Millennials Homebuyers – Many Borrowing From Retirement Fund

Millennials Home Buyers

Millennials (ages 25 – 34 years old) are important because they are currently the largest generation since baby boomers, i.e., 25% of the U.S. population. With almost 10 million living in our state, California has the largest share of them – 13% of the California population.  Millennials are increasingly more active homebuyers.*

U.S.-wide, buyers 37 years and younger are the largest share of home buyers at 36%.  Sixty-five percent of these are first-time home buyers.

But housing inventory shortage means higher prices. And coming up with the required funds is tough for many millennials.  This has led to an alarming trend of 1 in 3 millennials using their retirement accounts to finance their home purchase.  Read more about this in this CNBC article below.

Lucy Garber
Living in and selling homes in the South Bay for over 25 years.
(310) 293-4866
Email: LucyGarber1@yahoo.com
RE/MAX ESTATE PROPERTIES
DRE# 0110009

The ‘alarming’ way 1 in 3 millennial homeowners get the money to buy homes

Roughly 98 percent of people want to own a home, according to a recent Bank of the West survey. But coming up with the required funds can be tough — especially for cash-strapped millennials in today’s competitive market.

To finance their purchases, one in three millennial homeowners withdrew money from or took loans against their retirement accounts, according to Bank of the West’s survey of over 600 U.S. adults ages 21-34. Meanwhile, one in five millennials who are planning to buy a home expect to do the same.

It’s an “alarming” trend, according to Ryan Bailey, head of Bank of the West’s retail banking group. “Millennials are so eager to become homeowners that some may be inadvertently cutting off their nose to spite their face.” He recommends relying on savings rather than dipping into your retirement funds.

“Borrowing from your retirement may make sense in special circumstances, but it’s definitely not a recommendation we tell people to do,” Bailey tells CNBC Make It.

What’s the problem?

If you don’t have quite enough saved for your first home, you are allowed to pull money out of your retirement accounts, such as a 401(k) or an IRA. But while dipping into your retirement savings may help you put down a bigger down payment and lower your mortgage rate, it also may mean those savings could experience a long-term setback.

Think of it this way: You are not allowed to draw on your future Social Security payments to buy real estate and your grandparents weren’t allowed to use their pensions, Colorado-based financial planner Kristin Sullivan tells CNBC Make It. “For millennials, the 401(k) is going to be the major component of their retirement. It is a sacred pact with your older self to take care of that older self,” she says. If you can’t afford to buy a house without raiding your retirement plan, she adds, you may not be able to afford to be a homeowner at this point.

Technically, you can withdraw the money from a Roth IRA if you’ve had one for at least five years: Those under 59 ½ years old can take out up to $10,000 without penalty if you’re a first-time homebuyer, according to the IRS. And because you’ve already paid taxes on this money, you won’t have to worry about any additional fees.

If you’ve been contributing to your Roth IRA for less than five years, you can still pull out up to $10,000 — but you’ll have to pay income taxes on the amount.

If you have a 401(k), you’ll want to borrow the money as a loan, rather than taking it outright. Getting the money as a loan (up to 50 percent or $50,000, whichever is lower) helps you to avoid income taxes and a 10 percent early withdrawal penalty. But keep in mind that, as with any loan, you’ll have to pay the money back, plus interest. Also, should you fail to pay back the loan on time, you may incur a 10 percent early withdrawal penalty.

Worse, the terms of the loan generally require that you keep your current job. If you want to switch or are let go for any reason, the full balance of the loan is typically due within 60 days. “This is even the case if you are fired from your job. You would have to pay back a loan at what may be the most inopportune time,” New York-based financial advisor Paul Tramontozzi tells CNBC Make It.

What are the alternatives?

Before using retirement savings to purchase a new home, review your current spending. Look for any expenses you can cut to save money.

“If someone is contemplating dipping into retirement savings, they likely they haven’t been able to save up the required down payment to buy the house in the first place, which likely means they don’t have a good handle on their finances to begin with,” Illinois-based advisor Stephen Jordan tells CNBC Make It.

