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What makes a good starter home?

A starter home is a single-family, condo, or townhome that a first-time homeowner can afford and may outgrow. They’re normally small, modest, and lacking in upgraded amenities. They can be a good investment for some young people and a way to build equity towards a bigger and better house in the future. They’re becoming more expensive and harder to find. Some people are skipping starters altogether – choosing to rent for longer to save money towards a bigger first home purchase.

Stats on starter homes:

  • 31% of home buyers are first-timers.
  • The increased price of homes and the amount of student debt young adults have are impacting the median age of first time homebuyers. It’s the highest it’s been since they started tracking it  – 33 years old.
  • If you’re like most people, you’ll spend an average of 13 years in a home before you sell it
  • The longer you live in your home, the more equity you’ll build in it

Characteristics of a good starter home

It’s in a nice neighborhood
It’s important for you to get a home in as good an area as you can. What exactly is a “good” neighborhood? Generally, it’s one that’s quiet, walkable, in a good school district, close to amenities, and is well maintained. Homes in a good neighborhood will be safe to live in and be easier to sell when you’re ready. If you have any questions about neighborhoods, ask your hometown home lender. They’ll give you an unbiased opinion on the best areas in your community.

The taxes are affordable
Your mortgage is just one portion of what you’ll pay each month for your home. One of the biggest ongoing expenses for your home will be your property tax. This is an annual tax levied by your state and local governments on your land and buildings. And it’s a sizeable fee – usually thousands of dollars. The tax is collected once a year, but many homeowners put money into an escrow account each month to pay the fee. Find out what the current owners paid for their taxes, but be aware the taxes will increase over time. Some states increase property taxes annually while others reassess them at set increments (as example, every 5 years).

Utility bills aren’t too high
Starter homes are no frill, which make them affordable to purchase. The price was kept down by NOT getting the most energy-efficient and latest upgrades. And if the starter home is older, be especially aware of the potential utility costs. You can request to see copies of the seller’s utility bills to see what it may cost you for your electric, water, and other utilities.

It’s affordable
Be strategic about your purchase. If you are planning on selling your home in a few years, think of your starter home as an investment. That means, buy something that will easily sell again. Find the best house in your price and in a good location – and don’t go over budget! If you make a wise purchase now, you’ll be better able to afford an upgraded home in a few years.

What are mortgage points and when should you buy them?

After negotiating the price of a new house and being approved for a home loan, some people opt to purchase mortgage points to lower the interest rate and save on the overall cost of their loan.

Mortgage points are a fee a borrower can pay their mortgage lender to lower the interest rate on their home loan. Each point lowers the interest rate around 0.25% and costs 1% of the mortgage amount. The points are paid for when the loan closes. A full point, multiple points, and even fractions of points can be purchased.

When Should You Buy Mortgage Points?
There’s a “break even” point on mortgage points. It’s when you’ve saved more in payments than you paid for the points. Typically, it takes a few years for that to happen. Do the math for your mortgage and make sure you’ll be in your home at least as long as it’ll take for you to break-even.

When Shouldn’t You Buy Points?
Generally speaking, if you have enough cash to purchase mortgage points, you may be better off putting that money towards your down payment instead. A larger down payment could get you a lower interest rate, reduce the amount you’d pay for mortgage insurance (or eliminate it all together), or reduce your monthly payment.

Mortgage points are a long-term strategy to save money, so if you don’t plan to be in your house long they may not be worth the cost. If you’re interested in mortgage points, talk to your local home lender. They can run all the scenarios to see how best to pay off your loan.

What happens to your mortgage in a divorce?

Couples going through a breakup face many difficult decisions including what to do with their mortgage. In 2020, the average mortgage debt in the U.S. was $208,185 with a payment of just over $1,500 per month. When your relationship changes, what do you do with your mortgage bill?

If the mortgage is in both your names, you’re both responsibilities for the monthly payments regardless of who is living in the house. Missed payments will negatively impact both your credit scores. So the first thing you’ll need to decide is how to continue to make payments during your separation. Then decide what you’ll do with your mortgage.

