When couples these days head out to buy a Columbia SC home, often times, down payment is the biggest hurdle. Most young people starting out today have not worked long enough to save to buy a house, even if they can swing the monthly payments.
Loans from family members can cause problems however, and financial experts warn against it.
Lenders typically view a family loan as another burden that could affect a borrower's ability to make monthly payments. In fact, a loan from a parent could raise a borrower's debt-to-income ratio sufficiently to result in disqualification for a mortgage to buy a Columbia SC home.
Parental loans also fall under the category of unsecured debt, meaning that no asset is acting as collateral, which can pose a lending risk.
Gifts to Help Buy A Columbia SC Home
Gifts—with no strings attached—are a different matter. Even then, most lenders typically like to see home buyers contribute at least 10% of the loan amount to the down payment because that's an indication of their ability to manage their own finances. If someone is coming to the closing with a down payment that is all gift money, some lenders will consider it, but only on a case-by-case basis.
About one-fourth of all first-time home buyers receive some down-payment assistance from relatives, most commonly, parents, according to a National Association of Realtors survey of people who purchased homes from July 2011 to June 2012.
Rising property values are also driving more parents to pitch in on down payments, especially in high-price home markets.
A few more considerations when seeking help making a down payment to buy a Columbia SC home:
- Don't forget tax rules. An individual gift of $14,000 or less is tax-exempt, but gifts that exceed the $14,000 annual limit must be reported to the IRS. This used to be $13,000, but was raised last year. Each parent can give $14,000 to a child and his or her spouse, for a non-taxable sum of $56,000.
- Stick to close family members. Lenders generally won't allow down payment gifts from distant relatives or unrelated parties, such as a builder.
- Gift rules are looser with an FHA loan. Federal Housing Administration mortgage limits go above regular jumbo limits in some high-price areas and allow borrowers to use a gift for the full down payment.
In making a family gift to buy a Columbia SC home, the key is for the borrower to have the right documentation, including a letter that clearly states the gift amount and that the gift-giver doesn't expect repayment. In addition, lenders require written proof that the money has been transferred from the relative's bank account to the borrower's bank account or, alternatively, are given a copy of a certified or cashier's check.
Columbia SC home sales rose in July to their highest level in over three years, with year-over-year prices again showing double-digit gains.
Rising interest rates as well as rising prices are expected to tamp down both prices and the number of Columbia SC home sales in coming months, as homes get less affordable. The shortage of homes for sale, particularly for first-time buyers, continues in many areas.
"Mortgage interest rates are at the highest level in two years, pushing some buyers off the sidelines," Lawrence Yun, the NAR's chief economist, said in a news release. "The initial rise in interest rates provided strong incentive for closing deals. However, further rate increases will diminish the pool of eligible buyers."
For the buyer of a median-price house who puts 20% down, mortgage rate increases since May have raised the monthly payment by about $100.
The risk is that last month's gains in demand may prove temporary, and driven by buyers who rushed to lock in a home before interest rates went up.
The national median home price, including single-family and condos, was $213,500. That's 13.7% above the national median price a year ago and only 7.3% below the peak of $230,400 in July 2006.
More Inventory Should Help Columbia SC Home Sales
Columbia SC home sales should benefit from the fact that the number of homes for sale continue to increase as more and more potential sellers hit the market. The average supply at the current rate of sales stands at 5.1 months.
The key for the economy is whether the stronger market, coupled with a continued shortage of homes for sale, will prompt home builders to step up construction and add jobs. Moody's Analytics says a jump from less than 1 million new homes a year to 1.7 million, which it considers the underlying level of demand for newly built housing, could add more than 3 million jobs by 2015.
Distressed homes continued to make up a smaller percentage of Columbia SC home sales, one of the factors that is driving up median prices, since foreclosures and short sales sell at a discount. In July, distressed homes were 15% of sales, down from 24% a year ago.
All-cash Columbia SC home sales continued to be a strong factor, making up 31% of the deals, up from 27% a year ago.
A sharp jump in mortgage rates from May to June are now beginning to weigh on the Columbia SC housing recovery. The two-month delay can be attributed to several factors—first and foremost that most potential home buyers lock in mortgage rates early, and sale closings can take up to two months to be finalized.
