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Maximizing a home down payment can make sense: The bigger the down payment, the lower the monthly mortgage bill and the better the chance of building equity more quickly. But putting too much down could leave you without enough cash for home maintenance — or anything else. Pinpointing the right amount involves balancing the advantages of boosting the down payment against the need to hold back money for urgent upgrades, life’s emergencies, and having some fun with your new home. There’s really no one-size-fits-all solution.&nbsp; Effect of a higher down payment Calculating how different down payments would affect a monthly mortgage payment is eye-opening. Some lenders require only 3% down for conventional home loans, which makes getting in the door easier but means assuming more debt than with higher down payments. Many borrowers ask if they should scrape together a little more, such as 5% versus 3%, says Rick Bechtel, head of U.S. residential lending at TD Bank. But that probably wouldn’t make enough difference in the monthly mortgage payment to justify doing so if it left you strapped, he says.&nbsp; But a higher down payment can make a significant difference if it means lowering or avoiding mortgage insurance. The insurance, which can involve upfront and monthly fees, protects the lender if the borrower defaults. Depending on the type of loan, making a higher down payment may eliminate some of that expense, if not all of it. Kristin Phillips, author of The Debt Shrink blog, says she and her husband, Brandon, couldn’t put down the traditional 20%, but they wanted to put down more than the minimum when they bought a home in 2013.&nbsp;“Ten percent was a good compromise,” she says. That kept the monthly mortgage under 25% of their income so they could live comfortably. Eventually they built enough equity to eliminate private mortgage insurance. Borrow with care When deciding on down payment size, consider its effect on other aspects of your financial plan. Twenty-nine percent of homeowners ages 21 to 34 borrowed from retirement accounts to help fund down payments, according to the Bank of the West’s 2018 Millennial Study. But the decision to do so shouldn’t be taken lightly. Borrowing from a 401(k) is particularly risky. After a job loss, the loan must be repaid by the next tax filing deadline or it’s taxed as ordinary income, with a 10% penalty if the withdrawal is taken before age 59½. Using a Roth IRA to boost a down payment is a better option, says Aaron Clarke, a certified financial planner at Halpern Financial. There are no taxes or penalties on withdrawals of contributions. First-time home buyers who have contributed to a Roth for at least five years can withdraw up to $10,000 of earnings on the contributions, tax- and penalty-free. Expect the unexpected Thirty-four percent of recent first-time buyers say they no longer felt financially secure after buying their current home, according to NerdWallet’s 2019 Home Buyer Report. To maintain security, resist draining your savings for the down payment and closing costs. Leave some for an emergency fund, reserved for ‘oh shoot’ moments. And homeownership includes plenty of those. To minimize surprises, review the home inspector’s report for items that need to be addressed, negotiate repairs with the seller if possible, and make a savings plan for remaining items. Budget for immediate upgrades, such as fencing the yard for your dog. Consider purchasing a home warranty to cover unexpected repairs or replacement of home appliances.&nbsp; Room for fun? You get to decide how much you’re willing to trim expenses to get into a home. Achieving a dream can be incredibly fulfilling but it’s no fun to live in empty rooms, or a new neighborhood with shops and restaurants you can’t explore. There’s no wrong answer here as long as it’s an intentional choice. So, first, create budgets for your current and future housing expenses. Then consider the difference and how that will impact your lifestyle. This is easier than it sounds. You’re welcome to download our printable&nbsp;<a href="https://caitlin.lakere.com/home-buyer-handbook" target="_blank">Homebuyer Handbook</a> and use the template on page 5.&nbsp; If you’re still looking for that dream home, let’s chat! <a target="_blank" href="https://caitlin.lakere.com/contact">Contact me</a> to schedule a complimentary consultation about your goals and how we can get you there.

