Home Buying

It’s time to move on. You’ve outgrown your home and you are thinking of moving up to a bigger and better home. The question that you are most likely thinking is – “Can I buy that home before selling my current home?”. The answer is both yes and maybe.

First off, let’s look at the advantages and disadvantages of selling before you buy.

Advantages of Selling before Buying:

Disadvantages of Selling before Buying:

You know the disadvantages but still would like to purchase without having your home sold. So, can you actually buy a home before selling your current home? If you are like most homeowners who would rather buy before selling, there is hope.

Challenge #1 – Qualifying for 2 mortgages at the same time

Since your home hasn’t sold and there is never a guarantee that it ever will sell, you are required to qualify with two home mortgages. There are 2 possible solutions for this:

• Solution 1:

  If you plan to rent your current home after buying a new home, we can use 75% of the future rental income of your current home to offset your housing payment. You will need to have a rental lease in place and have collected your first month’s rent/security deposit to prove you have a legitimate renter. This may give you enough income to qualify with both homes.

• Solution 2:

  If you plan to sell your current home after you contracted on the purchase, be ready to list your home immediately after your purchase offer gets accepted. In a perfect world, you find a buyer for your home and contract the closing the same day as your purchase. You sell in the morning and close on the purchase in the afternoon. This may sound ideal, but of course it isn’t always feasible, especially if one of the closings is delayed for unforeseen circumstances and you’re stuck in a last-minute scramble. If your home sale happens after the close of your purchase, we don’t have to hit the mortgage debt of your existing home against you if the buyers of your home contracted non-contingent upon any home sale, or if the buyers of your home have a lender’s clear-to-close mortgage commitment to purchase your home.

Challenge #2 – Qualifying with less than 20% Down Payment

Since you haven’t yet sold your current home, all the equity is tied up in the house. Therefore, you may not have the down payment funds you anticipated you’d have.

• Solution 1:

  At United Home Loans, we offer loan programs with as little as 3% down on conforming loans (loan amounts less than $453,101). For jumbo loans (Loan amounts greater than $453,100) we offer programs with as little as 5% down on loan amounts up to $650,000, and just 10% down payment for loan amounts up to $1 million. So, you can get in the new home with a low down-payment, even at those high price points!

  Yes, you have to pay PMI (Private Mortgage Insurance) if you can’t come up with 20% down, but once your home sells, you can pay down your loan to cancel the PMI. Most lenders even allow you to recast your loan. This means it can be re-amortized over the new loan amount after you’ve paid down the balance by making a one-time large principal reduction.

• Solution 2:

  You can get a gift for your down payment. Gifts from family are allowed on conventional and FHA loans for 100% of your down payment!

As you can see, there are options for you. Figuring out what’s best for you is just half the battle while qualifying is the other half. Let me help you determine the best structure based on your current and future goals of homeownership. From there we will pre-approve you based on both what is in your best interests and what you can actually qualify for.

Written By: Chris Ulrich – United Home Loans
NMLS# 215735

We know of Millennials as the resourceful generation of independent minds shaping the world today through technology and start-up companies. They were referred to as the generation of renters with little interest in homeownership. However, times have changed and statistics show that Millennials make up the largest group of homebuyers today at 45% of new home purchases. This may be true, but research also shows that Millennials are still going through the stress of student loan debt while at the same time struggling to pay rent. With home values on the rise and inventory down compared to just a year ago, Millennials also have a hard time competing for a new home against move-up buyers.

The cost of rent has been a hot topic and is arguably one of biggest expenses someone may face. Research was completed by RentCafe as they turned to the U.S. Census to find out how much Millennials, specifically single individuals from the age of 22 to 29, spend in rent over that 8 year period. To even the field, the research was done for median income individuals in that age range.

The statistics show the burden of rent on twenty-something’s and why Millennials are shifting their mindset towards homeownership.

