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6 Reasons Why Selling a House in the Winter May Be the Best Decision Ever

December 18, 2019 by chorton Leave a Comment

Spring is generally the most popular time of year to sell a house, with hordes of buyers looking to move into a new place before the school year begins. But if you decide to sell your home during the winter, experts say you could reap a reward in cold, hard cash.

“I have personally had my best months in real estate during the holiday season, so the idea that the markets are very tough to sell in the winter might be a myth,” says Emil Hartoonian, managing partner of The Agency in Beverly Hills, CA.

He’s not the only one who believes selling in the winter can make you a real estate winner. Read on for the top reasons why you should consider unloading when the temperatures drop.

6 Reasons to sell your home in the winter

1. Low inventory = less competition

Since spring is the most popular home-selling season, the housing market is ultracrowded with options at that time of year. And if you paid attention during Econ 101, you understand the law of supply and demand.

“Most sellers still think they need to sell in the spring, but that means there is more competition for buyers’ attention,” says Matt Van Winkle, founder of Re/Max Northwest in Seattle.

But in the winter, there are fewer homes for sale. That competition over low inventory can make winter an ideal time to sell your home.

“In the Atlanta market, January is one of the strongest months for homes to go under contract,” says Ally May of Atlanta Fine Homes Sotheby’s.

2. You get to show your home’s winter-readiness

Selling in the winter also gives you the opportunity to show that a home is designed to handle the harsh elements.

“Sellers in places like Lake Tahoe can show off features like a south-facing driveway to speed up snow melting, how snow will fall off of a roof, a short driveway that will minimize shoveling or plowing, heat tape on the north side of the roof to avoid snow accumulation, and how recently the roof and furnace have been replaced,” says Sandy Soli, regional manager at Engel & Völkers in Lake Tahoe, NV.

Plus, during winter months, homes with features like fireplaces and hot tubs are certainly more appealing.

3. New parents may be looking to upgrade

The baby boom in September may lead to more buyers later in the year. According to data from the Center for Health Statistics and the Social Security Administration, there are more birthdays in the month of September than any other time of the year. Therefore, there’s likely to be a crop of growing families looking to buy a larger house.

“Once baby is home and settled, these parents may want to start the year in a new, and more spacious, family home,” according to Melissa Temple, real estate adviser and partner at Engel & Völkers in Aspen, CO.

4. Winter brings out the serious buyers

News flash: Not everyone looking at houses intends to make a purchase. Some people are contemplating moving and may just want to see what’s on the market. Since more homes tend to go on the market in spring and fall, this is also when window shoppers are likely to be out looking.

However, these looky-loos tend to be scarce during winter months, according to Jennifer Baldinger, licensed associate real estate broker at Julia B. Fee Sotheby’s International Realty in Scarsdale, NY.

“When I have buyers looking for homes in January and February, they’re real buyers looking to make a purchase—especially if it’s a great house. They don’t want to take the chance of waiting until spring and losing out on the home,” Baldinger says.

“There may be less people at these open houses, but I would rather have 10 real buyers come through than 20 people who are just curious,” she says.

5. Year-end financial bonuses and payouts

As a seller, year-end performance reviews could mean that more people have money to spend on a home.

“End-of-year financial bonuses or workers retiring with large payouts could mean opportunities for these buyers to upgrade their living situations or for first-time buyers to enter the housing market,” according to Temple.

6. Corporate relocation

You could also encounter buyers who are relocating for a job.

“One of the biggest months for corporate relocation is January/February, so those buyers, who need to move quickly, are out in full force looking for new homes,” Baldinger says.

Relocators typically have a limited amount of time to uproot their families and, as a result, don’t have the luxury of spending a lot of time looking at properties. The kids need to get settled into school, and dealing with selling their old home can add another level of urgency and stress. So it’s likely that once they find a home that meets their requirements, these buyers will be ready to sign on the dotted line.

16 Common Mistakes That First-Time House-Flippers Make

December 12, 2019 by chorton Leave a Comment

When you binge-watch a little too much HGTV, it’s easy to come to some crazy conclusions. Conclusions like, “House flipping looks easy! I should try it!”

Well, maybe you should — we sure won’t stop you! — but before you jump into your very first home flip, make sure you know what common mistakes first-time flippers are in danger of making so that you can avoid the same fate.

Most Common House Flipping Mistakes in Texas

Not having the finances

Before you flip a house, you have to buy it. Depending on whether you’re paying all-cash or getting a mortgage loan (and whether you already own a primary residence or not), you will have to secure a down payment for the home, plan on paying mortgage interest for the months that you carry the mortgage, pay for utilities, and pay for the expenses of actually fixing up the home.

You might be tempted to assume that this will be a quick and easy project, but similar assumptions have taken down more experienced house-flippers than you. It’s much better to overestimate how long it will take then to underestimate — that way you can make sure you have enough money to cover the flip.