Millennials should also consider scaling down their home dreams in order to reduce the cost. Take a hard look at your finances so you don’t get in over your head, Danielle Hale, chief economist for Realtor.com, tells CNBC Make It. Just over 40 percent of millennial homeowners said in a recent survey said they had regrets after they purchased because they felt stretched financially.

“It takes being honest with yourself when you’re making a home purchase,” she says, adding that you should take advantage of filters on home search sites to make sure you’re not shopping for something that’s too expensive.

“With careful financial planning, millennials can have it all – the dream home today, without compromising their retirement security tomorrow,” Bailey says.

Source: CNBC Money | Megan Leonhardt
*Reference:  Brookings Institution | William Frey

Hot New Listing in Rolling Hills Estates – Open House July 7

Listing Price: $998,000

Ready to live in beautiful Rolling Hills Estates? Come see your dream home!

Single level home with 3 bedrooms, 2 full baths, featuring an open floor plan with plenty of natural lighting. The spacious family room has vaulted ceilings, track lighting and a fireplace. The original hardwood flooring covers all living spaces and bedrooms. The bright and open kitchen has a counter with seating for four and the dining and family rooms adjoin and have direct access to the backyard. The large, flat backyard features a gorgeous lawn and mature trees lining the perimeter, providing great privacy.

Conveniently located within walking distance to award-winning Silver Spur Elementary and Peninsula High School. This home is priced to move quickly – it is currently the lowest priced home listed in Rollingwood and is a must see!

OPEN HOUSE
Saturday July 7, 2018

From 1:00-4:00 PM

5296 Willow Wood Rd, Rolling Hills Estates, CA 90274
Listing ID: PV18160978
1,682 sq. ft.
Built: 1956

Call or text Lucy Garber (310) 293-4866 to learn more and view home.
CalBRE License #: 1100090

Don’t Fear the Lender!

Don't Fear the Lender3 Changes that Make Qualifying for a Home Loan Easier

In recent months, lenders have made it easier for first-time buyers and other would-be buyers to quality for a home load. Sure that sounds great, but what does it mean?

Because these  changes loosened lending restrictions, more would-be home buyers can become homeowners in today’s real estate market, Keep reading if you have high debt-to-income ratio, educational loan debt or think you don’t have enough money for a decent down payment. The changes that lenders have implement can help you secure a part of the American dream this year.

#1 Debt-to-Income Ratio

If you haven’t applied for a home load for awhile, there are some changes that could positively affect your ability to secure mortgage dollars today. If you have debt-to-income ratio is quite high, don’t lose hope. Under new rules set by Fannie Mae and Freddie Mac, the investors behind most mortgages who set the guidelines for qualify for home loans, your monthly debt-to-income ration can now be as high as 50%. That means if all your deb including your mortgage payment, car loan, student loan, credit card debt and other debts take up half of our income, in many cases you can still qualify for a home loan.

#2 Student Debt

One change that affets a large number of mortgage applicants is that lenders are no longer required to calculate a student loan payment as 1% of the outstanding balance of the student loan, which in many cases, can b a high number.

Instead, lenders can now use theamount listed on the applicant’s credit report, which is typically a smaller number, especially in the case ofthose who are covered by the invcome-based, reduced-payment plans. This is a huge change for those with school debt.

Previously, if the total student loan amount was $50,000, lenders would add 1%, or in this case, $500, to the applicant’s monthly debt load, even if the applicant was paying a required amount of just $75 monthly. Lenders now use the actual amount being paid towards student debt and this method will help many more borrowers with student loans secure mortgage dollars.

#3 Down Payments

Home buyers will also find more lenders being flexible on down payment amounts. The standard 20% down payment is rare (and often unattainable) and many lenders allow 3% down with some options for even less. The better your credit score, the more likely you can qualify for a mortgage with a lower down payment.

Don’t Forget

Keep in mind that just because a lender approves you for a certain dollar amount for a home load,you don’t have to use all that money. In face, you know your financial situation best. If the proposed monthly mortgage payment seems to high for your comfort level, consider finding a home that costs less and requires a smaller mortgage.

All lenders are not created equally. Therefore before you go house hunting – hopefully with yours truly, Lucy Garber – it’s a good idea to talk to several lenders to find out what loan programs you can qualify for and then get pre-approved for a home load. The pre-approval will tell you exactly how much money a lender will give you for a home. With this information you’ll save time focusing only homes within you price range.