How to Make a Down Payment Without Wrecking Your Finances

Lenders want to get the word out about the moves homebuyers can make that hurt their chances of getting a mortgage preapproval, the golden ticket for your house hunt. Sure, sometimes the numbers just don't work but these missteps are fully avoidable! Read on to learn about six common mistakes local lenders are seeing borrowers make&nbsp;— and tips to avoid them: 1. Closing credit accounts Once you’ve paid off a credit card or revolving debt account, you might be tempted to close the account so you don’t run it up again. But doing so actually hurts your credit. In order to get a mortgage preapproval, you’ll need at least two current lines of traditional credit with at least a two-year payment history; the longer you’ve had them the better. 2. Paying down only high-interest credit cards Although this is the right approach most of the time, it actually helps more to pay down balances that make up a higher percentage of your available credit, a situation known as a higher credit utilization ratio. When the credit utilization ratio reaches more than 50%, it can damage your chances of getting a mortgage preapproval. For example, if you have a credit card with a $10,000 limit and the balance exceeds $5,000, your credit score is hit pretty hard. Although it’s generally best to have a credit utilization ratio below 30%, if you have high utilization across several credit cards, paying those accounts down at least below 50% can dramatically help your chances of earning your lender’s stamp of approval. 3. Waiting to cash in investments Generally, you need to have at least three months’ worth of cash reserves available in order to show the lender you can continue making monthly mortgage payments if you lose your income unexpectedly. Securities such as stocks, mutual funds and other investments are counted as part of your asset reserves for mortgage underwriting purposes. However, mortgage underwriters consider their value to be worth only 65% to 75% of their actual value since securities fluctuate and cost money to sell.&nbsp;If you need to beef up your cash reserves, sell your securities at least two to three months before you seek preapproval so the lender will consider their full value. 4. Taking out major loans This one seems like a no-brainer, but lenders say they see many borrowers make this mistake. Don’t be one of them. Avoid taking out large car or student loans until after your home purchase closes. Otherwise, your debt-to-income ratio will be higher — and your chances of getting a mortgage will be lower. 5. Changing from salary to commission Mortgage lenders&nbsp;typically require a two-year history of commissions or self-employment income for a mortgage preapproval. If your income is 25% or more based on commission earnings, that means you must have documented proof over two years for loan preapproval. 6. Paying off old debts you don’t need to repay If you have debts that have been in collections for several years, you may not have to pay them off. It’s possible, depending on your state’s statute of limitations, that the debt is no longer collectible and won’t affect your credit score. In Washington, the statute of limitations on debt collection lawsuits is six years after the date of default or last payment on the debt account. Next steps for mortgage preapproval If buying a home is on the horizon, it’s worth sitting down with a mortgage lender now to learn how you can more easily get preapproved when you're ready. If you're looking for recommendations, please reach out. I'm happy to connect you with local lenders that our clients at Lake &amp; Company love working with. Here's to an easy breezy preapproval process!

6 Moves That Sabotage Mortgage Pre-approval

<h3>Inventory Surges and Buyers Return</h3>The Spring thaw may have arrived early for the Seattle housing market. Pending sales around&nbsp;Washington state reached the highest level since October and surged nearly 44% from December, according to the January report from the Northwest Multiple Listing Service. Many buyers have resumed house hunting and brought the return of multiple offer scenarios with them. While not with&nbsp;the same frequency as the past two years, Seattle area buyers are competing for certain properties. Open houses are drawing large attendance and mortgage brokers are&nbsp;reporting more buyers wanting to get pre-approved for home loans. These are signs that&nbsp;buyers are adjusting to the higher interest rates which, as of February 9, average 6.12% for a 30-year fixed rate mortgage.<div class="se-component se-image-container __se__float-right" contenteditable="false"><figure style="margin: auto;"><img src="https://quicktours-static.s3.us-west-1.amazonaws.com/agent_richtext/20230214103202.png" alt="" data-rotate="" data-proportion="true" data-rotatex="" data-rotatey="" data-size="623px,197px" data-align="right" data-file-name="Screen Shot 2023-02-14 at 2.15.02 PM.png" data-file-size="113648" data-origin="," style="width: 623px; height: 197px;" data-index="0"></figure></div> But even with the growing interest from buyers, it pays for sellers to be cautious. Inventory numbers&nbsp;are rising offering buyers more selection. Proper pricing and preparation are more important&nbsp;than ever. Often we see inventory numbers climb as the days get longer and the weather&nbsp;improves. Many sellers will need to be aware of the competition and how best to position&nbsp;their home in the market to attract the most attention from buyers. Another change from the last two years is the return of contracts that include more buyer&nbsp;protections. With increasing inventory buyers are once again using contingencies in their&nbsp;offers. The inclusion of financing, inspection and title contingencies are common components&nbsp;of an offer once again. Sellers will need to get used to the idea of allowing buyers the&nbsp;opportunity to do their due diligence before completely committing to the purchase.&nbsp;

