Getting Married? Time to Pop the Second Big Question

We all know about popping the big question. If you are planning your wedding, it means you have moved past that stage. There are a multitude of details to consider when planning a wedding and setting up a new life. And there is nothing more important than the second big question:

Should we purchase or rent our first home?

The truth is that many who are getting married are already homeowners and thus there are variations to this question.  In this article we will start with the most basic of questions – renting vs. owning -- and then move to additional housing questions that newlyweds face. 

Purchasing or renting? 

There is no doubt that most couples aspire to own a home in the long run. Home ownership is considered the American Dream because it brings so many advantages to the table.  Here are just some of the economic and social advantages of owning.

Economic Advantages.  Owning has always been the number one way to build wealth in America.  The Federal Reserve Board has estimated that home owners have over ten times the average net worth of renters.  Why?  For one, all of your rent payment goes into the pocket of your landlord, while part of your mortgage payment goes to pay off what you owe, which enables you to build equity every month.  A home also will typically go up in value over time and provide a tax deduction and inflation protection, while rent does not provide ownership of any asset nor any tax deduction.

Social Advantages.  Owning provides security for your family, as you don’t have a landlord who can tell you to move and the stability means that you are part of a community which provides lasting relationships.  Neighborhoods of owners tend to be safer and provide better lifestyles to raise a family.  Plus, you have the freedom of choice with regards to improving your property and this can mean anything from a swing set in the backyard to painting a nursery for your first child.

Seeing the advantages, does this mean that everyone should go out and purchase a home right after the wedding or even beforehand? While many do make this decision, it does not mean that home ownership is right for everyone. Here are a few more questions you must ask yourself before you can determine if purchasing a home should be a first step in your new life:

Are you staying local? If you think you might be moving out of town in the near future, then homeownership probably does not make sense because owning is a long-term proposition.  

How are your finances?  Are you starting married life with a lot of debt and a low credit score? It will make much more sense for you to pare down your debt first before you move to purchase a home.

Do you have savings?  Savings is not only important for a down payment. Cash reserves are very important for emergencies as well.  Down payment requirements can vary significantly. For example, if one of you is active military or a veteran, you likely can take advantage of the VA’s no down payment mortgage option.  There are many other options which exist to lower the down payment required and working with a lender before you start house hunting makes all the sense in the world in this regard.

Speaking of the down payment, it is not unusual for some who are getting married to cut back the cost of their weddings and/or honeymoons and use more of their cash gifts to help them move closer to being able to purchase a home.

What if one of us (or both) already own a home?

Especially with many couples getting married later in life, it is more likely for one or both of the newlyweds to own a home. In this case, the renting question typically gets thrown out the window and other questions might arise.  For example, if one spouse is renting and the other owns, then one would expect that both would move into the house owned by that spouse.  On the other hand, what if both own a home?

• The newlyweds could move into one home and sell the other. Which house is kept might be determined by location, lifestyle and finances, such as how much equity is in the home.

• The newlyweds could move into one home and rent out the other. This action might be an option if the home you chose not to live in has no equity.  As the renter pays your mortgage over time, you will be gaining equity in the long-run.

• The newlyweds could sell both home and trade up for a larger home. If children are expected in the near future, purchasing a larger home may be the right choice.

Again, there are a multitude of factors to consider with regard to all of these choices. This is why it makes sense, not only for newlyweds to have a wedding advisor, but also a financial advisor, real estate expert and mortgage advisor on their team.


Special Real Estate Report: Scores to Get a Boost?


Credit Reporting Changes

Because of improved standards for utilizing new and existing public records, the three major credit reporting companies are now excluding all tax liens from credit reports. That means some scores will head higher. Credit scores, notably those from FICO, one of the largest credit scoring companies, generally range from 300 to 850. A good credit score generally is above 700, and those over 760 are considered excellent. Credit reporting and scores play a key role in most Americans’ daily life. The process can determine the interest rate a consumer is going to pay for credit cards, car loans and home loans — or whether they will get a loan at all.

The new rules come following a study by the Consumer Financial Protection Bureau that found problems with credit reporting and recommended changes to help consumers. Incorrect information on a credit report is the top issue reported by consumers, according to the bureau. Last July, credit reporting companies removed nearly 100 percent of civil judgment data and about 50 percent of tax lien data from credit reports. Effective mid-April, the rest has been removed. LexisNexis Risk Solutions predicts that about 11 percent of the population will have a judgment or lien removed from their credit file, according to the company’s own estimate. Once that information is stripped out, credit scores may go up by as much as 30 points overall, LexisNexis found. LexisNexis also provides lenders with data to make decisions on consumer loans.

Other industry groups have said these changes will have less of an impact. “Analyses conducted by the credit reporting agencies and credit score developers FICO and VantageScore show only modest credit scoring impacts,” Eric Ellman, a senior vice president of the Consumer Data Industry Association, said in a statement when the changes were first announced. The association represents Equifax, Experian and TransUnion, the three largest credit reporting companies.

