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Ways to get ahead of the spring housing market

Top tips for landing a house in an ultra competitive market

You know what they say: The early bird gets the worm. The same goes for the real estate market. Given the ongoing shortage of houses - particularly those that are reasonably priced, such as starter homes - those who vigilantly keep track of what's percolating among newly available properties tend to be in the best position to buy their dream home, assuming they've been prequalified for a mortgage.

Just about everyone knows the housing market really comes to life when the flowers are back in bloom and hope "springs" eternal. Did you know it is also wise to keep an eye out in the dead of winter? A recent study from ATTOM Data Solutions found some of the biggest discounts across the U.S. are between December and February.

No one knows exactly how spring will pan out in terms of buyer activity and property availability, but an uptick in housing starts suggests competition will be white hot. According to the most recent statistics available from the Department of Housing and Urban Development, housing starts nationwide in November  rose to a seasonally adjusted annual rate of 1.3 million units, up more than 3% from  one year ago. Additionally, among single-family dwellings specifically, the number reached 938,000, a healthy 2.4% rate of growth.

National Association of Home Builders Chief Economist Robert Dietz noted in December that property development in 2019 started off slowly, but finished strong.

"Since the rebound in housing took hold earlier this year, single-family starts have posted a steady improvement in the pace of construction," Dietz explained.

This is particularly true in several regions of the country, as single-family and multi-unit starts jumped nearly 7.5% in the South and almost 9% in the West, the Commerce Department reported.

The pluses and minuses of more inventory

An uptick in supply is a double-edged sword. On one side, more inventory equals a greater amount of potential places to buy, something that would-be buyers haven't had much of in recent years, as supply levels have been limited for quite some time. This is particularly true for families operating on a budget.

But on the other side, growth in volume also brings more competition, especially in springtime, which is hands-down the busiest time of year for both sellers as well as buyers. More competition means a greater chance that your picture-perfect home ends up claimed by someone else who got to it first or made an offer the seller couldn't refuse.

If buying a new place tops your to-do list in 2020 and you want to improve your odds of landing the house you'll come to call your own, here are a few ways you can put yourself in the best position to succeed in an ultra-competitive housing marketplace:

Get prequalified

It's been said before in this space, but you can never hear it often enough: Prequalification is extraordinarily important when it comes to improving your odds of becoming a homeowner.

This status provides certain assurances to a seller, by indicating you have the financial capability to close a deal, usually within a certain price range. While prequalification doesn't meet the precise definition of loan approval, it can help the seller make a more informed decision about your intentions and seriousness of your bid. It can give you an upper hand on your competition, since some people opt not to pursue prequalification in order to save time. In reality, such a letter saves time and hassle, and may be the deciding factor if the competition doesn't have one. Talk to your lender about what you need to do to get one, but at the very least, you'll be asked to provide details about your income, in terms of salary as well as available funds.

Save up for a sizeable down payment

Of course, the main reason people pursue a mortgage is it allows them to come up with a large sum of money immediately, which is then paid down over time. Most loans, however, require a down payment, meaning a certain percentage of the house's list price. Generally speaking, down payments typically range between 3.5% and 20%, although the average runs between 3% and 5%, according to the National Association of Realtors.

If at all possible, try to save up as much money as you can to put toward the down payment. Aside from enabling you to borrow less - which can help you spend less in interest by paying off the loan principal - the size of the down payment may be something the seller takes into account when assessing one offer over another. Simple ways of saving include setting up an account specifically for the down payment and contributing a certain percentage of your paycheck each pay period. 

Work with the experts

Mobile apps and online mortgage calculators, which weren't always available, have revolutionized the homebuying process by making it faster and simpler than ever before. One thing that hasn't changed is the importance of surrounding yourself with professionals in the real estate industry. From loan officers to a real estate agent, the more trusted resources you have available to you, the greater your odds are of being in the right place at the right time when it comes to finding and buying the house you want.

Have a back-up plan

The Rolling Stones sang it best: You can't always get what you want. No matter how hard you try or how early you are inquiring about a house that goes up for sale, there's no silver bullet to buying your dream home when competition is fierce.

That's why it's important to have a fall back if Plan A doesn't pan out. What was it about the house that you liked the most? Was it the price that was right or was it the house itself, meaning its physical makeup or location? Understanding what made your dream house special can provide you with the context your team can use to search for a house that may be even better than the one that got away.

Don't let an intense housing market deter you from pursuing your homeownership goals. Residential Mortgage Services can help you achieve them. Contact us to learn more.