One money-saving tactic could be to move into the house while you renovate it (then you won’t be paying rent elsewhere). Be warned, though, that unless you live in the home for two years, you will still have to pay capital gains tax on any profit made from the flip.

Buying the wrong property

Like Goldilocks, you want a home that’s “just right” — not too expensive, or you won’t make any money, and not in too bad of shape, or you’ll spend more than you planned to fix it.

Paying too much for a home is one of the worst things you can do as a house flipper, so it might help to secure some real estate expertise from a local professional who can give you a good idea of what fair-market prices look like and help you ascertain if your offer looks good or if you want to seek out a better deal.

Additionally, a professional can help you understand how much profit you could potentially make, which is also easy to overestimate as a first-timer. And they can make sure you’re following the 70% rule. What’s that? Well …

Not following the 70% rule

Most fix-and-flip investors who have been doing the job for a while know and adhere to this rule. It’s not very complicated, but you may be tempted to indulge in some creative math to make the numbers work — resist! That’s a form of rule-breaking.

You do not want to pay more for a property than 70% of its fixed-up fair-market value.

So in other words, if you’re eyeing a home, and you have it on good authority from several people that after you fix it, you could sell it for $200,000 — do not offer more than $140,000 for that home. That is your 70% threshhold.

This will give you wiggle room to pay for the repairs and upgrades and to still make a profit.

Forgetting to make the budget

Are you getting the idea yet that flipping a home is a big exercise in math? Well, if you haven’t started laying all these costs out in a spreadsheet and figuring out what you can spend where, then start.

You’ll want to consider both the cost of the home (either paying for it outright or paying the monthly mortgage plus insurance, taxes, and any other expenses), the costs of the upgrades, the amount of time those upgrades will take, and the time on market once it’s ready to sell.

Again, a real estate professional (or another experienced house flipper) can give you a solid ballpark for all of these metrics if you don’t even know where to start.

Not getting an inspection

When you’re paying cash and you’re in a hurry — and you already know there’s a lot to fix in the home — then it can be tempting to skip the pre-sale inspection. Why bother?

Because that inspector might find a serious problem that’s going to cost you more to fix than you can afford. Foundation or structural issues are usually not cheap to solve and can eat up most (if not all) of your budget if they emerge unexpectedly.

Plus, when the time comes to sell the home, you’ll know that everything was done to get it into perfect condition if you bothered with an inspection!

Not securing the right permits

Before you start pulling out the sledgehammers for demolition, it’s a good idea to ascertain which permits you’re going to need for your upgrades. You don’t want to do all the work on a project only to discover that you needed a permit and might need to redo some or all of it.

Again, a real estate professional or someone who’s flipped houses before can help you here. They will have an idea of what permits are needed and can help you start the application process before you need them (not after).

Multitasking

When it’s time to actually get started on the work, you may be tempted to flit from project to project so that you can feel like you’re accomplishing something. Why continue working on that item that’s going to take a week to finish when you can just run over and finish two or three things really quickly?

If you’ve read anything about research on multitasking, then you already know the answer: It makes you much less efficient than if you focused on one thing and saw it through to the end.

Make a list of things that need to be done, and if you want to feel that sense of accomplishment, then plan to spend your morning working on major projects, and your afternoon on little items that help you feel like you’ve finished at least one thing.

Overestimating what you can do yourself

With the existence of YouTube, it’s pretty tempting to think that you can do anything with the right tools and a video.

But this is a major investment, and you are probably not qualified to do most of it. Putting a wall up or refinishing a floor? Sure, maybe. Any plumbing and electrical help will definitely require a professional, though, and you might want to consider finding a general contractor who’s willing to pitch in where you need.

If you have direct experience making a specific type of home repair, and you liked your results, then go ahead and assume you could do it again. If not, then for your first flip, hire a pro and watch them work so you decide if DIY might be an option — next time.

Not playing well with others

No flipper is an island, and that is especially true for first-time flippers, who haven’t yet discovered their core crew of people who can help them get the fixes in, and in quickly. You’ll need to rely on strangers to help you finish the job, and some people are better at doing that than others.

If you don’t deal with feedback well, don’t manage relationships well, or just generally don’t like working with people, then you should perhaps reconsider this method of money-making. You’re going to need to work with others, and work well with them; if that’s beyond your scope of ability, then maybe funding a flip and collecting some of the profit is a better choice.

The good news is that if your first flip goes well, you’ll be on your way toward building a crew for future flips.

Running out of time

You’re almost to your sales deadline, but the house is only half-finished. This is a real nightmare for a flipper, but it’s a common one when it’s your first flip and you have no real idea how long the fixes are going to take.

Overestimate how long you’ll need to finish the job, especially if you’re working by yourself. Leave yourself time to undo and redo some work (because you’ll probably mess something up), and don’t create a timeline that’s going to squeeze you beyond your abilities.