Millennials will pay $92,600 in rent before they turn 30 years of age. Remember, this is for those with the median income for that age range throughout the U.S…but where do you live? Are you in the city or suburb? If you are in Chicago and paying $1,800 per month, you will pay close to $175,000 in rent in just 8 years. These numbers become even more staggering when you consider the cost of rent increasing each year you sign a new lease.

If you rent or have been a renter for years, these numbers may not surprise you. However, are you aware that it’s recommended that rent be no more than 30% of your income and the average Millennial is spending close to 45% of their income on rent? This means that an individual earning $60,000 annually or $5,000 per month is spending $2,250 on rent when it’s recommended to be $1,500. At 45% of your income, you are spending more than Gen X and your Baby Boomer parents did.

Here is a previous article to learn more about Home Buying as a Millennial

What questions do you have? I’m happy to be a resource of information for you, walk you through the pros and cons of homeownership and help educate you so you make the right decision for YOU. I also conduct home buying seminars and even lunch & learn sessions for you and your coworkers. Call or message me for more information.

Written By: Chris Ulrich – United Home Loans
NMLS# 215735

Everybody wants a deal. As they should, but don’t let getting a “good deal” prevent you from purchasing your dream home. Of course you have to feel comfortable with your payment and be able to afford the home, but I am referring to losing a home because you were out bid by a few thousand dollars or didn’t offer what the seller is asking for. This is even more important in a market where interest rates are on the rise. Paying more for a home today could actually have a lower monthly mortgage payment than a much less expensive home next month as rates continue to trend upward.

First things first. I’m not referring to a home that’s been sitting on the market for months. Bid whatever you want on that home and you’ll likely be able to find a fair compromise with the seller during the negotiation process. This article is geared towards people looking to buy that new listing that’s in a good location that is going to get multiple bids the weekend it hits the market. What’s the right amount to bid in a best-offer situation? Less than asking price? Asking price? Higher than asking price?

Talk to your lender and have him/her show you the difference in your monthly payment at various price points. Then talk to your realtor and have them pull sales comparisons to make sure your making an educated offer at a fair valuation. Then determine how bad you want the home and how long you see yourself living there. Because in a competitive market/location, it’s typical for values to rise. So you’ll likely feel better about making that strong offer when the return on your investment is much higher down the road.

You likely won’t overpay for a home. There are contract items that will prevent this from happening. For example, if you contract on a home at $420,000 but it appraises out for $400,000, you have an out. You also have ammo to go back and renegotiate with the seller. Appraisals are done by using recently sold homes comparable to the one you are purchasing, and there is a lot more data in these reports than there used to be. If the home doesn’t appraise out, you are protected by the language in your contract to cancel.

What’s the difference in payment? Assuming a 20% down payment on a home at $420,000 and $400,000, the difference is about $80/month. So do you love the home enough to pay an extra $80 per month? Is it worth losing the home for the cost of filling up your gas tank? Maybe, but most people home searching at that price point can afford the slightly higher payment. What people are forgetting to take into consideration are interest rates. People are so caught up on the dollar amount that what they fail to realize is that their monthly payment would have been lower at $420,000 today then at $400,000 next month if rates go up 0.5%. The longer you wait for the perfect home at your set purchase price, the higher your payment could go and lower your purchasing power becomes.

Are you somebody that has lost in a bidding war? Would you like me to show you a loan comparison for a specific property you are going to view this weekend? Call or message me today and I’m happy to provide you with a detailed loan comparison at multiple price points. Don’t get me wrong, price is important, but I encourage you to put more weight on payment than price.

Written By: Chris Ulrich – United Home Loans
NMLS# 215735

Whether you are purchasing or refinancing a home, we need to review bank statements. It’s important to know what we are looking for to prepare yourself for a smooth process.

In addition to assessing whether or not you’re able to regularly make your monthly mortgage payments, another role of mine is to make sure you have enough money for a down payment and closing costs. Part of how we do this is by reviewing your bank statements. However, we look a little deeper than just your account balance when approving or denying you for a home loan.