2023 Market Update

One of the biggest benefits of owning a home is the opportunity to build wealth over time, and you do this through building home equity. So, let’s dig into what home equity is and what it can do for you.&nbsp; <h2>What is home equity?</h2>Home equity is the current market value of your home, minus what you owe. You’re looking for a positive number there. Any gain comes from:<ol><li style="font-size: 18px; color: rgb(0, 40, 85);">Paying down the principal on your loan</li><li style="font-size: 18px; color: rgb(0, 40, 85);">An increase in market value over time aka appreciation </li></ol> It seems simple enough, but it’s not guaranteed. Over the last 20 years, U.S. home prices appreciated an average of just 1.89% year-over-year. However, behind that average were some major price swings, ranging from +12.6% to -18.1%, according to the Urban Institute.&nbsp; Historically, Seattle’s market has appreciated faster than others. Even with the market cooling last year, Seattle homes saw an average of 7.9% appreciation from 2021 to 2022.&nbsp; <h2>What can you do with your equity?</h2>The gradually increasing value of a home is a financial resource that can gain momentum over time. Because mortgage payments reduce the debt as the asset itself gains worth, paying on a house has been called “a forced savings account.” This is unlike virtually every other type of asset purchased with a loan, such as vehicles, which lose value while you pay them off. Simply put, building home equity increases your financial stability. Your home's equity is part of your total wealth as a homeowner. If you decide to sell, the equity you have built over time will come back to you in the sale. Most will use that cash for the down payment on their next home. You can also leverage home equity to borrow money at a lower interest rate through a home equity loan, line of credit, or cash-out refinance.&nbsp; When drawing from your home equity, you can spend the money in any way you see fit. There are no limitations, however spending the cash on projects like renovations and home improvements could help your home to further appreciate and lead to more equity in the future.&nbsp;

Home Equity Explained: What It Is and Why It Matters

Real estate can be confusing at first, largely due to the many different terms and phrases used. To make it a little easier, here’s a simple explanation of five common real estate terms.<h2>Pre-Approval Letter</h2>A pre-approval letter is a statement from the bank that basically estimates how much money they’re willing to loan to a particular buyer. This is extremely helpful to the buyer because it gives them a top end of their budget, and it’s helpful to a seller reviewing an offer because they know the buyer’s financing is solid. You’ll want to work with a lender who can be available to tailor this letter to whatever offer you’re making. For example, let’s say you’re pre-approved for $850k and you’re making an offer of $790k on a particular house, you don’t want to submit your original pre-approval letter implying you could pay $60k over your offer price.<h2>Appraisal</h2>An appraisal attempts to determine an accurate market value for a property by examining both the actual property and comparable homes that have recently been sold in the area. This process is done by a licensed appraiser for the sake of the bank, who wants to ensure that it is not investing in a property that is overpriced within its market. Buyers may want to waive an appraisal in a competitive market, but it’s important to discuss the potential risks with a knowledgeable real estate broker.&nbsp;<h2>Closing Costs</h2>Closing costs are a group of expenses that you’ll incur at the end of your home buying process including loan processing costs, title insurance, and excise tax. These costs usually amount to about 2-5% of the total purchase price of the property, but it is possible to negotiate some of the costs down. In a neutral or buyer’s market, sellers may be willing to make concessions and pay more than their share of the closing costs.&nbsp;<h2>Title Insurance</h2>Title insurance ensures that the seller of the home actually has the right to sell it! Title insurers also search public records to make sure there are no liens on the home, such as unpaid taxes or contracting bills. If you’re keeping a close eye on your transaction, you may notice that two title insurance policies are taken out: one for the buyer paid for by the seller, and one for the lender paid for by the buyer.&nbsp;<h2>Escrow</h2>The escrow process while buying a home involves a neutral third party overseeing the process from the deal being signed to the property being officially transferred. The home is held “in escrow” to ensure that both parties are meeting their responsibilities during the deal and satisfying all of the conditions in the contracts. In Washington state, the seller and buyer do not have to attend closing at the same time. They can do it separately, with each party scheduling their own appointments with the escrow company.

