Home appreciation continues to reach historic highs as tight supply and strong demand lead to an extremely competitive housing market. According to the S&P CoreLogic Case-Shiller home price index, prices in February rose 12% year over year across the US. This 12% gain is a 15-year high, and Seattle is one of the top cities with a gain of 15.4% year over year.
Those trying to enter the housing market are feeling the frustrations and disappointments of a competitive low inventory market. In many cases, buyers are having to make over five offers on homes before getting one accepted. However, the risk and rewards can quickly make sense when you consider the yearly equity gains with appreciation being higher than most full-time annual salaries. With a 15.4% gain in home prices year over year in Seattle, a person purchasing a $750,000 home last year would have gained $115,500 in appreciation on average. Historically low interest rates are also helping give a small boost to your purchasing power, so long as they remain low.
In the end, the most important thing prospective homebuyers need to consider is if are you in a position to responsibly take on a mortgage payment. Make sure you are evaluating a range of factors including your finances, personal life, and future. Connect with us today if you have any questions. If you have anyone looking to get pre-approved to purchase a home or refinance, we’d love the opportunity to serve them!
In our competitive housing market, most homes are receiving numerous offers and sell for over the listing price. But what happens when the home appraises for less than its selling price? In a seller’s market, it’s often left to the buyer to cover the difference between the purchase price and the appraisal. And what happens if an appraisal comes in short by $50,000? Or even $100,000? If the borrower does not have extra funds to cover the appraisal gap, Homeseed has a back up plan to help your borrower save the deal.
A scenario we’ll use to go over our appraisal gap strategy is a purchase price of $700,000 with a 20% down payment. If the appraised value comes in $50,000 or $100,000 below the $700,000 purchase price, our loan to value ratio will increase above 80% and the borrower will be required to purchase a mortgage insurance policy. What we can then do is finance a single-premium mortgage insurance policy into the loan amount that helps us cover the appraisal gap. This also allows us to keep the required cash to close similar across all three scenarios. Financing the mortgage insurance premium will increase the loan amount and thus the monthly payment, but not by much. On a $50,000 short appraisal value, monthly payment only increases by about $28. On a $100,000 short appraisal value, monthly payment increases by about $41. This is a relatively inexpensive way to cover up a large appraisal gap in this market.
Please reach out if you’d like to learn more about this financing strategy and other ways to help you clients remain competitive in this market. If you also have anyone looking to get pre-approved to purchase a home or refinance, we’d love the opportunity to serve them!
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