Understanding Mortgages

Is an FHA 203k loan for you?

Whether you're looking to make some modest updates in the bathroom, or a major overhaul of a kitchen in severe need of modernization, home renovation allows you to put your own personal stamp on your home. In a way, the assembly process is akin to Play-doh - you can shape it, mold it and recreate it in any number of ways, all guided by creativity, imagination and skilled handiwork.

If only the cost of a home makeover was in the same range. Depending on the material used and the magnitude of the restoration project, home renovations can cost tens of thousands of dollars, an amount that few families have readily available.

That's where an FHA 203k loan can make sense. You may have heard of this mortgage offering before and wondered what it was all about. Well, wonder no more. Here are more details about this loan product and how you can use it to design your new house into the dream home you've always wanted.

What is an FHA 203k loan?

When you're in the market to purchase a home but would like to also do some rehab work in the process, an FHA 203k mortgage may be just the product that can help. Backed by the Federal Housing Administration, this loan variety has been around for well over 30 years, but has received renewed interest recently - since the early 2000s - due to the popularity of television programs like "Fixer Upper," "Flip or Flop" and "Property Brothers." In these shows, the hosts may participate in the physical labor portion of rehabbing an existing home or document what the process is like with a different couple in each episode. Viewers get to witness just how beautiful a home can be when you have the resources to make the desired adjustments and seek to replicate what they've seen on TV.

What these home improvement shows don't typically detail, however, is how the projects are actually paid for. While there are a variety of mortgage products that can make sense for home renovation, an FHA 203k loan is among the most popular, particularly among new buyers by allowing them to buy and restore a house with a mortgage that's rolled into one.

What are the qualifications needed for an FHA 203k loan?

Applying for such a mortgage is a fairly straightforward process and requires the type of documents that you would need for most other home loans, These include two years' worth of tax documents, Social Security information, pay stubs from your employer that corroborate how much you earn, a copy of your credit report and a bank statement that details the funds you have available. This paperwork is needed, of course, to ensure you have the financial capability to borrow money that will pay for the home and accompanying renovation work.

Those who are new to the housing hunt often assume that they need to come up with a large down payment in order to buy their house. Given that FHA 203k loans are often more extensive than a standard VA mortgage or USDA-RD mortgage, you may think a 20% down payment is mandatory. It isn't. In fact, you can pay as little as 3.5% down and still be approved.

It's difficult to say with precision the kinds of qualifications you will need in order to get the go-ahead, largely because each applicant is different, as are the plans in place for renovating a property. Generally speaking, though, your credit score should be higher than 500 and you'll need to be current with your other major expenses. For instance, if you're delinquent on any federal tax debt, this could complicate your eligibility. You also need to be a U.S. citizen or an eligible non-citizen and not experienced foreclosure on any loans within the past three years.

Are there any other requirements?

Just as your financial standing entails a formal review process, the same can be said for the project you'd like to have completed. For example, FHA 203k mortgages break down into two categories: limited and standard. The latter of these - standard - requires that the renovation cost no less than $5,000 and that it be overseen by a consultant who's affiliated with the Department of Housing and Urban Development. A limited loan is typically used for larger projects and provides for financing up to $35,000.

There are also general rules that serve as guidelines for what FHA 203(k) loans can be used to pay for aside from the property itself. Here are a few bullet point examples of what the funds can go toward, as detailed by NerdWallet:

  • Install or replace flooring, be it hardwood or wall-to-wall carpeting.

  • Repair, restore or overhaul ceiling or the roof.

  • Introduce new plumbing, electrical or sewer systems.

  • Enhance aesthetic appeal to improve physical features and resale value.

  • Increase energy-efficiency with green-friendly installations and appliances.

  • Most exterior modifications involving landscaping.

However, some major renovation projects may be outside of an FHA 203k loan's purview. For example, if you want to install an in-ground pool, this mortgage product typically doesn't allow for such a project. Similarly, outdoor kitchens usually aren't eligible. It never hurts to ask, though, so speaking to your lender is the best way to know for sure.

What is the maximum amount you can borrow?

FHA 203k loans vary when it comes to how much the mortgage will actually pay for in order to purchase and restore a property. That will depend on where you live as well as your financial capabilities and where your would-be property is. For example, in some counties, the maximum loan amount is cut off at $314,827, but in others, it may be as high as $726,525. Again, you'll want to talk to your loan officer to find out for sure.

Things to keep in mind

There are many working parts to an FHA 203k loan. In addition to your mortgage provider and the party you're actually buying the property from, you're also dealing with the company that will be in charge of the renovation project itself. It can get confusing. Here are a few key elements to remember to keep everything straight.