There are normally two ways separating couples handle their mortgage. Couples either sell their home or refinance to remove one person from the mortgage.

Sell your home and pay off your mortgage
Find a local real estate agent, agree on the asking price, and place your home on the market. When you accept an offer for the house, use the funds to pay off your mortgage. If you’re lucky enough to get any additional proceeds from the sale, those funds can be split between you and used towards financing your new homes. It’s a good way to make a clean split and each have a little extra money to go towards your new life.

Refinance your house in one person’s name
If one of you would like to stay in the house, you can work with your home lender to refinance in just one person’s name. To do this, the spouse remaining in the home will have to apply for the new loan, your home lender will verify they are able to make payments on their own, then the refinance will close. Refinancing typically takes 30 – 60 days and the spouse who stays in the home will have to pay closing costs.

A less common option is for you to continue to co-own the home together. You will both continue to have the mortgage listed as a debt on your credit report and you’ll both be negatively impacted by any missed payments. But it may be a good option if a custodial parent can’t afford the house on their own. By co-owning it together, your kids are able to stay in their house and have a sense of continuity.

A note about community property
Some states observe community property laws meaning both you and your spouse make equal ownership claims to assets, like houses, acquired during your marriage. In these states, you’re both responsible for the mortgage debt whether your name is on the loan or not. And you’re both going to split the home sale proceeds wither you’re on the mortgage or not. The law is more detailed than that, so be sure to contact your attorney if you have any questions.

As of 2021, there are nine states where community property laws are in place for married couples:

• Arizona
• California
• Idaho
• Louisiana
• Nevada
• New Mexico
• Texas
• Washington
• Wisconsin

The law is also observed in the U.S. Territories of Guam and Puerto Rico.

If you have any questions about your mortgage or how you can refinance to remove someone from it, be sure to contact your loan officer. Mann Mortgage loan officers are here to work through any changes you need to make to your mortgage due to life changes.

The difference between a 30 and 15-year fixed mortgage

A mortgage term is how long it will take you to repay the loan in full. There are a few term options, but most common are 15 or 30-year terms.

Both mortgage options are fixed rate meaning the interest rate and monthly payment is set when the loan is taken. A fixed-rate makes it much easier for a borrower to budget since they know exactly how much the minimum payment is each month for years to come.  No matter what happens with interest-rates, the minimum payment won’t change.

30-year mortgages are by far the most popular mortgage product for American homebuyers – Freddie Mac says 90% of all loans are 30-year fixed. What makes them so appealing? Are there any benefits to a 15-year fixed?

30-year mortgage
Because the term of the loan is longer, there is a higher chance the borrower will default over time, so it’s a riskier option for lenders. But the payoff for borrowers is big – substantially lower monthly payments than a 15-year mortgage.

A lower monthly payment makes homeownership a possibility for more Americans and it may allow some people to purchase more home than they’d be able to with a 15-year fixed. Even borrowers who could afford to make larger payments may choose a 30-year fixed and re-invested or put away the money they’re saving to further their financial stability.

The catch? You’ll save money each month, but you’ll be paying your mortgage for longer. And, in the end, you’ll end up paying much more in interest than you would with a 15-year loan for the same house.

15-year mortgage
Lower monthly payments sound great, so why would anyone get a shorter loan term? Borrowers often choose a 15-year loan because they pay off the loan much faster and with less interest overall. Take the example below.

$275,000 Mortgage
 APRMonthly paymentTotal interest paid
15-year fixed2.529%$1,837$55,737
30-year fixed2.948%$1,152$139,617

The monthly payments are nearly $700 more per month, but over the course of the loan, the borrower saved $83,880. If you can afford a bigger payment, looking into a 15-year fixed mortgage may be a good idea.

Because there’s less time for the loan to be exposed to risk, interest rates for 15-year mortgages are usually lower than that of 30-year fixed. The rate can be around a quarter to a whole percentage point less.

