Seattle Among Top U.S. Cities for Sellers to Get Greatest Return on Investment

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The problem for homeowners who decide to sell in a hot real estate market like Seattle, is that it turns you into a buyer in a very competitive environment. But for those who do decide to cash in, perhaps because they’re leaving the area for someplace cheaper, there’s big money to be gained in Seattle and other cities across the West.

A new analysis by Zillow found that sellers who had held onto their home for a little bit of time are seeing huge returns on their investment. Oakland and Portland lead the way, followed by San Jose, Calif., Denver, Los Angeles, Sacramento, Calif., and Seattle.

Zillow reports that the typical seller in Oakland in 2016 sold their home for an average of $590,000 after living in it for just over seven years. That’s an increase of 78 percent more than what they initially paid. In Portland, the typical 2016 seller sold for about $145,000 more than what they paid nine years earlier, a 65 percent gain.

Seattle sellers, bowing to dollar signs and the influx of well-paid technology workers looking to purchase in the area, gained 53.1 percent or $185,000 on a 2016 sale for a home in which they lived for an average of about nine years.

“The housing market can change a lot in 10 years, and you see that reflected in this top 10 list,” Zillow Chief Economist Dr. Svenja Gudell said in a news release. “Buying a home is one of the biggest financial decisions people will make in their lifetime, and it really paid off for sellers in these cities. Every city on this list has been growing extremely fast over the past decade, with the majority passing peak home value hit during the housing bubble. It’s extremely difficult to time the market, but if you’re a longtime homeowner in one of these cities, you could potentially see a great return on your investment.”

That ROI potential doesn’t appear to be slowing, especially in Seattle where home values rose 15.5 percent year over year. That figure makes the city the fastest growing on Zillow’s top 10 list, followed by Boston and Sacramento.

~Kurt Schlosser, GeekWire

U.S. Home Prices Surged in June, Led by Seattle

FILE - This Monday, July 10, 2017, file photo shows a house for sale, in North Andover, Mass. On Tuesday, Aug. 29, 2017, the Standard & Poor's/Case-Shiller 20-city home price index for June is released. (AP Photo/Elise Amendola, File)

(AP Photo/Elise Amendola, File)

U.S. home prices climbed higher in June with gains that are eclipsing income growth – creating affordability pressures for would-be buyers.

The Standard & Poor’s CoreLogic Case-Shiller 20-city home price index rose 5.7 percent in June, according to a Tuesday report. The separate national average rose as well, putting it 4.3 points above its housing bubble-era peak in July 2006.

The price increases are different from the bubble period, when subprime mortgages led to a housing bust. There is a shortage of properties for sale, causing the prices to steadily rise at more than double the pace of average hourly earnings. Buyers are also relying on historically low mortgage rates to ease the affordability pressures. Cheaper borrowing costs have kept buyer demand strong despite the price increases.

“Given current economic conditions and the tight housing market, an immediate reversal in home price trends appears unlikely,” said David Blitzer, chairman of the index committee at S&P Dow Jones Indices.

The largest price gain over the past year occurred in the Seattle metro area with a 13.4 percent increase year-over-year. Portland, Oregon and Dallas recorded sizable price growth.

But other metro areas are seeing a more tempered increase in home values.

Prices rose less than 4 percent in the more expensive New York City and Washington, DC markets. They increased just 2.9 percent in Cleveland and 3.2 percent in Chicago.

The National Association of Realtors said last week that the number of existing homes listed for sale has plummeted 9 percent over the past 12 months to 1.92 million. Because buyers are competing for fewer homes, the Realtor’s median sales price has surged 6.2 percent to $258,300.

Supporting demand have been relatively low mortgage rates.

The average 30-year fixed rate mortgage was 3.86 percent last week, according to mortgage buyer Freddie Mac. Average rates have declined in recent months, in line with Treasury bond yields, as uncertainty has surrounded President Donald Trump’s tax and infrastructure policies and their ability to stimulate faster economic growth.

~Josh Boak, Associated Press

Snohomish County home prices reach new high — again

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EVERETT — Housing prices continue to climb in Snohomish County reaching never-seen-before heights.

Median prices for houses and condos reached $430,000 for July, up from $385,000 for the same month a year ago, according to the Northwest Multiple Listing Services.

That’s an 11.7 percent increase year-over-year. It’s also a $10,000 increase on the same numbers in June, when the median price was $420,000.

