Archive August 10, 2021

More Homebuyers Making 20% Down Payments and Waiving Appraisal and Inspection Contract Contingencies

August, 10th 2021 – Market Update from the previous months.

Homebuyers who make a 20% down payment and waive appraisal and inspection contingencies are on the rise, based on the May 2021 REALTORS® Confidence Index (RCI) Survey which reports monthly transactions from a random sample of REALTORS®1.

Among all buyers2 who obtained a mortgage in May, the share of mortgages associated with at least a 20% down payment rose to 52% in May 2021, up from around 40% in 2011. Among first-time buyers, nearly one in three made a down payment of at least 20%, up from around 25% in 2011. This trend reflects the decline in the share of buyers who obtain mortgages insured by the Federal Housing Administration (FHA) and the Veterans Administration (VA) which insure zero and low downpayment loans.

Line graph: Percent of Buyers Obtaining a Mortgage Who Made a Downpayment of at least 20%, April 2011 to November 2020

Buyers With Conventional Financing Edge Out Potential Buyers Obtaining FHA and VA Loans

According to information provided by REALTORS®, conventional conforming mortgages (mortgages that conform to guidelines set by Fannie Mae and Freddie Mac), accounted for 74% of mortgages obtained by homebuyers in May 2021, an increase from about 65% during 2018 through 2019. Meanwhile, the share of FHA-insured mortgages to total mortgages in fell to 14% in May 2021 from about 20% in past years. The share of VA-guaranteed loans has also decreased to 7% in May 2021 from about 10% in past years.

Line graph: FHA, VA, and GSE Mortgage Financing, January 2018 to May 2021

Highly Competitive Market Is Resulting in Appraisal and Inspection Waivers on Contract Contingencies

According to REALTORS®, sellers are wary of the appraisal and inspection process. REALTORS® have reported that buyers who make an offer using FHA or VA financing find it hard to compete against other buyers who are offering cash or using conventional financing.

“It is extremely difficult for FHA/VA buyers to get accepted in a multiple offer situation. They are on the bottom of the hierarchy”

“Buyers using VA Loans are being discriminated due to ‘known low appraisals with VA loans’ which is not right at all.”

“VA Loans are at a complete disadvantage — sellers need to be offered an incentive to give more consideration to a VA Loan offer. There are a lot of misconceptions regarding VA appraisals and VA loans.”

Appraisals present a hurdle for homebuyers with VA and FHA financing at a time when prices are rising fast and homes are selling swiftly with little inventory on the market. In May 2021, the total inventory of homes (unsold) on the market was equivalent to 2.5 months of the monthly sales pace, well below the ideal level of 6 months. Appraisals, which are based on comparable sales and/or automated valuation, will always lag behind the “real-time” price based on current demand-supply fundamentals. In May 2021, the median existing-home sales price rose at a record high of 24% year-over-year, the highest annual pace since 19693. VA appraisals take anywhere from 5 to 15 days4, but properties are typically on the market for 17 days.

Homebuyers are waiving appraisals in order to close the transaction quickly. REALTORS® reported that among contract contingencies waived by the buyers, the most common contingency that buyers waived was the appraisal contingency (28%) followed by the inspection contingency (25%).

Bar chart: Percent Distribution of Contract Contingencies that Buyers Waived in May 2021

Homebuyers who are able to waive contract contingencies are those who pay cash or use conventional financing. In contrast, FHA and VA buyers are not able to waive the appraisal or inspection contract contingencies according to FHA and VA guidelines. The home inspection assesses the condition of the home and the property location to ensure that the home meets minimum property requirements (MPRs) pertaining to the safety, structural soundness, and sanitary conditions (e.g., space requirements, entry/exit, drainage, topography, HVAC systems, gas connection, roofing/crawl spaces, lead/radon, etc.).5

FHA inspection standards may be tougher to meet, especially for sellers who want to sell the home “as is.” For example, the FHA inspection guidelines require that the “heating unit is adequate and in good working condition,” the “water heater in good working condition,” that there are “working smoke detectors in the home,” and that the “sink in good working condition and with no leaks.” In fact, FHA standards sometimes even involve stipulations beyond the house itself (e.g. “If the home is in close proximity to an airport and its flight pattern, that may result in extreme noise hazards that could disqualify the home from being financed with an FHA loan.”).6

While inspection standards are important for ensuring that buyers are protected, they can create a disadvantage for prospective homebuyers in a highly competitive housing market. First-time homebuyers, buyers with less than excellent credit scores (FHA borrowers can have a credit score of as low as 580), and low-income and low-asset borrowers who are not able to afford a 20% down payment are mostly likely to get disadvantaged.