Republished from Lucy Garber’s RE/MAX Estate Properties/HomeActions, LLC newsletter Vol. 22, No. 6.

 

What You Need to Know Before Accepting — or Rejecting — an Offer

what to consider before accepting or not accepting an offer on your home sale

It’s not always about the money (except when it is).

The day will come — and it will be a wonderful, joyous, do-a-happy-dance day — when you receive an offer, or multiple offers, for your home.

And on that day, you’re going to face a question you may not have previously considered: How do you know if an offer is the best one for you?

Your listing agent will be a big help here. They will understand and help you suss out the merits and faults  of an offer because — believe it or not — it’s not always about price.

One buyer’s beautifully high offer might not look so good anymore, for example, if you discover that it’s contingent upon you moving out a month earlier than planned. Or, conversely, you may prefer speed over price, particularly if you’re moving to a new city.

Your listing agent will have a sense  of what you want financially and personally — and can help you determine whether the offer at hand satisfies those goals.

Before the first offer rolls in, here’s what you need to know about the offer evaluation process, including the main factors that should go into making a decision — accept or reject? — with your agent.

5 Important Things — Other Than Price — to Consider When Evaluating an Offer

Want to fetch top dollar for your home and walk away with as much money in your pocket as possible? Of course you do. You’ve gone through the time-consuming process of setting your asking price, staging your home, promoting your listing, and preparing for open houses — and should be rewarded for your efforts.

Your first instinct may be to just pick the highest bid on the table. But the offer price isn’t the only thing worth considering.

When vetting offers, evaluate these five areas in addition to price:

1. The earnest money deposit. One important consideration when weighing an offer is the size of the earnest money deposit. The EMD is the sum of cash the buyer is offering to fork over when the sales agreement is signed to show the person is serious (i.e., “earnest”) about buying your home. This money, which is typically held by a title company, will go toward the buyer’s down payment at closing.

A standard EMD is 1% to 3% of the cost of the home (so, that would be $2,000 to $6,000 on a $200,000 house). If a buyer tries to back out of an offer for no good reason, the seller typically keeps the EMD. Therefore, the higher the earnest money, the stronger the offer.

2. The contingencies. Most offers have contingencies — provisions that must be met for the transaction to go through, or the buyer is entitled to walk away from the deal with their earnest money. Contracts with fewer contingencies are more likely to reach closing, and in a timely fashion.

Here are five of the most common contingencies:

  • Home inspection contingency. This gives the buyer the right to have the home professionally inspected and request repairs by a certain date — typically within five to seven days of the purchase agreement being signed. Depending on where you live, you may be required to make home repairs for structural defects, building code violations, or safety issues. Most repair requests are negotiable, though, so you have the option to haggle over which fixes you’re willing to make.
  • Appraisal contingency. For a mortgage lender to approve a home buyer’s loan, the home must pass appraisal — a process during which the property’s value is assessed by a neutral third party. The appraisal verifies that the home is worth at least enough money to cover the price of the mortgage. (In the event the buyer can’t make their mortgage payments, the lender can foreclose on the home and sell the property to recoup all — or at least some — of its costs.) Generally, the home buyer is responsible for paying for the appraisal, which typically takes place within 14 days of the sales contract being signed.
  • Financing contingency. Also called a loan contingency or mortgage contingency, a financing contingency protects the buyer in the event their lender doesn’t approve their mortgage. Although the timeframe for financing contingencies can vary, mortgage lenders report that buyers generally have about 21 days to obtain mortgage approval.
  • Sale of current home contingency. Depending on the buyer’s financial situation, their offer may be contingent on the sale of their home. Usually, buyers have a window of 30 to 90 days to sell their house before the sales agreement is voided. This contingency puts you, the seller, at a disadvantage because you can’t control whether the buyer sells their house in time.
  • Title contingency. Before approving a mortgage, a lender will require the borrower to “clear title” — a process in which the buyer’s title company reviews any potential easements or agreements that are on public record. This ensures the buyer is becoming the rightful owner of the property and the lender is protected from ownership claims over liens, fraudulent claims from previous owners, clerical problems in courthouse documents, or forged signatures.