Don’t know how long it’s going to take? Bring in a general contractor and ask for time estimates. Add 50% or double the time on any jobs you plan to do yourself if you’ve never done it before.

Remodeling according to your personal taste

Many first-time flippers forget that they aren’t renovating the house for themselves — they’re doing it for a future buyer. And those flippers end up getting less for the sale than they could have because they insist on revamping the house according to their own personal taste instead of what sells best on the market.

A real estate agent can help give you a reality-check here and tell you that your preference for a separate kitchen, dining room, and living room is going to hurt the sale, or help you understand whether there’s really a demand in the area for a garage with a rock-climbing wall installed.

Neglecting the little fixes

There’s a lot to do in any flip, and it can be tempting to focus on the big items — floors, walls, windows, doors, and so on — and ignore the little ones.

But if you think that buyer isn’t going to notice that the kitchen drawers all stick, you’re delusional. Change the light bulbs, oil the hinges, and make sure everything (everything!) works and works well before you call it a day.

Upgrading too much

Depending on the neighborhood, a five-burner gas-range stove might be exactly what the house demands … but maybe not. First-time flippers often don’t know where to stop with the upgrades and do too much, creating a beautiful house that’s over-finished for the neighborhood, and installing features that buyers who are interested don’t really want.

That doesn’t mean you need to go for the cheapest option, but at least look at other listings in the neighborhood to see what the standard or “average” finishes and fixtures look like, then aim for that look. (This is another area where a real estate professional can be worth his or her weight in gold.)

Ignoring the outside

Well, the inside of this soon-to-be-flipped home looks amazing! Time to list?

Not quite. Have you paid attention to the landscaping? Put in new sod? Added flowerbeds to the garden, or otherwise improved the curb appeal of the home at all?

It’s a big mistake to focus only on the inside of the home and ignore the outside. A green lawn, fresh coat of paint, and some artfully placed flowers can work wonders on that final sales price.

Listing the house before it’s finished

You may think that you can show buyers what you’ve done and they’ll be able to imagine what the home will look like when it’s finished — but this truly isn’t the case. If you try to start showing the home before it’s actually ready, then all buyers are going to see is a half-finished project.

They don’t have access to the vision in your head. Don’t try to force them to create one, or the house will linger on the market for longer than necessary … and you’ll have missed your first, best chance to make an amazing impression with your flip.

Counting on the market to pull the price up

When the market is hot, it can be really tempting to hope that it will have escalated enough in the months that your flip was being renovated to bump up the sales price. We all hear the stories about how prices are rising, so why shouldn’t you expect them to rise while you work?

Because housing markets, like all markets, are subject to outside forces beyond your control that you cannot predict. If you’re counting on the market to grow, and that doesn’t happen — what’s your Plan B? Will you still make money on the sale, or will you lose your shirt?

Don’t risk it. Make sure that you can still make a profit even if the market doesn’t jump while you’re working on the house. (And if it does? Consider that a pleasant surprise.)

Staging without a pro

Many flippers are also great at staging homes, and this could well be you in the future. But for your first home, do yourself a big favor and budget for a stager from the beginning.

A professional stager will tell a story with the home, tying rooms together with color and texture, and helping buyers envision their lives in your flip. Watch and learn from the pro, and then maybe you can try staging on your second (or third, or eighth) flip.

What You Need to Know About Insulation When Selling Your Home

December 10, 2019 by chorton Leave a Comment

At A Glance

How does your home insulation impact the sale of your home? You might not realize it, but it can make a big difference. Attic insulation is one of the best improvements you can make, and everyone loves a well-insulated home. Here’s what you need to know!

As you get your home ready to sell, you’re probably encountering a variety of considerations that you didn’t think would be part of the sale. After all, can’t you just list the home, sell it, pack up, move out, and be done?

While that is the majority of the process, there are a lot of details to think about before you list the home. One of the most important is making sure it’s in great shape and that a buyer will find no problems during an inspection.

You also want to make repairs and improvements that will help you get more value for your home. One of the best improvements you can make is to boost your insulation.

Here’s what you need to know about the impact insulation can have on your home sale!

Are There Problems With Insulation?

Take a look at your attic and crawlspace and see if you can find obvious problems with your insulation. Is there mold, signs of pests making nests in it, or has the insulation drifted and is no longer evenly spread out?

If so, take steps to repair the damage. Not all states require you to disclose problems with the insulation in the home, but even if you aren’t legally required the right thing to do is to get it in working order before your sale.

That doesn’t mean you have to get the most expensive insulation available, although doing so can have a great return on investment.

If you’ve had a pest inspection and removed all pests, or have thoroughly checked for moisture and found nothing, make that a part of the marketing of the home. A buyer will love the comfort of knowing there’s no rats or mold in the attic.