It’s important to make sure all your documents and records are sorted and straightforward before applying for a home loan.

Maintaining a “clean” bank statement

How many months

When applying for a loan, we will request two months bank statements. We will ask for all pages, including the junk pages. If your statement says “page 1 of 4”, then we will require all 4 of the pages. Online statements are acceptable but screenshots are not.

Multiple account holders

Is your bank account held jointly? Is there somebody listed on the account that is not on the loan you are applying for? If so, we’ll need a joint access letter from the other account holder stating that you (the person applying for the loan) has 100% access to all funds in the account.

Transfers from other accounts

The best thing you can do is limit the transfers. Any account you are transferring money from will have to be verified, especially if the transfers are large*. If you introduce another account, we’ll need two months of that statement. If you have large transfers into this new account, we’ll need to verify where those funds came from as well. The best thing you can do is limit the transfers over a 60 day period. *More on large deposits below.

Bank statement warning signs

Overdraft charges

Having a long list of overdraft charges in your account isn’t the best indicator that you’ll be a good borrower. No matter the circumstances, having a history of overdrafts or insufficient funds noted on your statement shows the lender that you might struggle at managing your finances. This isn’t always a deal breaker, but an underwriter may request a written explanation.

Large deposits

Another red flag to lenders is when a bank statement has irregular or lump-sum deposits. We need to make sure your funds are coming from an acceptable source. A large deposit is the sum of all deposits, not including payroll, which exceeds 50% of your gross monthly income. So if you earn $5,000/month, then the sum of your deposits must be less than $2,500, otherwise we’ll need to verify each of the deposits. Cash aka “mattress money” is not acceptable. Gifts and third party loans need to be explained, verified and documented appropriately. Unless you can provide acceptable documentation to paper-trail the large deposit, it’s likely we’ll disregard those funds, lowering your bank account total of acceptable funds for your down payment.

How to reduce bank statement scrutiny

Take extra care of your transactions for at least a few months before applying for a mortgage. Money that has been seasoned greater than two months will not show up in the account details of the statements we are verifying.

It’s best to start the process of organizing your bank activity and statements prior to applying for a loan. Start now. If that perfect home hits the market, you want to make sure your accounts are in order.

If you keep your bank statements top of mind in the initial search phases, you may have an easier time applying for a loan and ultimately securing it. Keep in mind that it’s best to maintain healthy finances throughout the closing process too. We will likely have to verify your earnest money deposit, so we may request additional bank statements prior to closing.

Written By: Chris Ulrich – United Home Loans
NMLS# 215735

You should be mindful of your credit profile throughout the entire process of purchasing a home.

Buying a home can be overwhelming for first-time buyers. Lenders will ask you many questions and have you provide documentation to support your application before granting you a loan. And of course, they will require a credit check.

I am often asked if we pull credit more than once. The answer is yes. Keep in mind that within a 45-day window, multiple credit checks from mortgage lenders only affects your credit rating as if it were a single pull. This is regulated by the Consumer Financial Protection Bureau – Read more here. Credit is pulled at least once at the beginning of the approval process, and then again just prior to closing. Sometimes it’s pulled in the middle if necessary, so it’s important that you be conscious of your credit and the things that may impact your scores and approvability throughout the entire process.

Initial credit check for pre-approval
The first thing I encourage any potential buyer to do is to get pre-approved. Many realtors may not even begin to show you homes until you’ve taken this first step. You can apply for pre-approval online, face-to-face or over the phone. Lenders want to know details such as history of your residence, employment and income, account balances, debt payments, confirmation of any foreclosures or bankruptcies in the last seven years and sourcing of a down payment. They will need your full legal name, date of birth and Social Security number as well so they can pull credit.

Once you find a home within budget and make an offer, additional or updated documentation may be required. Underwriters then analyze the risk of offering you a loan based on the information in your application, credit history and the property’s value.