5 Real Estate Terms You Need to Know

Many first-time home buyers need help buying a home. If they’re lucky, family members can lend a hand.&nbsp; Younger home buyers face a mountain of obstacles, including rising home prices and interest rates, too few homes for sale and student loans. Student debt is a major source of trouble. When the National Association of Realtors surveyed recent home buyers who had problems saving up a down payment, 53% of those in the youngest group (37 and younger) reported student loan debt was their biggest hurdle. Families appear to be pitching in to help. Almost a quarter of homebuyers ages 22 to 30 reported that cash gifts from family and friends were the source of their down payments, with another 5% saying they had received loans from relatives or friends.&nbsp;Family assistance like this works best when the kids qualify for a mortgage on their own and parents make the purchase more affordable with, for example, a bigger down payment or a lower interest rate. Here are three ways parents can help. <h3>1. Give money</h3>A gift of money is often best. Parents can write a check for any amount they choose. That’s it — no contract or ongoing commitments. Or they can pay all or part of an expense such as closing costs or an interest rate buydown. Providing down payment assistance can help new borrowers avoid paying for private mortgage insurance, which helps keep their monthly payment low. <h4>How it works</h4>The annual gift tax exclusion for 2023 will be increasing to $17,000 – an increase from $16,000 in 2022. If you stay under the annual exclusion, then there is no need to file a gift tax return. For example, you and your spouse can give your child and your child’s spouse a total of $68,000 ($17,000 × 2 parents × 2 recipients). However, if any one gift is given that exceeds the annual tax exclusion amount, then the gift giver will need to file IRS Form 709. Lenders like to see money gifts — easily traceable checks, bank transfers or wire transfers — in a borrower’s bank account three or four months before applying for a mortgage. Givers and recipients may need to sign letters confirming that the money isn’t a loan.&nbsp; <h3>2. Provide a loan</h3>Parents with cash to invest can become a lender, offering extra-easy terms, like no closing costs or no down payment. Parents can charge a higher rate of interest on their money than it earns in a savings or money market account and still offer a lower-than-market mortgage rate, making this a win-win.&nbsp; <h4>How it works</h4>Credit between family members requires the formalities of a bank loan, so you’ll need to draw up a contract with the repayment terms. Plus family lenders must charge at least the Applicable Federal Rate, the minimum interest rate required to keep the assistance from being considered a gift.&nbsp; <h3>3. Co-borrow</h3>Although riskier for parents, co-borrowing is another option. Co-borrowing helps borrowers overcome a limited credit history or a too-high debt-to-income ratio. <h4>How it works</h4>Parents apply for the mortgage, too. They must meet the lender’s credit requirements and sign loan papers with their kids at closing. Aside from the mortgage itself, a separate family contract can define expectations and details such as who gets how much equity when the home sells and what happens in case problems arise. For parents interested in being co-borrowers, there are some things to keep in mind:<ul><li style="font-weight: bold; color: rgb(0, 34, 102);">Not all loans allow co-borrowers, so it’s good to confirm the option when shopping for mortgages</li><li style="color: rgb(0, 34, 102);">Some lenders may call this step co-signing, which may have different parameters, but the outcome is the same: Parents and children are equally responsible for the loan and any missed mortgage payments</li><li style="color: rgb(0, 34, 102);">Parents’ credit could be affected, making it hard to finance another big purchase later, even if children make payments on time.</li></ul> With all the headwinds facing first-time home buyers, family help sometimes makes all the difference.&nbsp;