How about something in-between?
If you like the lower payments of the 30-year mortgage but the faster payoff of the 15-year mortgage, consider getting something in between like a 20-year mortgage. There are a lot of different options when it comes to home loans. It’s best to speak with a local loan expert to see what would work best for you and what your payments would be like with each option. Together, you can find the best path forward for your financial goals.

What’s a barndominium?

A Barndominium a trendy new type of home that’s gaining popularity. They’re usually defined as an energy-efficient low maintenance metal building you can live in. Think of a warehouse or metal barn with the inside transformed into living quarters. That’s a barndominium. Sometimes they have an attached shop, horse stable, or garage. Sometimes not. The exterior gives homeowners a sleek farmhouse look while the interior can be any style possible.

People love the barndominium because they offer a lot of advantages over traditional stick-built homes:

  • Cheaper and quicker to build
  • Open concept floor plans
  • Energy-efficient metal roof
  • Low-maintenance metal exterior
  • High vaulted ceilings
  • Option for an attached shop

How much does a barndominium cost?
Like anything real-estate related, costs vary based on location and material costs. However, for a rough comparison, a standard house is between $100 to $200 a square foot and luxury and custom homes ran closer to $200 to $500 a square foot to build in the United States in 2020.

Barndominiums “shells” – the exterior walls and roof – are significantly less expensive than those of stick-built houses. Often they’re available as kits which are constructed upon a rectangular concrete slab. Costs range from $70 to $95 a square foot for a more DIY builds and more for ones built by a licensed builder.

How to finance construction for one
There are two ways to build a barndominium – and whether you’ll get financing depends on how you build it.

Option one is to hire a builder to assemble and complete your barndominium. To finance this, you’ll need a short-term construction loan financed through most home loan lenders. Once your home is built (or if you buy an already built one) you’ll need to apply for a traditional mortgage.

Option two is to built it yourself. Most home lenders won’t finance DIY construction. However, some companies that manufacture barndominium shells will offer their own financing. These shells contain the frame, exterior doors, windows, and roof. Beyond that, you will have to finance the additional items needed to complete your home such as electricity, plumbing, walls, flooring, insulation, etc.

Regardless of how you finance your build, be sure to check your land’s zoning and covenant requirements. It’s fairly common for subdivisions to have restrictions on sheds, garages, or other metal structures (which might include your barndominium). And make sure your barndominium will fit on your lot too. Barndominiums are typically larger than other structures, so you’ll want to double-check your home won’t be larger than allowed and will fit on the land you selected.

Do barndominiums hold their value?
So far, those that have sold recently seem to keep their value. They’re growing more popular across the U.S., and you can even find them listed under their own filter on Zillow. Beware, though, that one of the things that makes them appealing is their distinctive design. But it also may make them harder to sell since they’re too unconventional.

When you’re ready to crunch the numbers to see whether a barndominium would be a better option than a stick-built home, contact your local Man Mortgage home lender. They can help you decide whether you’d qualify for a construction loan or if it might be a wiser choice to get a stick-built home.

Tips for first-time home buyers

Whether it’s your first time buying a home or it’s been a few years since you last bought one, knowing where to start is your first step towards finding a home that fits your needs.

Save for a down payment
The amount of money you’ll need for a down payment depends on the type of loan you choose and the price of your home. Some conventional loans are specifically aimed at first-time home buyers with good credit and a 3% down payment and others are available to borrowers with 0% down.

Talk to a local home loan expert
There are a lot of options for financing your new house. Before you get too excited about a new home, you’ll want advice from a pro. Find a local home lender with great reviews and a solid reputation and set up a meeting with one of their loan officers. They’re experts in finding the right loan for their clients’ needs. You’re under no obligation to work with any lender you speak with and your meeting time is free. The information they’ll provide to you will let you know what type of loan you’re eligible for, first-time home buyer assistance programs for your state you could take advantage of, the approximate interest rate you would pay, and the price range for a house you would be able to afford.