Insulation Improvements Can Add Significant Value

Wondering if it’s worth your time to add insulation to your home? It is, especially in the attic. An improvement in attic insulation alone can get you almost 108% back on your investment.

If you have to repair your home insulation due to pests or mold, spin that in your favor. Be sure the realtor markets your home as having “all-new insulation” in the attic or crawlspace.

If you really want to get bang for your buck, consider replacing your existing insulation with spray foam, a high-quality product that keeps out moisture, pests, and significantly improves energy efficiency. Making that a selling point can get you a much higher sales price.

Whether you want to insulate beyond your attic and crawlspace is up to you. An insulation contractor can certainly blow additional insulation into walls without major construction, and it will lower energy bills for the future buyer. However, you want to make sure you’ll get a good return.

This is one reason it’s so important to work with an experienced local realtor. They will know what improvements will matter most in your specific area. If you live in an area with harsh winters or very hot summers, the insulation may sell well. On the other hand, in a temperate area, you might want to just stick with the attic.

What if There’s No Insulation in the Walls?

Some very old homes — such as those over 100 years old — were built at a time when houses were not routinely insulated. If this is the case in your home and you haven’t made any updates, you’re probably struggling with high energy costs and cold (or hot) spots throughout the house.

You don’t have an obligation to insulate the walls in an older home, nor do you have to disclose the lack of insulation in most states. Most buyers of older homes are aware of the various charms and pitfalls of owning this type of property.

However, that doesn’t mean that adding insulation has no value. If you can do it — especially since an older home might not have fire blocks in the framing so filling the walls might be easy — you can add a lot of value to the property.

Selling a quaint old home that isn’t drafty and expensive to heat and cool is a big deal, and you’ll certainly see the added value in the sale price.

Work With a Professional Realtor to Sell Your Home

As you’re moving toward listing your home, be sure to work with a professional local realtor. They can help you significantly with your home sale.

Not only does a seller’s agent market the property, but they also help you price it properly. The will screen buyers for you and help you negotiate offers so that you get the very best price. They’ll walk you through the contract and closing process and help make sure you don’t miss any legal details.

Best of all, this level of full-service care doesn’t have to break the bank. In fact, when you work with a Clever Partner Agent you won’t pay a full listing agent commission. Instead, you’ll pay a low flat fee of $3,000 or 1% of the price if the home sells for more than $350,000.

This can save you thousands of dollars. Don’t hesitate — reach out to Clever today for a no-obligation consultation with an experienced listing agent in your area.

5 Things To Negotiate When You Buy Your First House

December 3, 2019 by chorton Leave a Comment

As a first-time home buyer, you probably assume your realtor or real estate agent will do the dirty work of negotiation for you. While that may be true, or you might take a DIY approach selling by owner, make sure you’re not missing any opportunities to bargain for what you want—whether that involves closing costs covered, the entire house repainted, or an extended move-in date. After all, the worst thing a seller can say is no, and you won’t know until you ask.

“The biggest mistake I see young home buyers making is assuming their real estate agent will be proactively and creatively negotiating on their behalf,” adds Zoe Chance, a professor at Yale School of Management who researches influence and negotiation skills. “The agent’s incentive is to have the deal go through, not to get their client the best deal they can, but they will ask for anything you ask them to ask for.”

Here are five things you should always negotiate when purchasing a home, no matter what.

1. All or a percentage of closing costs to be paid.

One of the primary things you can successfully negotiate as a first-time buyer? Closing costs. “Closing costs often catch first-time buyers off guard because they don’t realize they’ll need extra cash to complete the transaction,” says Elizabeth Ann Stribling-Kivlan, real estate broker at New York City-based Stribling & Associates. “The total amount depends on where the property is being sold and the value, but home buyers can typically expect to pay between 2% and 5% of the purchase price. However, closing costs may be paid by the seller or the buyer. If you’re in a buyer’s market, and the seller is anxious to move on from the property, you might be able to have the sellers pick up some or all of the closing costs.”

This puts extra cash in your pocket that you can redirect toward renovations, big ticket repairs or updates, but you can also request a closing credit for specific changes made after purchase. “For example, the property needs the driveway sealed or the new owner would like the deck refinished,” explains Teris Pantazes, who owns a homeowner and home buyer property management system in Maryland and often partners with real estate agents. “These are items that a seller might ‘credit’ the home buyer, which means they collect the money and immediately give it back at settlement table. This doesn’t lower the ultimate purchase price, but it does lower the amount the buyer has to come out of pocket. Sometimes, you can increase your offering price slightly and simultaneously ask for a credit—splitting the difference but keeping everything financed.”

On the flip side, if you go the closing credit route, think about the timing of using a credit toward repairs highlighted in a home inspection. You may also want to complete work before closing the sale, just to make sure the seller remains responsible for the final cost and quality of the end result. “It’s very likely your home inspector will find things that need fixed,” says Sara Hopkins, a realtor in Des Moines, Iowa. “If there are things found that need taken care of, your seller should be paying for it. Even if a buyer walks away, it’s still very likely the next buyer will find the same things. So it’s in the best interest of the seller to take care of it.”