These contingencies are standard for most real estate sales contracts. There’s one exception: the sale of current home contingency, which tends to be used more often in strong buyer’s markets, when buyers have greater leverage over sellers.

That being said, contingencies are always negotiable. (The caveat: Mortgage lenders require borrowers to have appraisal financing contingencies, or they won’t approve the loan.) It’s up to you to decide what you’re comfortable agreeing to, and your agent can help you make that decision.

3. The down payment. Depending on the type of mortgage, the buyer must make a down payment on the house — and the size of that down payment can affect the strength of the offer. In most cases, a buyer’s down payment amount is related to the home loan they’re taking out. Your chief concern as a seller, of course, is for the transaction to close — and for that to happen, the buyer’s mortgage has be approved.

Generally, a larger down payment signals the buyer’s financial wherewithal to complete the sale. The average down payment, according to the NATIONAL ASSOCIATION OF REALTORS®, is 10%. Some mortgage products, such as FHA and VA loans, allow for even lower down payments.

If, by chance, the appraisal comes in higher than your contract’s sale price, the buyer with a higher down payment would more likely be able to cover the difference with the large amount of cash they have available.

4. The all-cash offer. The more cash the buyer plunks down, the more likely the lender is to approve their loan. That’s why an all-cash offer is ideal for both parties. The buyer doesn’t have to fulfill an appraisal contingency — whereby their lender has the home appraised to make sure the property value is large enough to cover the mortgage — or a financing contingency, which requires buyers to obtain mortgage approval within a certain number of days. As always, having a sales contract with fewer contingencies means there are fewer ways for the deal to fall through.

5. The closing date. Settlement, or “closing,” is the day when both parties sign the final paperwork and make the sale official. Typically, the whole process — from accepting an offer to closing — takes between 30 and 60 days; however, the average closing time is 42 days, according to a report from mortgage software company Ellie Mae.

Three days before closing, the buyer receives a closing disclosure from the lender, which he compares with the loan estimate he received when he applied for the loan. If there are material differences between the buyer’s loan estimate and closing disclosure, the closing can’t happen until those amounts are reviewed and approved. But this is rare.

Some transactions can take more time, depending on the buyer’s financing. For example, the average closing time for a Federal Housing Administration (FHA) loan is 43 days, according to Ellie Mae.

Whether you want a slow or quick settlement will depend on your circumstances. If you’ve already purchased your next home, for instance, you probably want to close as soon as possible. On the other hand, you may want a longer closing period — say, 60 days — if you need the proceeds from the sale to purchase your new home.

When Should You Make a Counteroffer?

Depending on the circumstances, you may be in the position to make a counteroffer. But every transaction is different, based on the particular market conditions and your home. In some circumstances, you can be gutsy with your counteroffer. In others, it might serve your goals better to give in to the buyer’s demands. Your agent can provide helpful insight about when and why a counteroffer will be the right thing for you.

For instance: If you’re in a seller’s market — meaning that homes are selling quickly and for more than the asking prices — and you received multiple offers, your agent may recommend you counteroffer with an amount higher than you would have in a buyer’s market.

If you choose to write a counteroffer, your agent will negotiate on your behalf to make sure you get the best deal for you.

A caveat: In many states sellers can’t legally make a counteroffer to more than one buyer at the same time, since they’re obligated to sign a purchase agreement if a buyer accepts the new offer.

When Does an Offer Become a Contract?

In a nutshell, a deal is under contract when the buyer’s offer (or seller’s counteroffer) is agreed upon and signed by both parties. At that point, the clock starts ticking for the home buyer’s contingencies — and for the sweet moment when the cash — and home — is yours.

Source: Published April 12, 2018 by HouseLogic.

Your First Quarter 2018 South Bay Residential Sales Report is Ready for you!

2018 Q1 South Bay residential sales report

The first quarter of 2018 is now past. Do you want to know what homes sold in the South Bay? For how much? What are the price trends that may influence your decision to buy or sell your home.

Lucy Garber shares the RE/MAX Estate Properties South Bay Sales Summary Report for 2018 Q1 so you can learn all the answers.

READ HERE.