty
First-Time Homebuyer Guide: Before You Start Looking
Tired of renting? Ready to buy? Anxious about it? Completely understandable, especially for the first-time homebuyer. Let me help you relieve some of that stress by offering a guide to what you need to do before you start looking for your first home.
First-Time Homebuyer Guide: Before You Start Looking
Save For Your Down Payment & Closing Costs
Your first step should obviously be to save up some money. If you want to qualify for the best interest rates and avoid Private Mortgage Insurance (PMI), you need to put at least 20% of the sale price down on your mortgage loan. However, many people don’t have that much saved up. Fortunately, many mortgage programs allow anywhere from 0% (for VA or USDA loans) to 10% down. Closing costs can add another 2% to 7% of the home’s sale price into the mix.
Check Your Credit Score
To qualify for the best interest rates (or qualify for a loan at all), you need to whip your credit into shape. First, check your credit score by visiting AnnualCreditReport.com. A Federal Trade Commission study found that one in five people found an error on at least one of their credit reports. If you find an error, visit the appropriate credit agency’s site (TransUnion, Equifax, or Experian) to find out how to dispute erroneous information. Each agency requires its own process to do this. This takes some time. So, the sooner you start, the better.
Get Pre-Approved For a Mortgage Loan
After your credit is in the best shape possible, talk to a lender. In fact, talk to a few. Different lenders offer different programs. When you decide on one, start the pre-approval process. Do not mix this up with pre-qualification. That takes a few minutes and only lightly touches on your finances. Pre-approval requires you to provide bank statements, paycheck stubs, and any other pertinent financial information. You also need to list your debts. Basically, it’s the starting point of the loan process and takes a bit of time. But it is well worth the effort. Once the lender analyzes this information, they A) tell you if you would be approved for a loan and B) tell you how much you would be approved for. That helps you narrow your focus when you search for a property. Plus, sellers like to see a pre-approval letter included with your offer. Just remember that a pre-approval is not an actual approval.
Hire a Real Estate Agent
Some people think this should land higher on the list. While an important step, it helps to get started on the other steps first because they may take a bit of time. Finding the right real estate agent is important, especially for a first-time home buyer. Specifically, you need a buyer’s agent. They listen to the features you want in your Inland Empire home and then they search for homes fitting your requirements in their extensive database. Then, when you find the right property, they negotiate on your behalf to get you the best deal possible. As a bonus, their fees are actually paid by the seller at closing.
When you are ready to start your search for your very first Inland Empire home, contact me. And if you need advice on how to get started on any of the other steps to owning your first home, I’m always happy to help.
Muna Dionne, your Inland Empire specialist with Coldwell Banker Realty
What to Expect During Your Final Walk-Through
You saved up for your downpayment and closing costs. After searching and searching, you found an Inland Empire home you absolutely loved. The sellers accepted your offer and you entered escrow. You might have waived a contingency or two to make the deal happen. But one thing you should never waive is a final walk-through. Why? It provides the last opportunity before the house is yours to make sure it looks exactly how you expected it to look when you signed the sales contract.
What to Expect During Your Final Walk-Through
Who Goes to the Walk-Through
Basically, it’s just you (the buyer) and your REALTOR® in attendance. The seller and their agent do not attend the final walk-through. This allows you to look over everything inside and out at your own pace. You want to make sure that all of the fixtures and appliances that were supposed to be included in the sale are still there. Plus, you want to double-check that the seller made any repairs required in the sales contract.
When Does It Take Place?
Typically, your final walk-through takes place 24 hours before closing. Your agent contacts the seller’s agent to schedule a time to access the Inland Empire home for your walk-through. Take as much time as you need to complete a thorough visual inspection of the property. There is no time limit.
What to Look For
Your agent should bring along the seller’s disclosure form, your inspection report, and any amendments made to the sales contract regarding repairs or replacement. Your agent may even ask for receipts from the seller for any repairs made after your home inspection (performed at the beginning of escrow). Use these to guide your walk-through. You need to confirm that all repairs have been completed.