2. The premium of a home warranty, at least for the first year, and repairs related to inspections.

“Always, always ask for a home warranty,” advises Hopkins, a realtor in Des Moines, Iowa. “It’s very common for a seller to pay this expense up front. The seller pays the premium at closing, usually around $450-600, and then the new homeowner is responsible for the deductible with any claim made.”

While a homeowner’s warranty covers the repair of key items like heating and air systems, plumbing or appliances, a home inspection can help you save money in the future, too. Two types generally exist: standard inspections intended to catch both concerning and insignificant problems to be fixed, and more specific inspections that target household areas like your roof or bathrooms. A seller can decline the latter type of inspection if they deem it unnecessary, which can be inconvenient, but at the same time gives you leverage and flexibility to either walk away from a potential issue or fix it for good.

Real estate investor Eric Bowlin learned this the hard way when he purchased a house with a slow drain. Although the inspector said it was probably just clogged, Bowlin hired someone to check it out—and discovered tree roots in the drain. He was consequently able to negotiate several thousands of dollars off the price of the house, and then got the work done to fix it for under a grand.

“As home buyers, you should insist on negotiating anything that is safety related,” Bowlin continues. “This could be ground-fault circuit interrupters (GFCIs) in the bathrooms, ungrounded gas pipes, railings that are not secured well, etc. They may seem small, and they are, but small problems can become big problems if they are safety issues. You really don’t want someone being seriously hurt or killed because no one took the time to spend $75 to install a GFCI in the bathroom of an older home.”

3. Flexibility on closing or possession dates.

Once you land on a closing date, you’re probably thinking, “How soon can I move in?” This obviously depends on your situation: you might be waiting on another house to close, trying to hire movers or shifting out of an apartment or condo lease. Most buyers assume it’s their problem to figure out, but negotiating flexibility regarding closing or possession dates is actually pretty standard.

“I represent many first-time home buyers, and many of them have the idea that they have to wait a few months before they can write an offer on a home because their lease will be up in an apartment or house they are currently renting,” says realtor Andrew Read. “I will often suggest that we negotiate with the seller to pay for my client to buy out their current lease. Many times we find that the seller is motivated to sell and has no problem with adjusting the price for the couple thousand dollars it takes to get out of the lease early.”

And it works both ways—if a seller needs extra time to vacate due to another home purchase or construction, says realtor Ali Chapin, then buyers who don’t have a property contingency can grant them the additional time in exchange for a lower price.

4. Cosmetic updates, furnishings and household items.

Realtors aren’t kidding when they say you can negotiate anything as a buyer, like furniture that perfectly fits a room layout, light fixtures, regrouting sinks and showers, minor landscaping, cars, appliances and even lawn care items. Sometimes sellers say yes to such requests because they want to make a home more appealing to the buyer, they don’t want to transport certain items to a new location, or they rarely use it.

“Although furniture usually comes as a ‘gift’ from the homeowner, it can go a long way for first-time buyers who may need to furnish an entire home right after spending most of their savings on the purchase,” says Luis Dominguez, a real estate agent in South Florida. “Sellers will often leave patio items, air filters—all things that can save a buyer money while they recuperate from the purchase.”

5. House price or mortgage loan points.

Negotiating down the listed price of a house is fairly typical, of course, but there are still some hidden tips and tricks for making it work in your favor. According to realtor Chantay Bridges, you can ask for a lower price based on factors like comparable properties, appraisal results, neighborhood status, home condition and overall market—or you can ask a seller to pay loan points on your mortgage.

“A buyer can ask a seller to consider paying points on their mortgage as a tax-deductible expense,” Bridges notes. “Many buyers would love to reduce the amount they will pay in interest, which is where points come in. Each point purchased will lessen an interest rate, and despite what amount a lender tells you, this can be negotiated.”

Another potential option, due to rising interest rates, involves assuming a seller’s current mortgage rate. “While some mortgage companies may not allow it, it could help a first-time home buyer save a lot of money,” says Dan Rivers, a realtor in Charleston, South Carolina. “This means that if the current owner has a mortgage with a low interest rate, say 3.5%, and the rates go up near 6-7%, the buyer would be able to assume the current owner’s mortgage and get the lower interest rates. There are a lot of factors involved with this process, but it is a possible negotiating item and could mean savings of several hundred dollars each month for buyers.”

How much work history do you need to buy a home?

November 19, 2019 by chorton Leave a Comment

How much work history do you need to buy a home?

Image result for did you know? even if you previously owned a home you still qualify for first time home buyer

When you apply for a mortgage, the lender wants to know that you can and will repay your loan. Your credit rating represents your willingness to repay. Your income represents the ability to repay.

