Mortgage California Blog

Weekly Mortgage Roundup

April 24th, 2014

Mortgage and credit conceptThis week, we’ll look at 4 Must-Do’s before buying a home, answer the question if staging really raises a home price, cities where real estate investments are booming, and why renting out your home may help you buy that next house.

Homebuying: 4 Must-Do’s Before You Even Start Shopping

As we’ve mentioned in prior posts, 2014 saw the start of requiring more documentation to obtain a home loan in part to the Frank-Dodd act. Getting a home loan with tighter credit restrictions in today’s home loan market can be more difficult, but it’s a lot easier if you’re prepared financially.

  1. File your taxes. You will need to show a lender other documents to verify your income such as a recent paycheck stub . But ultimately, the lender will still want a copy of your federal tax return.
  2. Gather your financial documents into one folder. This allows you to find any gaps or holes. To get a “qualified” mortgage under the Dodd-Frank rules, you’ll have to prove you can afford the home with enough assets and show an ability to repay the loan, along with mortgage insurance. This can be more difficult if you own your own business, and will need at least 2 years worth of documentation of income.
  3. Check your credit report. As we’ve mentioned before, it can take months to fix incorrect information.
  4. Learn what the housing market is like in your area. Getting the home loan may be easier than getting the home due to the tight market. Know what the prices are, and where you want to live.

Does Staging Really Raise a Home’s Price?

In a nutshell, yes, but it’s not as big of a factor as one may think. It’s important to do your research and understand what staging may mean for the price of the house.

A study surveyed 820 homebuyers, walking them through a series of six virtual tours of a single home. Each tour focused on either wall color or furnishings, which are two of the most popular staging elements, according to study co-author Michael Seiler, professor of real estate and finance at the College of William and Mary.

  • In one virtual tour, the buyers saw the home without furniture.
  • In another virtual tour, they saw the same property, but with “ugly” furniture.
  • In yet another virtual tour, they saw the same property, but with “good” furniture.
  • The wall color variations included a neutral beige and an “unattractive” purple.

As it turned out, neither wall color nor furnishings made much of an impact on the potential sale price. According to the study, buyers were willing to pay the same price, about $204,000, regardless of how the property was staged.

However, the study found that staging does give buyers a more favorable impression of the home’s livability, something Michael Seiler believes may help the property sell faster. He says the study might not be applicable to all price points and locations.

Cities where real estate investors are finding deals

Investors are draining out of formerly foreclosure-torn cities like Phoenix and Las Vegas, but that doesn’t mean they’re abandoning real estate altogether. Instead they’re relocating to areas with a median home price of $195,000 or less, says RealtyTrac’s Daren Blomquist. But once the buying starts to pick up, don’t expect prices to stay that low.

Real estate investors tend to avoid new homes because they’re looking for wiggle-room in the price, and builders often won’t negotiate. So if you’re looking for a home in the same price range, you may want to look into new homes so you’re not competing with the investors.

When Renting Out Your Home Can Help You Buy a New One

One of the biggest obstacles home buyers will face is being able to show enough income to offset their debts. There is a little-known lending guideline that allows you to show more income. You can turn your current home into a rental property and document regular income with the rent. This increases your income and allows you to be eligible for additional loans.

You will need to show that you have at least 30% equity in your current home before you can turn it into a rental property.

Talk with a reputable mortgage professional to understand how your income, equity, and debt work together and what kind of mortgage on another house you could be eligible for.

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