3 Ways Parents Can Help Grown Kids Own a Home

All those hours of searching online for the perfect home hopefully leads to this moment: spotting a place that makes you say, “This could be the one.”&nbsp;It’s one of the highlights of the home buying process. Go ahead, pore over all the photos. Picture how you’ll arrange your furniture. But you should also call your Realtor and schedule a walk-through. <h3>What is a walk-through?</h3>In the home buying process, the walk-through comes after you’ve been pre-approved for a mortgage — you want to know what you can afford — and before you make any offers. This is your first opportunity as a homebuyer to get a feel for the property. “Can I live here?” should be your guiding question. You’ll spend years — possibly decades — of your life in the home you choose, so make sure it’s the one that fits you best. Use your senses during the walk-through: Does the home smell funny? Do the floors slope? What does the neighborhood sound like? And do a gut check. Does anything feel off about the place?&nbsp;Your Realtor, who will be with you during the walk-through, is your professional second pair of eyes. They’ll help keep track of the advantages or potential problems of each home you see. As you’re imagining your life within those walls, notice whether those walls are cracked or stained. Keep in mind, though, that no home is flawless, especially if you’re not the first owner. Make a list of your wants and needs, and remain flexible with things that aren’t hazardous to your health or your wallet. If all this sounds like a lot, use this guide and lean on your Realtor. You’ll be prepared to make the most of your walk-through. <h3>Before the walk-through</h3>The asking price: Too high, too low or just right? Your Realtor will look at how the home compares with others in the area. You may also have a sense of this if you’ve been looking for a while. A low or well-priced home may mean more competition and you’ll want to schedule that walk-through asap. Is there an offer review date? An offer review date serves as a deadline for interested buyers to submit offers to the seller. Some listings will set an offer review date, and others will simply review offers upon receipt. Opting for an offer review date may indicate that the listing agent anticipates competing offers. In any case, you’ll want to make sure you have time to complete your walk-through and any due diligence before that date.&nbsp; How long has the property been on the market? Has it had any offers? A home that’s been on the market for a long time may not be in the most desirable place to live. It’s also possible the seller might not be in a hurry to leave, which could make it hard to negotiate the price. On the other hand, you might have room to negotiate the price if a home isn’t getting much attention. Find out whether pending sales have fallen through — these can be red flags. <h3>During the walk-through</h3>It might be love at first sight. Family meals in the dining room, movie nights in the living room — your future could unfold as you pass through each doorway. But don’t forget to stay savvy and use your Realtor’s expertise to your advantage. They’ll act as the liaison between you and the seller or the seller’s agent. It’s also good to keep this in mind: If the seller or the seller’s agent is present during your walk-through, watch what you say. Avoid being critical or showing too much enthusiasm. Take notes as you examine the house, and keep these questions in mind: What needs fixing? Take note of things like warped floorboards, cracks in the foundation or rusty water fixtures. Doors that don’t close all the way and cracks in the ceiling can reveal issues with the foundation.How old is the roof? Installing a new roof is expensive. If the roof is more than 20 years old, it may need replacing soon. If it’s brand new, you could get an insurance credit.How much sunlight does the house get? Take a look at the house’s sun exposure. Plenty of direct sunlight can save on heating costs in winter, but shade trees can help during the summer. Does the master bedroom face south? Expect a toasty room when the sun’s out.How’s the drainage? This is important to know in Seattle. Keep an eye out for warning signs such as standing water on the property or a wet basement floor. Your Realtor will have access to the Seller Disclosure Form which covers many potential issues including whether the basement has ever flooded or leaked to their knowledge.&nbsp;What systems are in place, and are they functional? Check out the furnace, water heater, and electrical panel. You don’t need to be an expert, your home inspection will take a closer look, but you’ll want to see systems that appear to be well cared-for.&nbsp; <h3>Next Steps</h3> 
 Now it’s time to debrief with your Realtor. Discuss what you noted as you toured the property and, if the home passes muster, explore the following questions together. What’s the neighborhood like? If proximity to schools or shopping districts is important to you, ask your Realtor what’s nearby. Driving or walking through the neighborhood at different times of day can also give you a clearer picture of the area. Why are the owners moving? When do they have to move? Your Realtor can contact the listing agent to understand what terms may be important to the seller. For example, they might be in a hurry to start a new job in another state, or they might need money from a sale to pay for their new home. The more you know, the more you can tailor your offer without compromising on what matters most to you. Are renovations possible? If you’re considering renovations in the future, you may want to know if walls can be knocked down or rooms added. Your Realtor can connect you with a contractor who can ascertain what is feasible. How much are taxes, and will you have to pay HOA fees? You should know how much the owners pay, and whether the costs fit into your budget. Plus, can you abide by the HOA rules? After you’ve discussed the pros and cons, compare them to other homes you've seen. Which place will best suit your needs? What can you live with, and what can’t you live without? Knowing as much as you can before and during the walk-through process — and knowing what to ask your Realtor when you don’t have the answer — will get you one step closer to owning the right home.