Need to hire licensed contractor - Generally speaking, you can't be the one who is making the home improvements. A trained and officially licensed contractor needs to do the labor. It's always best to leave fixes to the experts, especially since the updates are designed to make the home more valuable.

Project must be finished within a prescribed period - Another advantage to hiring a professional is timeliness. Your lender will work out a schedule for when the project will begin and conclude, but most require it to be finished within six months. 

Must use property as a primary residence - FHA 203k mortgages are designed exclusively for those who are upgrading a house that they will live in, so flippers and other real estate investors may have to seek a different loan product. It also usually is for rehabbing a single-family residence as opposed to a condominium or townhouse. 

If this sounds like a mortgage that is in keeping with your homeownership goals, Residential Mortgage Services can help you get there. Contact us to find out more about this and other renovation mortgages.


Residential Mortgage Services raised $50,000 for The Jimmy FundLooking back on 2019: A year of community

Our focus is so often set on sharing information about mortgage loan products or tips on how to buy a house that we sometimes forget to highlight the great and impactful things our employees contribute to their communities. Each employee of Residential Mortgage Services, Inc. (RMS) found their way into the mortgage industry via different paths, but what unites us all is the essense of our motto: We'll Guide You Home.

That isn't a transaction. It isn't a quick "sale." It's a commitment to guide the people who come to us through one of the biggest financial decisions of their lives. To help them reach their goal of homeownership. And owning a home isn't just a checkbox toward the "American Dream," it's establishing a place of safety, family (if so chosen), and wealth. It's a place where you belong. Every house and the occupants within are part of some kind of community. Every employee of RMS is as well.

Up and down the East Coast, RMS employees volunteer, donate, champion causes and help. Here are just a few of the great contributions our employees and RMS made in our communities last year:



Tracy Spencer of our Nashua, NH office, ran the Boston Marathon to raise money for the Officer Sean Collier Memorial FundLancaster, PA, RMS employees volunteered for the Schreiber Center for Pediatric Development Easter Egg HuntThe Middleborough, MA office sponsored the YMCA 19th annual Tispaquin RunThe Boston, MA team volunteered for Rebuilding TogetherThe Middleboro, MA team volunteered at St Vincent's and Sacred Heart Giving TreeThe Warwick, RI team participated in a food drive for the Rhode Island Community Food BankFour branches across Pennsylvania collected toys for Penn State Children's HospitalMA branches delivered over 100 toys to the Middleboro State Police Barracks


Things to Consider

Buying a house next year

Buying a house next year? Here's how to prepare:

The years seem to be flying by with increasing speed, and it's safe to say that 2019 was no different. Did you get everything done you wanted? What do you plan on doing in the new year? If buying a house is on your 2020 to-do list, now's the time to prepare.

Years may be measured in months, hours, minutes and seconds, but they're also measured in moments, and 2019 was a rather momentous one within the housing market. While home prices continued to rise on a year-over-year basis - for more than 90 straight months now, according to the National Association of Realtors - builders made some solid gains in improving supply levels throughout much of the country. This results in price increases slowing down, which allows buyers - many of whom are earning appreciably more thanks to steadily rising incomes - a chance to catch up.

Plus, with housing starts jumping nearly 14% in October, based on estimates from the National Association of Builders, remarkable growth in inventory could make 2020 the first year in quite some time that asking prices slide. In short, if you're on a budget, next year just may be the perfect time to start seriously looking for a house, whether it's your very first or likely the last.

How do you prepare now so you're ready later? Here are a few suggestions:

Attend open houses

Even though actually making an offer on a home may not happen for several more months, think about attending open houses you see advertised. Pictures and descriptions in online listings are great, but they don't give you the full story on what a house looks and feels like. Take some time to go to as many as possible so you can get a sense of what homes or condominiums are selling for. These visits can also provide added context on the exterior and interior housing features you'd like in your soon-to-be home and those that are turn-offs.

Get your finances in order

If you do anything in the next several months to prepare, make it this one. Once you gain pre-approval for a mortgage, you'll have the flexibility and understanding of how much you can afford to spend, which can help you narrow down your search. But in order to obtain such a letter, your lender will need to assess how you're doing financially. Depending on how imminently you plan on entering the market, try to avoid any major purchases if you can. Also, see if you can raise your credit score by paying off bills prior to their due date and keeping any credit card balances low.

