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Why FHA Loans Are So Popular

FHA loans are a popular choice for a lot of people, especially first time homebuyers. Why especially so for first time homebuyers? FHA loans require a low down payment, just 3.5% of the sales price. It’s easier for first timers to come up with enough money for a down payment and for closing costs. Plus, sellers can help out with the closing costs as well, further adding to potential cash savings. Down payments can also come in the form of a gift from a family member or qualified non-profit. While conventional loans also allow for down payment assistance, they require a minimum amount from the buyers.

FHA loans in general are easier to qualify for as well. Debt to income ratios are relaxed, especially when compared to low down payment conventional programs. That means having the ability to comfortably afford a slightly higher loan amount. FHA loans are available from most every single mortgage company and mortgage broker, too.

FHA loans also more easily allow for a coborrower to help out. If someone is buying a home but the payments are a bit out of reach, FHA programs allow for a co-signer to help relax debt ratios to a qualifying level. It should be noted here that a co-signer will have to qualify for the new mortgage as well as any current debt. This could very likely mean the co-signer would be responsible for two mortgages. The one they have now plus the new FHA loan.They must also qualify based upon credit scores. If there are multiple people agreeing to take on a new home loan, lenders will request credit scores and use the lower one of the group.

Lenders like FHA loans as well. As long as the lender uses appropriate FHA guidelines when evaluating and approving a mortgage, the loan carries a guarantee to the lender. Should the loan ever go into default, the lender is then compensated for the loss. This guarantee is financed with two different forms of a mortgage insurance policy. There is an upfront insurance premium that is rolled into the loan amount and there is an annual premium that is paid in monthly installments, included with the monthly mortgage payment, insurance and property taxes.

FHA loans are not for investment properties, but available for owner occupied units. This means financing for a rental property or second home is not available. Conventional loans can be used for non owner occupied units, but not FHA loans. There are also loan limits for FHA loans and these limits can vary based upon location. FHA loan limits are based as a percentage of the median home price for the area in which the property is located.

However, for most first time homebuyers, FHA mortgages are the loan of choice. Low down payment, easier qualifying, relaxed debt ratios and credit make these programs ideal for many first time homebuyers.

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When Should You Lower Your Home’s Listing Price?

As the U.S. housing market appears to finally be cooling somewhat, some buyers are breathing a sigh of relief. Home sellers are frantically entering the market, hoping to take advantage of the remnants of the pricing boom.

For the four weeks ending on May 22, almost 1 in 5 sellers dropped the price of their home. It’s the highest rate since 2019. During the same four-week period, there were 13% fewer “homes for sale” searches on Google, and there was a 12% year-over-year decline in tours and related services from agents on Redfin.

Sellers are still asking a premium for homes, with the median asking price up 17.8% year-over-year. However, sellers are also starting to see the writing on the wall as buyers are more cost-conscious with rising interest rates. Thus the price drops.

If you’re a seller with a home on the market, how do you know it’s time to lower the price?

Price Is Usually the Reason Your Home Is Still On the Market

If your home has been on the market for a while and it’s not getting the attention you think it should, or you’re not getting offers, it’s frustrating. More often than not, according to real estate professionals, the issue is the price.

Buyers can overlook many other factors if they feel like the price is right.

Some of the signs your price might be too high include getting little traffic and no offers. You might also get good traffic, but the offers you’re getting are a lowball. A third sign of thinking about having good traffic but negative reactions from potential buyers. If buyers consistently make comments about the price, it might be time to pay attention to what they’re saying.

When To Lower the Price

If you think you should reduce the price of your home, you should do it quickly. Usually, within two weeks of initially putting it on the market is ideal, especially with inventory remaining low. As a rule, you’ll see the most activity within the first 21 days of your home going on the market, so make sure you’re taking advantage.

You’ll also want to look at some of the indicators in the housing market where you are, like the average days on the market.

One guideline that some real estate pros recommend is a price adjustment after a house is on the market for ten days.

There are marketing steps your realtor should take before a price reduction. For example, maybe they need to revisit your photos and ensure they’re good enough. The home also needs to be listed in multiple places, and you should address buyer feedback.

What to Know About Price Cuts

No one wants to make a price reduction, but the reality is that you may even have to do it more than once. The more your days on the market go up your potential need for price adjustments increases.

It’s advisable to make no more than three price reductions. If you go beyond that, it will start to become a red flag to buyers.

You also want to be careful and strategic in how much you reduce the price. For example, if you priced high to start with, maybe you reduce it by around 4% to no more than 9%. If your initial price was comparable to market value, you might need an incremental cut.

Some real estate agents think it’s better to go ahead and reduce your home by a significant enough amount initially, so you don’t have to do it more than once. That’s something to talk to your agent about. There is the potential that multiple smaller cuts are just dragging out the process of selling your home, which isn’t what you want.

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