Credit check during the loan process – maybe
Depending on how long it takes from your pre-approval until finding a home, contracting and then closing, a lot of time could pass. As determined by Fannie Mae guidelines, credit reports are only good for 120 days, so if you get pre-approved then find a home a few months later, your report may expire during the process and need to be re-pulled. Other reasons to re-pull might be to if you cleaned up some debt, removed disputes or had erroneous items removed that could impact your interest rate.

Final credit check before closing
Depending on how recent your initial credit report was pulled and how long your contracted closing date is, a lot of time can pass from the start of the process thru the date of your closing. Since your credit report is simply a snapshot of your credit profile, it’s understandable that things can change and new credit incidents may occur on your history. Lenders pull credit just prior to closing to verify you haven’t acquired any new credit card debts, car loans, etc. Also, if there are any new credit inquiries, we’ll need verify what new debt, if any, resulted from the inquiry. This can affect your debt-to-income ratio, which can also affect your loan eligibility.

This is known as a soft pull. We don’t actually generate new credit scores, and it will not show up as a hard pull on your credit record. If the final credit check results match the first, or if your debts have decreased, closing should occur on schedule. If the new report has increased debt, the lender may ask you to provide more documentation and send your application back through underwriting to make sure you still qualify.

It’s important for buyers to be aware that lenders run this final credit check before closing. If you ever need to open a new credit card or make a major purchase before your loan closes, be sure to contact your lender first to make sure the new debt doesn’t affect your approvability or your closing date.

Written By: Chris Ulrich – United Home Loans
NMLS# 215735

So you want to have work done to your house. Maybe you want a simple update, rehab your kitchen & bath, or maybe you want to put a full addition on the house. Where do you start and what program is best for you?

It starts with having to know a few things.

• Get a rough estimate in costs needed for the work (labor, materials, repairs, permits and architect/engineer if applicable). It’s a good idea to get a quote from a general contractor & architect up front.
• Speak to an agent to get an idea of what your home may be valued at once the work is completed.
• Know your current home loan balance.

Knowing the answers to these questions will help us determine your program options.

Construction Loans or Construction-to-Perm loans
These typically are used for big jobs, additions and knock down/rebuilds. These loans require a bit of equity and/or additional funds out of pocket. Construction loans may require 20%-30% equity in your future home value. For example, if you have a $300,000 loan on your home and the future value after construction is $500,000, a construction lender that will finance up to 80% means your total loan can’t exceed $400,000 (80% of $500,000). The construction loan will pay off your existing $300,000, leaving you $100,000 for the work to be completed. However, if the work costs $125,000, you will have to put the additional $25,000 into the project.

Construction loans are typically short term. They have higher than market interest rates and are typically variable rate loans. As your home is being built or renovated, the lender will pay the contractor directly after each interval or phase of the build is completed. This can require multiple inspections and title updates/fees.

Once the work is completed and/or you obtain a certificate of occupancy, you’ll want a permanent or fixed loan. This is usually done by refinancing yourself out of the construction loan and into a fixed rate mortgage.

If you don’t have that much equity in the home or the future appraised value (based on comparable home sales in the area prior to the build), you can expect to have quite a bit of skin in the game.

Cash Out loans
This is the easiest way to get financing but will require the most equity because the future value of the home is NOT taken into consideration. We will look at your current appraised value and can lend up to 80% of it. For example, your home is worth $300,000 but valued at $400,000. We can only lend to $320,000. So your existing loan gets paid off with the refinance and you are left with an additional $20,000 cash. This might be perfectly fine if you just want to do a small job, update your kitchen cabinets or a bathroom.

Unlike a construction loan, you are given the money directly. This is nice because if gives you the flexibility to do some work yourself and purchase items that normally wouldn’t be included in a construction quote i.e. furniture, home theater or the catering for your house warming party.