Second, there may also have been a surge in homebuying because of the rise, as those on the fence suddenly jumped in, fearing rates would continue going up and they would be priced out of the market. Those factors have now expired.
The sharp rise in mortgage rates has led to a pause in demand. The initial urgency seen from buyers as rates moved higher has subsided and now buyers appear to be stepping back to re-evaluate their options. There was also a drop in buyer traffic in July, the first time since last December that it didn't exceed expectations.
Columbia SC Housing Just Seeing A Brief Pause?
While buyers may be pausing, however, their optimism is not. Americans are increasingly hopeful about housing's return. Sixty-two percent believe mortgage rates will go up over the next year, according to a new Fannie Mae survey, but 74 percent also say it is now a good time to buy a house, an increase in both from June.
"Expectations for continued improvement in housing persist, and sentiment toward the current buying and selling environment is back on track from its dip last month," according to Doug Duncan, senior vice president and chief economist at Fannie Mae. "These results are consistent with our own analysis of previous housing cycles, which finds that interest rates and home prices are not strongly correlated."
There is also the question of home prices, which continue to rise because of a severe lack of homes for sale. "We see many threats to the housing recovery," said Jaret Seiberg of Guggenheim Partners. "Rising rates will make homes less affordable. We also are concerned that investors have artificially stabilized some markets and driven prices up beyond what consumers can afford at today's higher interest rates."
Columbia SC housing is still more affordable than it's been in many years, when combining the historically low mortgage rates that are still out there with prices that are still 20 to 26 percent lower than they were at their peak.
Talk to us at Buyer's Choice Realty. Let us help you decide if now is a smart time to dive into the market and secure your own home before prices and rates go any higher. We'll be happy to sit down with you and discuss the options available.
While increases near double digits for Columbia SC home prices have been common, home appreciation is projected to drop to 6.5% during the 12 months ending March 31, 2014, according to a report released recently. That will follow a 10.2% jump for the preceding 12 months, the first double-digit increase since the peak of the housing boom seven years ago. However prices are still expected to increase significantly over the next few months before they begin to slow.
The forecast is based on the CoreLogic Case-Shiller home price indexes and covers 384 metro areas and more than 80% of the total U.S. housing market.
The chief economist for CoreLogic Case-Shiller has put this down to the improving job market and continued low housing inventory levels. Prices are also expected to turn positive in areas where they have recently declined. In spite of the recent house price gains experts are not worried about a new bubble forming.
Columbia SC Home Prices Still Below Their Peak
Even with the dramatic price increases recently, Columbia SC home prices remain about 26% below their peak.
Meanwhile, after jumping more than one full percentage point in early May, 30-year mortgage rates have stabilized, moving little since then. Stable mortgage rates are only expected to help Columbia SC home prices to stay positive and not retreat as is forecast by the Case-Shiller report. The rise in mortgage rates had very little impact on rising Columbia SC home prices.
The tight supply of available Columbia SC homes for sale is expected to be with us through the end of this year, and possibly into next year as well. The number of homes and condos for sale continue to be down from a year ago.
First time Columbia SC home buyers are being squeezed out of the housing market recovery due to a sharp rise in home prices, a recent jump in mortgage rates, tighter lending practices, and competition from investors picking up lower-priced property for cash. This report comes from The Wall Street Journal.
Columbia SC Home Buyers Profile:
First time Columbia SC home buyers are more likely to be unemployed, underemployed, or have an unemployed spouse, to have lingering student debt, a less-established credit record and weaker credit scores, the WSJ added.
Between January and June, the median credit score for first time buyers was 720, below the 750 for repeat buyers, according to information collected for the National Association of Realtors' Confidence Index.
At the same time, no-money-down mortgages and other products that were popular before the mortgage crisis have largely disappeared, the WSJ reported.
And lenders have become much more cautious, scrutinizing appraisals, incomes, and the sources of borrowers' down payment funds to guard against potential legal liability should mortgages default.
Add all that to the recent jump in mortgage rates, and the fact first time Columbia SC home buyers are competing for lower-priced properties with investors who often pay with cash, and you have a recipe for first time home buyers to be pushed out of the market, the Journal said.
If you're a first time Columbia SC home buyer, or would like to be, call us today. We have helped hundreds of first time home buyers get into a home, and we're here to help you as well.