Source: CNBC

Special Real Estate Report: Time to Say Goodbye to Your Adjustable?

Increases Coming
Increases Coming

Increases Coming

Most homeowners with adjustable-rate loans could experience their first interest rate increase if the low-interest-rate environment ends, according to survey results released by HSBC. The study revealed that 87% of US homeowners have never experienced a rate increase on their home loan. “From a homeowner’s perspective, we’re heading into unfamiliar territory,” said Pablo Sanchez, HSBC’s regional head of retail banking and wealth management for HSBC Bank USA. “The average US homeowner is already spending almost 40% of their monthly income on their housing payment. When you factor potential interest-rate rises into household budgets, making that monthly payment could become a struggle.”

“The good news is that US homeowners are well-informed about their home loans,” Sanchez said. The survey found that 81% of US homeowners are aware of how much interest they are paying while 79% are aware of their loan terms. Although increasing rates are a concern, HSBC said homeowners continue to have options.

Fifty-two percent of homeowners have switched providers and 46% have studied switching their loan to get a better deal. According to the survey, 53% of those who switched were primarily driven by a desire to obtain a better deal or because of increases in their rates. Other reasons homeowners switched included moving or buying a new property with 19% and the expiration of their existing loan terms with 12%.

Source: Mortgage Professional America

Have an adjustable that is going up? Contact us for alternatives.

The Rate Factor: The Special Real Estate Report

Sense of Urgency
Sense of Urgency

Sense of Urgency

All good things come to an end—even low interest rates on home loans. They’ve been steadily rising and are poised to climb even higher this year. When they do, the cost of buying a home will rise as well. This could make the challenges of today’s buyer’s market even worse for some prospective purchasers—particularly first-time buyers, having to settle for smaller abodes, fixer-uppers (in the real sense, not the TV sense), and homes farther out where real estate is cheaper. Rates on home loans are expected to go up even more as the Federal Reserve raises short-term interest rates.

The new Fed chairman, Jerome H. Powell, says the Fed is likely to gradually increase them this year. It is expected to bump up rates at least three times this year, in 0.25% increments. “For the bulk of buyers, it’s not going to kill their decision to purchase a home.

If anything, it will get them off the fence by creating a sense of urgency,” says Rick Palacios Jr., director of research at John Burns Real Estate Consulting. Higher rates are “a kick in the pants for you to start thinking seriously about buying.” “Buyers thought they could wait forever because rates were going to stay low forever,” says Palacios. “They’re starting to realize if they’re going to buy they should probably buy now.”


Employment Report: The Weekly Market Update

Jobs -- Jobs -- Jobs
Jobs -- Jobs -- Jobs

Jobs - Jobs - Jobs

The job numbers for March give us another indication of where our economy is headed in the short-term. The headline numbers showed 103,000 jobs added and an unemployment rate of 4.1%. While the number of jobs added was disappointing, the report followed a very high number of jobs added for the previous month which was not revised downward. In addition, each month we look at wage growth to see whether inflation is starting to rear its ugly head. March saw wage inflation in line with expectations — a good sign.

The markets are also watching for movements in the labor participation rate, as this measure tells us where there is potential for growth in employment. Even though the headline numbers say that we are at full employment, there are millions who are available to come back into the workforce. When there is more demand for workers, those who are not participating are more likely to become employed, thus raising the labor participation rate. In March, the labor participation rate fell slightly from a five month high and thus there continues to be room for improvement within this indication.

Considering that the markets have turned much more volatile since the first of the year, what do these numbers tell us? To answer that question, we must understand why the markets seem to be uneasy. It is very easy to blame rising interest rates and certainly the movement of rates is a factor. But we must also remember that the markets have had quite a run and there is always a concern as the when the markets might lose some energy. In reality, there are several factors at work and the jobs numbers only serve to put one other factor into the pot which is being stirred enthusiastically this year.

The Weekly Market Update

Rates on 30-year fixed home loans moved down last week. For the week ending April 5, Freddie Mac announced that 30-year fixed rates fell to 4.40% from 4.44% the week before. The average for 15-year loans also decreased to 3.87% and the average for five-year adjustables also moved down to 3.62%. A year ago, 30-year fixed rates averaged 4.10%, higher than today's level.

Attributed to Len Kiefer, Deputy Chief Economist, Freddie Mac -- “After dropping earlier this week on trade-related anxiety in the financial markets, the benchmark 10-year Treasury stabilized on Wednesday, but at a level slightly lower than from the start of last week. Rates on home loans followed suit for the second consecutive week. Though rates on 30-year fixed loans are up 0.3 percentage points from the same week a year ago, a robust labor marking is helping home purchase demand weather modestly higher rates.”

Note: Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.