Write your representative or senator

As the NAHB points out, there's no silver bullet to housing affordability. Lowering asking prices will take a united effort, from the consumer public, the business community as well as the government. One way of going about this is by lawmakers reducing red tape. Did you know that 25% of the cost for housing construction is attributable to regulatory requirements? To make it cheaper for builders to develop, Congress will need to act. Send a letter to your representative, urging them to support legislation that helps to lower the cost of development. The savings may be passed on to you.

Write a persuasive letter

Bidding wars can be stressful and they typically end in favor of the one who offers the most money. That's not always the case, though. You may want to think about writing a letter that explains why you're the right person for a house. Sellers do take more into account than dollar signs when evaluating offers. Your letter just may win them over.

Happy New Year and best of luck in all your homeownership endeavors in the days and months ahead!

Understanding Mortgages

Busting the biggest conventional loan myths

Busting the biggest myths about conventional loans

When it comes to buying a home in today's real estate environment, certain facts and falsities have proven the test of time. Chief among these truisms is the direction of asking prices. They seem to be going up with each passing month. In fact, they've continuously risen for the last 91 consecutive months, according to the National Association of Realtors.

In contrast, mortgage rates seems to be staying low. While it's true that rates can go up and down due to market fluctuations, they've remained in historically affordable territory for the last several years, as detailed weekly by Freddie Mac. This has led to a surge in applicant activity for various mortgage products, especially for conventional loans. These offer a tremendous amount of flexibility to buyers, but because they're not backed by a government entity - such as the Federal Housing Administration or Veterans Administration - the eligibility standards tend to be a bit more rigorous, particularly in terms of credit score requirements and a few other aspects.

20% down payments are not mandatory


This raised standard may explain what's given legs to one of the oldest myths in the mortgage world: that a conventional loan requires a down payment of 20% or more.

It's time we put this fallacy to rest once and for all. And here's the truth: Down payments come in all sizes. The numbers speak for themselves. In 2019, the median down payment in the U.S. was 12% among all buyers, according to the most recent statistics available from the NAR. For those who were in the market to buy for the first time, the median was 6%.

Meanwhile, for families who had purchased a house previously but were looking to purchase again, their median down payment in 2019 was 16%.

Here's an example that can provide added context, based on the real estate market as it currently exists. Nationally, a median-priced house in September 2019 cost the average family approximately $272,100, according to NAR. With a down payment of 6% - which was the typical percentage among first-time buyers - that equals out to $16,320.

This may seem like a lot, but it's considerably lower than the 20% many people wrongly assumed they need to come up with to be approved for a conventional loan. Using the previous example, a 20% down payment would be around $54,420.

Here's the cool part about conventional loans, though: The down payment can be even lower than 6% - even 3%. This means you could put down as little as $8,163 and still be approved after your other qualifications are examined.

While polls show that most people actually prefer saving to buying, the cost of living makes putting money aside a bit of a struggle. Indeed, according to a recent survey analysis conducted by Gallup, Americans are spending higher dollar amounts on various common expenses today than they have since 2009. Over one-third of respondents said as much, up from 30% in a similar poll last year and double that of 2009, when 17% indicated their costs were higher than normal.

Down payment can come from gifts

The fact that you can reasonably afford a down payment should hopefully provide some sense of assurance that a conventional loan isn't as restrictive as you might have been led to believe. But here's another myth-buster: Down payments don't necessarily have to come from you. In other words, if you were given a large sum of money as a gift from a friend or family member, you can use that as a down payment if you'd like. In 2019, 1 in every 3 first-time homebuyers received help from friends, siblings or parents in order to pay for the down payment on their home loan. This included those for conventional mortgages.

None of this is to say that you shouldn't go with 20% or more as a down payment. If this amount is something you can reasonably afford, by all means go for it. In doing so, it allows you to pay off your mortgage in a potentially quicker time period and also spend less per month over the life of the loan. A 20% down payment may also enable you to avoid purchasing mortgage insurance, which is typically a prerequisite for down payment sizes below this threshold.

Debt-to-income (DTI) ratio standard is 43% or lower

Here's another encouraging aspect of conventional loans: As with most other loan products, the debt-to-income ratio cut-off is 43%. Some believe that since private lenders take on more risk because conventional loans aren't backed by the government, lenders will require you to have a smaller DTI ratio. Not necessarily. Every applicant is different so your qualifications will be considered in their entirety.

There are a lot of myths floating around out there about down payments and how hard it can be to be approved for a mortgage. Hopefully this has helped set the record straight and shown that you have what it takes to be approved. Find out for sure and contact RMS today. We'll guide you home.

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