A home is the largest investment most people make in their lifetime. Buyers should be protected so that the price paid for the home is worth its value. Unfortunately, in a housing market where sales are moving swiftly, the time to undertake the inspection and appraisal is creating a hurdle for buyers obtaining FHA-insured loans who are typically first-time buyers and buyers obtaining VA-guaranteed loans.

Are you looking to find the right home? Talk To Tammy, 636.931.9100!

Top 5 Outdoor Living Trends to Attract Buyers

August 23, 2021 – Find out the most popular exterior features and designs so far this year.

Homeowners have become much more aware of the importance of having comfortable and usable living spaces outdoors as well as indoors. As many of us reevaluate the priorities we have for our homes, owners are seeking to unlock more potential for their outdoor spaces. recently surveyed real estate professionals to gain insight into the most popular designs and features this year. For the website’s 2021 Outdoor Living Spaces Trends report, professionals revealed what homeowners can do to increase curb appeal, attract buyers, and add value to their outdoor space. Here are some highlights from the report’s findings:

Outdoor Kitchens Are the Most In-Demand Feature

Which are the most popular outdoor living additions in 2021?

Experts were asked to choose one or more features that they believe will prove popular this year. Sixty-one percent of respondents opted for outdoor kitchens, highlighting their growing appeal.

Outdoor kitchens have been popular for several years but especially during pandemic-related restrictions that kept people from enjoying restaurants or meeting up with friends and family at indoor public spaces. Outdoor kitchens have many different styles and types, from standalone to U-shapes.

Depending on the size and materials, the average cost for a 300-square-foot outdoor kitchen is $13,000. However, many extra features, such as ice machines and pizza ovens, can increase costs. The average cost for a fire pit is $850.

Best Design Combination: Porch and Patio

Which is the most popular outdoor space in single family homes in 2021?

When it comes to outdoor design, homeowners have a few options to consider. Forty-eight percent of experts reveal that the combination of a porch and patio is what most people desire in a home. It makes sense that this combo is most popular because a porch can add to a home’s curb appeal while the patio offers a more private living space.

If your home lacks one or both of these features and you are considering installing one, a porch has an average cost of $20,000 whereas a patio averages just under $5,000.

Folding, Sliding Doors Provide Seamless Transition

Seventy-four percent of real estate pros say folding and sliding doors and windows are growing in popularity as a method to blend indoor and outdoor living. The flexibility of this design feature allows the relaxing vibes to flow from space to space. It also lets the outside in during times of the year when weather conditions are problematic. In addition, the openness and brightness makes rooms feel larger—an added bonus when it comes to selling.

The costs associated with installing a sliding door depend on the size and type of glass panes. The average cost for installing a 72” x 80” aluminum single-glazed sliding door is $2,760.

Outdoor Heaters, Fireplaces Have Year-Round Appeal

Which is the most popular way to adapt outdoor spaces for year-round use?

Outdoor living spaces are no longer only for summer enjoyment. Home buyers want to make the most of their entire property all year long. The growth of outdoor heaters, fireplaces, and fire pits are helping homeowners extend their enjoyment of the outdoors.

Overcoming the issue of being uncomfortably cold allows for using areas like patios. In addition, 27% of respondents also said a hard patio cover like that of a pergola will become commonplace, helping to shield others from weather elements like the rain. Further, outdoor heaters can be used to heat up spaces on cooler days or nights and repositioned for wherever you want them to be.

The average outdoor heater costs between $200 and $300, whereas an outdoor fireplace ranges from $2,000 to $3,000.

A Place to Gather With Friends and Family

When asked about the most common uses homeowners have for outdoor spaces, 80% of respondents agreed that gathering with friends and family is priority number one. So when it comes to preparing a home for sale, keep in mind that home buyers are seeking an area where they can achieve this. So, no matter the size of the outdoor space, you should highlight it as a spot for gatherings. This can be done by placing greater focus on the patio or porch, adding furniture for seating, or creating an open area for children to play.

The summer market is hot! Talk To Tammy to get your house SOLD – 636.931.9100