>> Mann Mortgage has a rating of 4.89/5 stars with more than 15,000 reviews on SocialSurvey.

Get a pre-approval letter
When you’re ready to start home shopping, ask your home lender to pre-approve you for a loan. They’ll pull your credit score and history, verify your income, check your assets, calculate your debts, and approve you for the appropriate home loan. Your lender will give you a blanket letter stating you’re approved for a loan up to a certain amount of money or they will write you a personal letter for the home you are putting in an offer for. Either way, the pre-approval letter lets the home seller know you are a serious bidder already working with a lender, so your financing should go through without a problem.

>> What happens when a lender pulls your credit?

Choose the right real estate agent
Find someone with intimate knowledge of the community you’re purchasing in. They should be able to answer questions about the housing inventory, schools, traffic, and much more. Ask for a referral from your home lender, friends, co-workers, and neighbors. You can even drive or walk around the neighborhood you’d like to buy in to find agents selling in the area.

You’ll know you’ve found the right agent when they answer questions quickly, work as a Realtor fulltime, close on deals, and are willing to educate you about the local market and homes you’re interested in.

Know what kind of market you’re purchasing in
When you find the home with the right size, location, age, and price range, the way you make your offer may depend on the type of market you’re in. Generally speaking, there are two markets: a buyers’ market and a sellers’ market.

If you’re in a buyers’ market: A buyers’ market means there are more homes available than people to buy them. This is great news for a buyer. You’ll have plenty of homes to choose from and you’ll have time to weigh the pros and cons each before you put in an offer. Offers with contingencies such as financing, home sale, or inspection will have a much higher chance of being accepted than they would in a sellers’ market.

If you’re in a sellers’ market: A sellers’ market means there are less homes available than people to buy them. Be prepared to act very fast when you see a house that meets your needs as it’s possible a home seller will receive multiple offers within days of the house being listed. Be prepared to make multiple offers on homes before one is finally accepted. It’s going to be tough to get a house and you’ll be competing with other very serious buyers (some people make offers in cash -meaning they don’t have to finance the house, they have the money to buy it outright). Talk with your Realtor about what you can do to make your offer more likely to be accepted. Some common tactics are:

  • Have a home loan pre-approval letter.
  • Don’t plan on negotiating – make your first offer strong.
  • Waive as many contingencies as possible.
  • Write a personal letter to the seller when you make an offer.
  • Put an escalation clause on your offer. This means you make an initial offer but also set a maximum offer. If the seller receives another offer that’s higher than your initial offer, your offer will increase by a set amount to beat the other offer up to your maximum price.

Get ready for closing
If your offer got accepted and all the contingencies were removed, you should be ready to close. Closing is the final step in transferring ownership from the seller to you. Your home lender will originate and underwrite your loan and the title company will prepare a lot of paperwork for you to sign.

>> What to expect when closing on your new home.

When you’re ready to talk to a professional loan officer, contact your local Mann Mortgage office. Our loan officers are very familiar with helping first time home buyers understand their loan options, the local housing market, and how to finance the right home.

Financial benefits of owning a home

Buying a home has long been considered part of the American dream. But when you consider a home as a financial investment, is it a good choice? Below is a review of some big financial benefits of homeownership.

Build equity
Equity is the value of the property you actually own. As example, if your home is valued at $300,000 and you owe $200,000 on it, you have $100,000 in equity.

Unlike rent payments, each time you pay your monthly mortgage you gain a little more equity in your home. As you continue to pay off your loan, more money will go towards the principal every time – bringing you closer to owning more of you home. Eventually, all payments will have been made and the loan satisfied, you will no longer have a mortgage payment at all.

Get tax deductions
If you’re itemizing your tax deductions, there are a few tax breaks you get as a homeowner including writing off interest payments, real estate taxes, and energy-efficient improvements. When you sell your home, you may be able to avoid some of the capital gains tax on the profit you’ve made as long as you meet certain requirements (like having lived in the house as a primary residence for at least two of the previous five years you owned it).