What to Do If You Find a Problem
First, notate the problem(s). Talk to your REALTOR® about each one. Is it a big problem or a small issue? With smaller issues, you might want to overlook them. Are they worth waiting a few more days for the seller to fix or can you handle them on your own after closing? But with larger issues (roof replacement, missing appliances or fixtures, property damage done after your initial inspection), you might want to either wait for the seller to fix them or have your agent negotiate a credit at closing. However, a credit means that the burden of repairs falls on your shoulders later. Even so, it gets the sale completed on time.
When Should You Walk Away?
Legally, you may walk away from the sale if any part of your sales agreement has not been met by the seller. However, you should stay flexible if you truly love the house. Again, overlook the smaller things that you can take care of later. And try to negotiate any big issues before deciding whether to cancel the sale or not.
Muna Dionne, your Inland Empire specialist with Coldwell Banker Realty
Weighing the Pros and Cons of a 15-Year Mortgage vs a 30-Year Mortgage
Saving up for a down payment. Finding the right house. Negotiating a sale. Then, financing it all. So many steps go into purchasing an Inland Empire home. When it comes to deciding on financial terms, one of the things your lender will discuss with you is whether you want to go with a 15-year mortgage or a 30-year one. Each option comes with both pros and cons. Learn as much about both options before you make a final decision.
Weighing the Pros and Cons of a 15-Year Mortgage vs a 30-Year Mortgage
15-Year Mortgage
Pros – As the name says, a 15-year mortgage gets paid off in half the time as a 30-year mortgage. This means less interest paid throughout the life of the loan. And by “less”, I mean over $100,000 less. For example, let’s say you pay $400,000 for an Inland Empire home. You put 10% down. You save as much as $180,339 in interest if you go with the 15-year loan. If you pay it off in less than 15 years, you save even more money in interest. Since the shorter term is considered less risky by lenders, they offer lower interest rates for a 15-year mortgage, too. When you put less than 20% down on a shorter-term loan, the FHA charges less for PMI.
Cons – With a shorter term, you pay more per month…hundreds more. For example, using the $400,000 Inland Empire home discussed above, your monthly payment goes up by $761. That may put this loan out of reach for many home buyers. However, if you really want to pay that mortgage off in 15 years, it may mean lowering the amount you pay for the home (like from $400,000 to $300,000 or less). This severely limits your options, especially in today’s market. Finally, a higher monthly mortgage payment limits your available cash for things like investing, maintenance, and entertainment.
30-Year Mortgage
Pros – A lower monthly payment provides the biggest draw for a 30-year mortgage. This also allows more flexibility in how you pay your loan. Your lender gives you a set number that you absolutely must pay for your mortgage each month. But, if you find yourself able to pay more at any time during the life of the loan, you can make extra payments that go directly to your principal. Chipping away at your principal even with just an extra $100 a month can pay off a 30-year mortgage in 24 years. Plus, it saves you tens of thousands of dollars in interest at the same time.
Uncle Sam allows you to deduct your mortgage interest from your taxes. Since the majority of your mortgage payment consists primarily of interest in the first few years of your loan, that can be a huge number come tax time. Plus, the lower payment frees up more money for other things.
Cons – On the flip side, lenders charge a higher interest rate for a longer-term loan. Since the term is longer, you also pay much more in interest over the life of the loan. Likewise, a longer term means that it takes longer to build up equity.
When it comes down to it, whether you should go with a 15-year mortgage or a 30-year mortgage depends on your financial means as well as your ultimate goal. Do you want to pay off your loan quicker and can afford to pay several hundred dollars more each month? Then, the 15-year mortgage is ideal. But, if you need a lower payment spread out over a longer period of time (at least for now), choose the 30-year mortgage option. Always discuss this with your mortgage provider. They can answer any questions you may have.
Muna Dionne, your Inland Empire specialist with Coldwell Banker Realty
Down Payment Saving Tips
One of the biggest obstacles for Inland Empire home buyers tends to be saving up for their down payment. That typically runs anywhere between 3.5% and 20% or more of the sale price. For a $500,000 home, that means you need between $17,500 and $100,000. (The more you put down, the lower your monthly payment.) But do not forget about your closing costs. Buyers pay around 2% of the sale price in closing costs, according to The Mortgage Reports. Before you freak out over how you’re going to come up with that much money, saving up for your down payment and closing costs may be a little easier than you think.