United Home Loans Mortgage Makeover & FHA 203k
These programs are perfect for those people that have very little equity in their home. It is very similar to a construction loan but caters to individuals that just don’t have the funds saved to do the work. You’ll still need a licensed contractor, a quote for labor, materials, repairs and permits, and the contractor gets paid in phases throughout the process. The lending is also based on the future value of the home, but unlike the construction loans these are FIXED RATE loans and they have loan limits. Typically these products are used for renovations but NOT major additions. Do you have 5%-10% equity in your house and need $20,000 – $50,000 for updates? This is likely the perfect product for you.

Home Equity Line Of Credit
Think of this as a credit card with a lien (mortgage) on your house. You only make a payment based on the loan balance. Payments are interest only and can adjust with the Prime Rate. Anytime you hear about the Fed raising or lowering rates, you’re rate will be affected. Lenders are becoming a bit more flexible with credit lines up to 90% or 95% of your home value, but variable high interest rates make this product less desirable. The upside of the line of credit is your ability to draw on it, pay it off, then draw again and again as long as you leave the equity line open.

Whether it’s a minor update or major facelift, there are programs designed for your situation. Call or message me to discuss which option best fits your needs.

Written By: Chris Ulrich – United Home Loans
NMLS# 215735

One of the most common questions I get asked as people begin their new home search is “what is the max purchase price that I can afford?”

My answer is always the same, “it depends.”

I get it. You want to know the cap so you are searching in the right price range, but there are many moving parts that will determine what you can afford and there are different lending guidelines depending on the loan product. Keep in mind that so many things impact your approvability, i.e. credit scores, down payment, occupancy, property type and whether you are salaried or self-employed. For the sake of this discussion, I’m keeping this strictly to affordability. So let’s dive in.

First and foremost, we look at your debt-to-income (DTI) ratio when qualifying. What is this and how is it calculated? Debt-to-income is the percentage of your gross monthly income that is allocated to all your monthly debts. We look at your monthly liabilities, including revolving credit card payments, student loans, car loans, etc., plus your new mortgage payment and divide that by your gross monthly income. We aim to keep this ratio of debts vs. income below 40%. For example, if you earn $10,000 a month, then your total monthly debt payments including the new mortgage should not exceed $4,000. So if you already have $1,500 in revolving monthly liabilities, then your new mortgage payment should not exceed $2,500. We work backwards from there to find the purchase price that would keep your payments around $2,500. However, we could never tell you exactly what the max home price you can afford is because the mortgage payment will be different depending on the property taxes of the home and/or association fees on various condos you may be interested in.

In the example above, I used 40% as the debt ratio we aim to keep you at or below. This gives us a buffer since most often we can actually go up to 45% and sometimes 50% with compensating factors like high down payment and excellent credit scores. Some government sponsored loans like FHA may even go higher but at a certain point you will become too much of a risk for the banks to lend. The entire profile of the loan is reviewed in order to make an underwriting decision, so there is no exact science to determining how much home you can afford. You’ll need to rely on the experience of your loan officer to help provide guidance.

Loan product can also impact how much home you can afford. The conforming loan limit is currently $453,100. Any loan amount over this is considered a jumbo loan, which has a different set of guidelines. Not only are debt-to-income ratios more strict on jumbo loans, but while somebody might be able to afford the monthly payment on a million dollar loan, they won’t find a program if they only have 5% down payment.

Payment SHOCK! Now that we’ve determined what you can qualify for on paper, you need to determine what you are comfortable with paying. There are various things we don’t account for in your debt ratio and you just might not be ready for the higher living expense. Maybe its day care or future private school tuition for you kids. Maybe it’s your lifestyle choices or hobby of collecting vintage wines. Or maybe… you were just living rent free with your parents and you’re about to take on a housing expense for the first time. Whatever it maybe, you may find yourself having “payment shock”, and regardless of what you may qualify for, at the end of the day it comes down to your level of comfort.