Price appreciation
Houses (and the land they’re built upon) generally increase in value every year. The last quarter of 2020 saw home prices increase in value by an average of 4.29% according to S&P/Case-Shiller. So as you’re paying off your home, it will hopefully be increasing in value on its own. Just be aware that homes aren’t guaranteed to increase in value, and you’ll be able to take advantage of the appreciation only after owning it for many years.

A fixed monthly bill
A huge benefit of homeownership is that you’re better protected from inflation. If you have a fixed-rate mortgage, the amount you pay each month for your home won’t change no matter what happens to the interest rate and the economy. Even adjustable-rate mortgages have an interest rate cap to protect the homeowner. As rent continues to increase, having a steady mortgage payment that won’t increase will offer peace of mind when you’re budgeting.

Get better credit
Having a long history of making payments towards a big debt does wonders for your credit. Since mortgages typically last 15 to 30, if you make your payments on time, you can expect it to positively impact your score. Regular on-time rent payments can also positively impact your credit, but not automatically. Your rent payments must be reported to select credit agencies using a rent-reporting service.

Is a home purchase a good investment for you? You’ll need to crunch the numbers to decide. Take stock of your own financial standing and the average price of a house in your area compared to the price to rent a home. When it comes to purchasing a home, it’s always best to talk with a local home loan expert. They will tell you what loans you’ll qualify for, the minimum down payment, and provide info on the market you’re looking to buy in. Together you can review your financial goals to see whether owning a house would positively or negatively impact your future.

Homes for Heroes: Helping certain professionals with homeownership

Buying a home is an exciting, stressful, and emotional experience. If you’re a teacher, nurse, healthcare worker, law enforcement officer, firefighter, military member, or veteran, there are programs to help you make homeownership a little easier. It’s called Homes for Heroes. Since 2002, they’ve helped more than 44,000 people with their homeownership goals.

Homes for Heroes, Inc.
Homes for Heroes is a for-profit company that works with affiliate real estate agents, home lenders, title companies, and home inspectors. They say their mission is to, “provide extraordinary savings to heroes who provide extraordinary services to our nation and its communities every day.”

Eligible participants can receive thousands of dollars in refunds when they work with the program and use the affiliate real estate companies. It’s a good program for home buyers who qualify as there is no catch to it. The organization is able to fund itself through fees paid by the real estate professionals who take part in the program. It’s basically a paid referral program that benefits a select group of home buyers and owners.

Homes for Heroes Foundation
It’s the non-profit side of the company. Homes for Heroes, Inc. donates a portion of its earnings to support the foundation. The foundation then uses those funds (and private donations) to give “Hero Grants” to nonprofit charities that serve heroes in need. From 2009 to 2020, they awarded $842,838 in grants.

A lot of professionals are eligible
Whether you’re a current or former professional, you will likely qualify if your career is listed below. Other types of careers are eligible as well, so speak with your local home lender if your profession is similar to any listed below:

  • Firefighter
  • Paramedic
  • EMT
  • Law enforcement
  • First responder
  • Active military
  • Nurse
  • Doctor
  • Health care professional
  • Educator
  • School administrator

It’s an easy program to use
You can ask your real estate agent or home town lender whether they’re part of the Homes for Heroes program. If they are, they’ll work with you to make you meet the eligibility requirements and all paperwork is completed for you. The more Homes for Heroes-approved professionals you work with, the bigger the refund you’ll receive.

Conforming loan limits for 2021

When applying for a mortgage, one of the most popular options is a conforming loan. These loans are called “conforming” because they conform to the guidelines set by Fannie Mae and Freddie Mac, federally backed home mortgage companies created by the U.S. Congress to boost homeownership.

What do Fannie Mae and Freddie Mac Do?
These entities exist only to support the U.S. mortgage system. They don’t originate loans. Instead, after a loan has been issued, one of the entities will buy the loan from the lender if it meets their criteria. This is an important part of the mortgage market because it allows lenders to sell loans to Fannie Mae and Freddie Mac and use the cash raised to engage in further lending.