This is why employment plays such a large role in the mortgage application process.

Underwriters check out the jobs you’ve had in the past, the job(s) you hold today, and the job you may hold in the future. They want to make sure you have a plan for your career — and that your plan is working.

Remember that, in general, a first-time home buyer lacks the employment depth of an experienced home buyer. A first-time home buyer may be fresh out of college or graduate school or could be just a year or two into his or her career.

The two-year rule

It’s typical for lenders to consider your last two years of employment. That does not mean you must have been conventionally-employed during those last two years.

Of course, there are the really easy cases.

For example, if you were a staff accountant in the software industry, and changed jobs to be a staff accountant in the medical field, that would be considered an acceptable lateral move by a lender.

Then, there are the unconventional but acceptable histories.

Suppose that you spent the last four years completing an accounting degree, and worked a couple of temporary accounting jobs during the summer. Upon graduation, you got a full-time accounting position.

The fact that you’d only been working full-time for a year probably won’t hurt your mortgage approval chances.

However, a ten-year employment history won’t help if you spent a year as an accountant, switched to bartending for a couple of years, and then started up a multi-level marketing gig. Now, you’re a personal trainer with six months in the business, and that’s just not a reliable track record.

In general, your lender just wants to make sure that your household income is stable, and will be ongoing for a period of at least three years.

How long must you be on the job to qualify for a mortgage?

As with many things in mortgage lending, the answer is “it depends.”

For instance, there are different requirements for conventional (like Fannie Mae) and government-backed loans (like FHA).

In fact, your work history might make you decide to change loan types. For instance, getting an FHA loan with less than two years employment is easier than qualifying for another loan type.

Following is a breakdown of what each loan type requires.

Loan Type	Employment Length Required
Conventional	Two years of related work or educational history
FHA	Two years of related history. Need to be at current job 6 months if applicant has employment gaps
VA loans	Two years or relevant schooling or military service. If active military, must be more than 12 months from release date
USDA	No minimum in current position; prove 2 years’ work or related history

Conventional loans with less than two years employment

Two years of employment history is recommended, according to Fannie Mae, the lead conforming loan rule-making agency. (Freddie Mac, the other mortgage rule-setter, has very similar guidelines.)

However, it also says that less than two years is acceptable, provided the applicant’s profile demonstrates “positive factors” to compensate for shorter income history.

What are these factors? Education is a great one. For instance, you have a four-year degree in the field in which you now work. That education almost always counts as work history. New grads typically have no problems qualifying despite a brand-new job.

If you recently changed jobs and changed fields, try to tie them together with a great letter of explanation. Present a case why this new job is just a continuation of your previous one. What skills did you build there that you now are using?

Keep in mind that the above only applies to salaried, full-time work. You’ll likely need at least two years of reliable income if you mainly earn bonuses, overtime, commission or self-employment income. And if you take on a second, part-time job for extra earning, you’ll need a two-year history for lenders to consider it.

FHA loans with less than two years of employment

FHA is more lenient about work history. Its guidelines state that previous history in the current position is not required. However, the lender must document two years of previous employment, schooling, or military service, and explain any gaps.

If an extended gap is present, the applicant must be employed in the current job for six months, plus show a two-year work history prior to the gap.

The FHA lender examines the probability of continued employment. That means verifying past work or education history.

FHA lenders want to see that you are qualified for your current position and that you are likely to remain in that position or a better one in the future.

Don’t worry if you have changed jobs frequently in the past two years. This is acceptable as long as each job change was an advance in your career.

Write a letter explaining how each move benefitted your situation — more money, more responsibilities, a company with more opportunity.

As with other loan types, FHA requires two years of documented history of overtime, bonus, and other variable income.

VA loan employment history requirements

VA loans allow you to qualify with less than two years of employment. The lender documents your work history and requests proof of relevant schooling or military service

These loans are tougher if you have less than 12 months of employment total (including all jobs). The VA lender may request the probability of continued employment from your current employer.

Additionally, lenders examine past training or relevant experience. The VA requires that the lender prove that an applicant has the needed skills for the current job.

For active military servicemembers, VA lenders consider income stable if the applicant is further than 12 months from his or her release date.

USDA loan qualification with less than two years of employment

USDA mortgages offer many benefits, such as zero down payment requirement and credit score flexibility. And they are also very lenient about employment history.

According to guidelines, there is no minimum length of time applicants must work in their current position before applying for the mortgage.

The applicant must document work history for the previous two years. It’s okay if he or she has moved around between jobs. However, the applicant must explain any significant gaps or changes.

If you are a USDA applicant, you must document that you were working toward or obtained a degree via college transcripts during the gap. Or prove your military service with discharge papers.

Both of these factors help satisfy your work history requirement.

While you can qualify for a USDA loan with a new job, you must prove that your current position is stable, so that you can make your mortgage payment long-term.