Give me a call for a free pre-approval. It’s important we have a discussion about your current and future goals as a homeowner so that I can help guide you towards the right price range that you don’t just qualify for, but you are comfortable with as well.

Written By: Chris Ulrich – United Home Loans
NMLS# 215735

While we continue to seek “normal”, the housing market has been a roller coaster ride of volatility. Whether you are a homeowner, renter, buyer or seller, here are some statistics that might interest you.

Renters
More Americans are renting today than in recent decades — some by choice and some simply due market conditions. Thirty-seven percent of American households are renters — about 43.7 million homes — which is an increase of 6.9 million homes since 2005. While part of the rise in renters is due to the 8 million homes lost to foreclosure during the recession, renters today also prize the maintenance-free and flexible lifestyle renting offers.

• Renters skew younger: The typical renter has a median age of 32 years old.
• Nearly half of renters are single, including a third who have never married.
• Although the majority of renters are single, 78 percent live with others, most often this is another family member.
• The median rent across the U.S. is $1,010 with highest rents in the West and lowest rents in the Midwest.
• Renting can be expensive: 79% of renters who moved in the past year had a rent increase.
• More than half of renters (57%) had a rent increase impact their decision to move and 37% of renters who aren’t moving say it’s because they can’t afford to.

Buyers
Buying is tough in all markets. For most Americans, it’s the biggest purchase they’ll ever make as well as a significant financial investment they’ll tap into as part of retirement. In particular cities, purchasing a home has become a competitive game, complete with bidding wars and offer negotiations. It makes sense that most buyers rely on agents to help them through the process.

• Today’s buyers have a median age of 40, although the majority (71%) of first-time buyers are Millennials.
• The median household income of the typical buyer is $87,500 and most buyers are married or partnered, relying on two incomes to purchase a home.
• The typical home in the U.S. purchased has 3 bedrooms, 2 1/2 bathrooms, measures 1,800 square feet and costs $200,000.
• Buyers take an average of 4.3 months to search for their new homes — although Millennials take just under four months (3.9 months).
• The suburbs rule: 49% of buyers buy there, followed by 31% of buyers buying in urban locations and just 19% of American buyers purchasing in rural regions.

Sellers
Although some hot markets have favorable conditions for sellers, selling is still rarely an easy process. Sellers have two main goals when they list their homes: one- to sell their home in their preferred time frame, and two, sell for their desired price. Balancing the two, timing and price, create a delicate dance and throw in the fact that most sellers are also buyers and searching for their new home, creates a often stressful experience.

• Sellers have a median age of 45 although Millennials make up nearly one-third of todays’ sellers.
• Sellers have a higher median income than homeowners at $87,500.
• The typical seller has lived in their home for 12 years.
• Most sellers are selling for the first time (61%) and looking to buy at the same time (71%).
• Seventy-six percent of sellers have to make at least one concession to sell their home — most often being a price reduction.
• One in two sellers sell their home for less than their original listing price.

Homeowners
As anyone will tell you, owning a home is a lot of work. It’s also a great investment, especially in many of today’s markets were annual appreciation rates are higher than they have been in decades. Beyond the work and the financial piece, home ownership often has an emotional component as well.

• Homeowners are the oldest, with a median age of 57 years and just 14% are Millennials.
• Homeowners have a median household income of $62,500 and 71% live with a spouse or partner.
• Forty percent of homeowners have a pet (with dogs ranking in top at 30%).
• Almost half of homeowners (46 percent) live in the first home they purchased, although this percentage decreases with age.
• Eighty-six percent of homeowners have no plan to sell in the next three years.
• Less than a quarter of homeowners say their home is in “like-new” condition and more than 60% say their home could use a little updating. The top of homeowners’ to-do list for the next year include: painting the interior (25%), improving the bathroom (22 percent) and landscaping (21 percent).

Which category do you fall in? Never hesitate to call, email or message me if you have questions.

Written By: Chris Ulrich – United Home Loans
NMLS# 215735

Statistic Source: Zillow