How to Make the Most of an Initial Home Walk-Through

<h3>Increased Inventory and Longer Market Times Give Buyers More Options</h3> 

 

 Reports from Lake &amp; Company brokers as well as local and national data indicate that there is absolutely a current shift in the market. Interest rates are a clear driver of this change. The latest Northwest MLS shows 6,435 pending sales last month, and about the same volume of closed sales. Both figures were down from the year-ago totals, with pending sales dropping about 39% and closings declining around 35%. Also commenting on interest rates was the National Association of REALTORS®, which noted the slight dip in mortgage rates this week despite the Federal Reserve approving another 0.75% rate hike for the fourth time this year. <div class="se-component se-image-container __se__float-right" contenteditable="false"><figure style="margin: auto; width: 563px;"><img src="https://quicktours-static.s3.us-west-1.amazonaws.com/agent_richtext/20221110063305.png" alt="Average Primary Mortgage Rates, U.S. weekly averages as of 11/03/2022" data-rotate="" data-proportion="true" data-size="563px,206px" data-align="right" data-file-name="Avg mort rates.png" data-file-size="191976" data-origin="," origin-size="1630,596" style="width: 563px; height: 206px;" data-index="0"></figure></div> NAR cited Freddie Mac’s 30-year fixed mortgage rate that fell to 6.95%, down from 7.08% the previous week. “It is also promising that this was likely the last rate hike of this magnitude, as indicated by the Fed,” wrote Nadia Evangelou, NAR’s senior economist and director of forecasting. Evangelou also speculated “a return to the sky-high interest rates of the 1980s isn’t likely in today’s economy” and drew comparisons to payments now with those of 40 years ago in today’s money. “If mortgage rates were currently 9% the monthly mortgage payment would be comparable to 1982 rates. Thus, in real values, current buyers pay less for their home purchase than buyers who purchased their home 40 years ago, although home prices are significantly higher now.” With increased inventory and longer market times, Buyers are seeing more options than they have for many years. Another Buyer friendly shift is the ability to include many of the safeguards Buyers were forced to eliminate before such as inspection and financing contingencies. Combine these benefits with creative mortgage options like interest rate buy-downs or adjustable-rate mortgages, previously frustrated Buyers are seeing an opportunity to find their next home without the stiff competition. Some Sellers fearful of further interest rate hikes and increased Spring competition are seeing this moment as the time to sell. Sellers must pay close attention to price and condition when presenting the home to the market. What took place on your street six months ago is no longer applicable. Education is important for Buyers also. Your Broker should provide insight about the market conditions in the specific area you are looking, as well as financing options available. While the theme is a Buyer friendly market, there are still some homes that receive multiple offers due to their style, location, or special features.

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