How much income do you need to get a mortgage approved?

To get mortgage-approved as a first-time home buyer, it’s not just your job that matters — your income matters, too.

However, the methods most mortgage lenders use to calculate income can put first-time borrowers at a disadvantage. This is because first-time home buyers don’t often have the work history that an experienced buyer possesses. As a result, not all income may be counted as “qualifying” income.

Check out the common scenarios below. If you have questions about how your particular income would fit into the loan approval process, be sure to ask your lender.

Type of income	Years history required
Salary	Can use full amount immediately, with offer letter or first pay stub
Bonus	Two years’ history required
Commission	Two years’ history required if more than 25% of income
Overtime	Lender will average two years’ OT earnings
Hourly	Preferably, two years’ average will be used if hours fluctuate
2nd job	Two years’ history of working both jobs simultaneously

When you earn an annual salary

When your income is an annual salary, your lender divides your annual gross (before tax) income by 12 months to determine your monthly income.

In general, you do not need to show a two-year history — especially for jobs which require specific training or background.

When you earn an annual salary, plus a bonus

When you bring home an annual salary plus a bonus, your lender calculates your income in two parts.

First, your lender divides your annual salary by 12 months to determine your monthly income.

In short:

Salary: Lender considers your full, current annual salary
Bonus: The lender averages your actual last two years’ bonus income

If you have received bonus income for at least two years, and the employer indicates that bonus income will continue, lenders can consider it “qualifying” income.

Underwriters normally divide your last two years of bonus income by 24 months to arrive at a monthly total.

However, as with any income, if lenders see that it has been dropping year-over-year, they may choose to discount or even ignore this income.

When you earn an hourly income

Typically, lenders multiply your hourly rate by the average hours you work. The table below shows Fannie Mae’s guide to income calculations.

How Often Paid	How to Determine Monthly Income
Annually	Annual gross pay / 12 months
Monthly	Use monthly gross payment amount
Twice Monthly	Twice monthly gross pay x 2 pay periods
Biweekly	Biweekly pay x 26 pay periods / 12 months
Weekly	Weekly pay x 52 pay periods / 12 months
Hourly	Hourly pay x average number of hours per week x 52 weeks / 12 months

Erratic work hours or recent job changes ca harm your income calculation.

Those with little work experience, who also earn hourly wages can experience difficulty when applying for their first mortgage.

When you earn overtime pay

When you earn wages plus overtime pay, your lender totals your prior two years of overtime pay and divides by 24. That’s your qualifying overtime pay.

Again, if the extra pay declines over time, the lender may discount it. And without a two-year history of overtime pay, your lender will probably not allow you to claim it on your mortgage application.

When you earn commission income (25 percent or more)

When you earn at least 25 percent of your income from commissions, your base income is the monthly average of your last 24 months of income.

If you have less than 24 months of commissioned income, your lender probably can’t use it for qualifying.

There are exceptions. For instance, if you work for the same company, doing the same job, and earning the same or better income, a change in your pay structure from salary to fully or partially commissioned might not hurt you.

You have to make the argument, however, and get your employer to confirm this.

When you are self-employed

When you are self-employed, mortgage lenders require at least two years of verified income. They then use a complicated form to determine your “qualifying” income. But understand that your gross revenues (before deductions) is not the figure that lenders use when calculating your qualifying income.

Lenders have been known to make exceptions on this rule — specifically, for recently self-employed persons who have started a business in a “related field.”

It’s not uncommon today for employees to continue working for the same company, switching to “consultant” status, which is self-employment, but getting the same or more income. These applicants can probably skirt the two-year rule.

What are today’s mortgage rates?

When you’re buying a home for the first time, you may not have the work experience of a seasoned borrower, but that doesn’t have to affect your ability to get mortgage loan approved.

Get today’s live mortgage rates now. You don’t need to provide your social security number to get started, and all quotes come with access to your live mortgage credit scores.

Are You A First-Time Home Buyer? Be Aware Of These Mortgage Programs

November 19, 2019 by chorton Leave a Comment

Are You A First-Time Home Buyer? Be Aware Of These Mortgage Programs

Image result for did you know? even if you previously owned a home you still qualify for first time home buyer

If you are shopping for a mortgage, you have probably seen all sorts of offers and advertisements aimed at first-time home buyers and wondered if these are really as good as they sound. In some cases, “first-time” programs are little more than attention-getting marketing messages from lenders, while in others they are actual assistance programs for people who may otherwise face challenges qualifying for a home mortgage or finding a home loan at an affordable interest rate. With this in mind, it is important to understand the difference between mortgage lender marketing programs, actual loan programs, and financial assistance programs.