Down Payment Saving Tips
Open a Dedicated Savings Account
Preferably, this savings account should be at a completely different bank than your normal one. Additionally, make this a bank that includes limited access. This reduces your chances of tapping into it for frivolous expenses. Plus, automate your savings. Most employers offering direct deposit allow you to allocate your earnings into more than one account. This puts money away before you even see it and helps keep your spending in check.
Withdraw From Your IRA Account
Traditional and Roth IRAs are both great places to put your money while saving for a down payment. You may take out as much as $10,000 for your down payment when buying a home. With a traditional IRA, that money will be taxed. However, with a Roth IRA, you do not pay tax as long as you have had it for five years or more and are a first-time home buyer. Just remember that whatever you take out of your IRA affects how much you have for retirement. So, talk to your financial advisor about the pros and cons of using this method for your down payment before making a final decision.
Minimize Frivolous Spending
And speaking of keeping your spending in check, take a look at your spending habits. Now, that does not mean that you need to live like a hermit while saving up for your Inland Empire home. Instead, make a few subtle changes and you might see your savings add up quicker than you think. For example, if you find yourself spending $10 to $15 dollars a day for lunch, take leftovers from dinner the night before to work. That saves you anywhere from $200 to $300 a month. Minimize eating out. Notice that I did not say “eliminate”. Instead of eating out for lunch and dinner on the weekends, opt for a nice lunch (the cheaper of the two meals) on Saturday or brunch on Sunday and cook for yourself at home the other times. That can add up to $50 to $100 savings per meal for two people.
Get rid of cable and sign up for a streaming service instead. Instead of paying $200 to $250 a month, you pay as little as $10 instead. Eliminate your $40 gym membership and opt to walk or run for free. Finally, empty out your purse or pockets of any change at the end of the day. Save it up in a coin jar. When the jar gets full, take it to your bank to deposit into your savings account. Just remember to put the money you would have spent on any of these things into your savings account.
Look at Assistance Programs
Finally, check out available down payment assistance programs. Riverside County offers down payment assistance and homeowner education classes. Cal FHA and GFSA also offer assistance for first-time and low-income California home buyers.
Muna Dionne, your Inland Empire specialist with Coldwell Banker Realty
Home Buying Tips for Navigating a Seller’s Market
Several years ago, home buyers had the pick of the litter when it came to purchasing a Southern California property. Decent interest rates and tons of inventory helped first-time buyers easily enter the market. Oh, how the tide has turned. Rising interest rates, low inventory, and high buyer demand put us in a strong seller’s market. As of April 2022, Riverside homes sold for 2.8% above asking on average. And it does not show signs of slowing down anytime soon. So, if you plan on investing in a property during a seller’s market, keep these home buying tips in mind.
Home Buying Tips for Navigating a Seller’s Market
Worst House/Best Neighborhood
Many of today’s buyers prefer a move-in-ready home. But these come at a premium cost. Thus, lowering your expectations and buying a fixer-upper might prove much more budget-friendly…and profitable. For decades, real estate experts suggested buying the worst house in the best neighborhood in order to increase your return on your investment. Just make sure to keep the costs of renovation/repair in mind when putting in your offer.
More Earnest Money, More Attractive the Offer
When a seller accepts your offer, you must place an Earnest Money Deposit in escrow. Also considered “good faith” money, this deposit goes towards your down payment once the sale goes through. Oftentimes, this costs between 1% and 3% of the purchase price of the Inland Empire home. But, as one of my home buying tips in a seller’s market, I suggest that you put at least 3% down if not a little more. Not only does it show the seller that you are serious, but it may also push your offer up high enough to outshine other buyers you compete with.
Get That Pre-Approval Letter
Gone are the days of pre-qualification being enough for a buyer to be taken seriously. Most sellers will not even consider an offer without a pre-approval letter. But if you really want your offer to stand out above the rest, get your loan to pre-underwriting status.
Add an Escalation Clause
If you really believe this house is your dream property, add an escalation clause into your offer when you find yourself competing against other buyers for the home. For example, let’s say that a seller lists their house for $450,000. You are willing to pay as much as $475,000. But you find out that someone else also put in an offer. So, you offer $450,000 but add in an escalation clause that states you will pay $5,000 above the highest offer up to $475,000. Your offer never rises above your limit but it also does not go higher than $5,000 over the highest offer either. That might be just enough to make a seller accept it.