For a loan to be purchased by Fannie Mae or Freddie Mac, the borrower generally needs:

  • A good credit score
  • A debt-to-income ratio of 50% or less
  • At least 3% down payment
  • A loan amount of less than conforming loan limit

2021 conforming loan limits
Each year, the Federal Housing Agency decides what the conforming loan limit is. As houses become more expensive, the limits are increased. In 2021, the amount increased for all units.

2021 Conforming Loan Limits
UnitsBase LimitHigh-Cost Limit
One$548,250$822,375
Two$702,000$1,053,000
Three$848,500$1,272,750
Four$1,054,500$1,581,750

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Base limit: This is the maximum loan amount for homes in most areas of the United States.

High-cost limit: This is the maximum loan amount for homes in high-cost markets such as parts of Alaska, Hawaii, California, and Washington, D.C.

Units: The number of housing units per building.

More >> See what the conforming loan limit is where you live.

Because conforming loans can be re-sold, they’re not as risky for lenders and often have favorable terms for borrowers. Savvy home buyers will keep their loan amount within the conforming loan limits so they have an easier time securing their loan, they’ll have more relaxed requirements, and their rates will probably be better.

If you’re looking for a conventional 15 or 30-year loan (as most people are), you may want to consider keeping the loan amount under the loan limit in order for it to be a conforming loan.

When you need a bigger loan – consider a jumbo loan
If the limits won’t get you a home you’re interested in buying, you could look into a jumbo loan. Jumbo loans won’t be purchased by Fannie Mae or Freddie Mac, so they don’t need to conform to their loan limits – meaning you can get more money. If you have a strong credit score and low debt-to-income ratio, you may find a lender willing to extend one to you.

However, they come with some disadvantages. Jumbo loans have stricter qualification rules, require a sizable down payment (sometimes 20% or more), and normally have a higher interest rate. For those reasons, a lot of homebuyers try to avoid them by finding a home that will keep them within the conforming loan limits.

To see whether you’ll be eligible for a conforming home loan, contact your local Mann Mortgage home lender. Together, they’ll help you crunch the numbers to see what type of loan would be best for you.

Can you get down payment assistance for your new home?

First, let’s bust a common down payment assistance myth: it’s not just for lower income home buyers. There are hundreds of down payment assistance programs offered across the country for all types of buyers. Many programs are from communities that want to spur construction or homeownership in a particular area.

It’s always a good idea to look into these programs regardless of how much money you have saved.

Do you have to pay back the funds?
Not always. It depends on the program you use.

Do you have to be a first-time home buyer to qualify?
No. Many programs are available to people regardless of how many times they have purchased a home in the past.

Are the programs hard to qualify for?
Not at all. Some are available to everyone and others have light restrictions.

For those with restrictions, most people still qualify since they have lax income and credit score requirements. As example, you may need to make equal to or less than 115% of the median income for the county in which you live. That means if the median income is $100,000, people who make up to $115,000 qualify. The credit score requirements vary between programs too, but it’s common to need at least 620 (the average FICO score for Americans in 2020 was 711).

For down payment assistance programs to spur homeownership in select areas, there may not be any qualifications beyond living or building in the select area.

Does it matter which type of loan you have?
VA and USDA loans don’t require down payments anyway, so any additional funds you put towards the purchase of your home will help reduce your mortgage amount. Conventional and FHA loans do require a down payment, so the programs will help you qualify for these loans.

How can you find whether there’s a program you can use?
As we mentioned, there are literally hundreds of down payment assistance programs across the country. A state may have a handful of programs but a city’s metro area may have ten times more. The best way to comb through all the programs is to talk to your local home lender. Unlike national mortgage companies, your local lenders know incredibly specific programs available only through your community that will save you thousands of dollars. Contact your local lender and get details on which down payment assistance programs you can use.

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