You can be a first-time home buyer more than once

First of all, even if you have previously owned a home, you (or your spouse) may still qualify as a first-time home buyer. According to the U.S. Department of Housing and Urban Development, first-time home buyer status is not limited to people who have never owned a home before (although that criterion obviously applies). For lending purposes, a first-time home buyer includes anyone who fits one or more of these conditions:

An individual or a spouse who has not owned a primary residence for at least three years. This means married couples may qualify as first-time buyers even if only one of them meets this test.

A single parent who previously only owned a home with a spouse while they were married.
Someone who has only owned a primary residence that was not attached to a permanent foundation (e.g., a mobile home) in accordance with applicable regulations.

Displaced homemakers whose only previous ownership was with a spouse.
Someone who only owned property that was not in compliance with local building code ordinances and which cannot be improved to meet building code standards for less than the cost of constructing a new residence.

Types of programs

First-time home buyer programs can be broadly categorized as either loan programs or financial assistance programs. Both types of programs can be helpful to first-time home buyers. Loan programs, such as those backed by the Federal Housing Administration (FHA), are available to all borrowers through various commercial lenders, but they have features that may be particularly attractive to first-time buyers with lower credit scores or little in the way of cash savings. Private lenders may also offer attractive loan rates and terms for first-time home buyers with good credit and the ability to make larger down payments on a home purchase. Financial support programs for home buyers typically come from state and local government entities, although the federal government sometimes steps in to provide additional assistance during difficult economic times.

Loan programs

Mortgage loans are made by commercial lenders, such as banks, credit unions, or mortgage companies. These loans may be guaranteed by various organizations, to protect lenders against borrower defaults and also to make loans more affordable for borrowers.

FHA. The Federal Housing Administration does not make loans, although they do insure loans made by commercial lenders to protect lenders if borrowers default on loan payments. FHA loans are available to all qualified buyers, and they can be particularly attractive to first-time home buyers because the qualifications are easier. For example, a potential home buyer with a credit score of at least 580 may qualify for an FHA loan with as little as 3.5% of the purchase price for a down payment. Lower credit scores between 500 and 579 may also qualify with a larger down payment of 10%, though the interest rate on the mortgage loan will be higher.

VA. The Veteran’s Administration (VA) also guarantees portions of home loans provided by private banks or mortgage companies to active duty service members, veterans, and eligible surviving spouses. A home purchase loan guaranteed by the VA can help military vets and spouses purchase homes at competitive interest rates without the need to also make a down payment or purchase private mortgage insurance. Applicants must have satisfactory credit scores, along with sufficient income to meet expected monthly loan payments.

USDA Single Family Housing Guaranteed Loan Program. Similar to loan programs provided by FHA and VA, the United States Department of Agriculture (USDA) also provides loan guarantees to mortgage lenders so they can help borrowers with low and moderate incomes purchase homes in rural areas. The USDA program guarantees 90% of mortgage loan amounts for approved lenders to help offset the risk of offering 100% loans to eligible rural home buyers.

Freddie Mac Home Possible® Mortgages. The Federal Home Loan Mortgage Corporation (also known as “Freddie Mac”) makes it possible for lenders to offer home loans to buyers with down payments as small as 3% through the Home Possible® Although this program is not limited to first-time home buyers, first-timers must first participate in a borrower education program.

Home Buying Financial Assistance

Financial assistance programs exist across all levels of government: city, state, and federal. These programs may provide assistance with funds for down payments, closing costs, or other expenses tied to the home purchase process.

Fannie Mae’s HomePath Ready Buyer Program. In 2015 the Federal National Mortgage Association (FNMA or “Fannie Mae”) launched the HomePath Ready Buyer program, which provides first-time home buyers up to 3% of the home’s purchase price in the form of a rebate to assist with closing costs. Participants must complete an online home buyer education course in order to receive the 3% rebate.

State-by-state home buyer programs. Many individual states sponsor a variety of home buyer programs designed to help first-time home buyers and others qualify for home mortgages. Visit your state’s housing website to find details for your area. For example, first-time home buyers with low or moderate incomes are eligible for the Texas Mortgage Credit Certificate Program as a way to convert mortgage interest into a federal income tax credit. New York state home buyers can take advantage of the Conventional Plus Program for down-payment assistance up to 3% of the home’s purchase price.

City & county home buyer programs. Individual cities and municipalities can also offer assistance with home financing. For example, Miami/Dade County in Florida makes home financing assistance available to first-time home buyers through a loan program facilitated between Miami-Dade County Public Housing and Community Development and local mortgage lenders. Similarly, the Mayor’s Office of Housing and Community Development in San Francisco provides loan assistance programs for first-time home buyers. Consult with your city or county government offices for availability of similar programs.

As you review and evaluate the financial assistance or loan programs that may be a good fit for you, it is also a good idea to take inventory of your personal financial situation, such as checking your credit report (www.annualcreditreport.com), paying off credit cards and personal loans, and stashing more cash into your emergency fund. These tips and more are also available in this article: 5 Steps to Buying a Home.