Lease-Back Option
Once a homeowner sells their property, they need to find another home. A 30-day escrow may not provide enough time to do so. So, another one of my home buying tips to follow in a seller’s market is to offer a lease-back option. This allows the seller to stay in the property for a specific time period (usually 30 to 60 days after the close of the sale) and for a specific amount of money per month. Basically, once the buyer becomes the owner, they also become the landlord for a short time.
Not all of these options work for every situation. Talk to your REALTOR® to determine which ones offer the best advantage for you to seal the deal. When you decide you want to look for your next Inland Empire home, contact me. I’m always ready to help you navigate the market, whatever it may be.
Muna Dionne, your Inland Empire specialist with Coldwell Banker Realty
Pre-Approval vs Pre-Underwriting
When buying an Inland Empire home in the past, you may have heard about pre-qualifying and pre-approval. In today’s highly competitive real estate market, most sellers will not even look at an offer if the buyer does not include a pre-approval letter. But, there is something even better than a pre-approval letter. And that is pre-underwriting. So, what is the difference between the two?
Pre-Approval vs Pre-Underwriting
Pre-Approval
When you go through the pre-approval process, you fill out your initial loan application with your lender. Then, you provide them with bank statements, paycheck stubs, tax returns, and any other financial documentation they request. They verify your employment status and run a credit check on you. Using all of this information, they determine if you 1) qualify for a mortgage loan and 2) the maximum amount you qualify to borrow.
Pre-Underwriting
After all of the pre-approval process ends, your loan then goes to underwriting. The underwriter conducts a more thorough audit of all the information you provided in the pre-approval process. It also takes a longer amount of time. Therefore, if you can get your loan as far as possible in pre-underwriting before you even write an offer on an Inland Empire house, your time in escrow shortens up. This makes an antsy seller very happy!
When you deal in a highly competitive seller’s market like ours here in the Inland Empire, you want your offer to look as good as possible. Pre-underwriting helps with this endeavor. However, since this is a relatively new option, some lenders do not offer it. For this reason, you need to ask your lender about it first thing.
After you get your financing together, contact me. I’d be happy to show you what’s available in your price range here in the Inland Empire. I look forward to hearing from you soon!
Muna Dionne, your Inland Empire specialist with Coldwell Banker Realty
What to Negotiate When Buying an Inland Empire House
Whether you are a first-time homebuyer or a seasoned veteran, the negotiation part of the transaction can be a little daunting and stressful. However, it is necessary to ensure that you are getting the best possible deal for your money. So, what should you negotiate when buying an Inland Empire home?
What to Negotiate When Buying an Inland Empire House
Closing Costs
Your closing costs are determined by a variety of factors. But you can expect them to be between 2% to 6% of the purchase price, according to local Riverside County escrow company Parkfield Escrow. Ask the seller to cover some or all of the closing costs upfront or request a closing credit that can be used to make specific updates and fixes to the home.
Furnishings
Love how the seller has furnished and decorated the home? Buyers often negotiate keeping couches, fixtures, landscaping items, patio furniture, appliances, and more. And many sellers agree, wanting to make the home more appealing.
Inspection and Closing Timing
Buyer offers that include a quick inspection and close timeline are often more attractive to sellers who have been going through the process for far too long. Just ensure you allow yourself ample time to get your financing in place and complete proper, thorough inspections.
Home Warranty
Sellers will often agree to pay the premium on the home warranty at closing. Then, they hand it off to the new homeowner, who is responsible for the deductible on any future claims.
Repairs
Your inspection may uncover small or large repairs needed to bring the Inland Empire home up to standard. You can negotiate to have these items fixed before closing or ask for a price reduction to cover the costs.
Keep in mind, however, that the more contingencies you place on a home’s sale, the more likely that the seller will refuse your offer and move on to another. This is especially true in a competitive seller’s market. Talk to your real estate agent to help you determine which negotiations are a “must” and which should be left off the table.
Muna Dionne, your Inland Empire specialist with Coldwell Banker Realty