“We should be entering the summer doldrums, but I don’t see that happening,” Diedre Haines, principal managing broker-south Snohomish County at Coldwell Banker Bain in Lynnwood, said in a statement.

The median price for closed sales for all homes surpassed $400,000 for the first time this year in April. Prices have been rising steadily ever since.

Last month, a news story in the Orange County Register in Anaheim, California, reported that Snohomish County trailed only King County in the nation for the shortest amount of time a home was on the market. The report citing numbers from Realtor.com said that houses sold in 20 days. Houses in King County sold in 19 days. Arapahoe County east of Denver came in third at 23 days.

Home prices vary greatly with location, with homes in south Snohomish County costing far more than homes in the north.

Almost all of the county saw double-digit price increases year-over-year. The biggest jump was for the Multiple Listing Service area along the U.S. 2 corridor. There, housing prices rose to $433,000, up from $322,475 a year ago, or a 34.3 percent increase.

The only listing service area that did not see a double-digit increase was the one around Edmonds and Mountlake Terrace in south Snohomish County. There, prices reached $470,000, up from $444,000 a year ago, or an increase of just under 6 percent.

The median prices for houses alone is $453,000 for all of the county. The median prices for condos is $323,475, according to the numbers released Monday.

One of the reasons for the climbing prices is a lack of inventory. Only 1,759 Snohomish County homes were on the market for July. That’s down 10.7 percent from the same month a year ago when there were 1,969 homes.

“Inventory remains low, but prices and demand continue to increase, prompting murmurs of a looming bubble,” Haines said, adding, “Some say yes, and just as many are saying no” when asked about the likelihood of a bubble.

In some areas, inventory is showing some signs of growth, Haines noted, but it’s still “way below what would be considered anywhere near normal. Frankly, I am not even sure anymore exactly what normal is — perhaps the current low inventory status is the new normal.”

~Jim Davis, Everett Herald Net

Six Ways to Rustle Up a Down Payment for a Home

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The down payment. It’s the only thing keeping you from a home of your own. You’ve got a good job, you’re paying down debt, and mortgage rates are still remarkably low. And rental rates are getting ridiculous.

Let’s see if we can break down this home buying barrier.

It doesn’t always take 20% down

If you’re a first-time home buyer, the down payment hurdle you have to clear may be quite a bit lower than you think. Traditionally, lenders have preferred 20% down, but a lot of low down payment options are available, especially to first-time buyers.

Mortgages guaranteed by the Federal Housing Administration, Department of Veterans Affairs or Agriculture Department can be go-to low down payment loans. In fact, mortgages backed by the VA and the USDA — for those who qualify — usually don’t require a down payment at all. A funding fee is charged on VA loans, but even that can be rolled into your monthly loan payment.

You could get an FHA-backed loan with as little as 3.5% down, but you’d have to pay mortgage insurance to help lenders defray the costs of loans that default.

Conventional loans, which aren’t backed by the government, also offer low down payment programs to first-time buyers. Down payments of just 3% are common. Some lenders will offer 0% down loans. Mortgage insurance will enter the picture here, too.

However, a lower down payment usually means you’ll pay a higher interest rate.

Crowdfunding a down payment

Crowdfunding is the ultimate dream for snagging sudden money from strangers, other than the lottery. It can be done, but there are some catches.

First, you’re not going to get this done on Kickstarter; personal fundraising isn’t allowed there. Sites like GoFundMe are best suited for hard-luck appeals like medical expenses for life-threatening diseases, so it’s unlikely you’ll get a lot of help there when you’re pitching to raise money for a mortgage down payment. But who knows?

FeatherTheNest.com might be an option to consider. It lets you build an online profile for a gift registry where contributions to your down payment can be funneled into a linked bank account. The service seems particularly suited for engaged couples and newlyweds. The transaction fees are pretty stout, though — totaling about 8% on each donation.

Family down payment gifts and loans

Getting help from family members might be another way to go.

Garrett Clayton, CEO of AmCap Mortgage in Houston, cautions that receiving a gift toward a down payment takes a “full circle” of documentation to satisfy a mortgage lender’s requirements. The donors will have to verify in writing not only that they made the gift but that they have the financial ability to make such a donation. That will require them to provide bank statements as proof, along with a letter confirming that the donation is a gift and not a loan.

“From a lender perspective, if it is something that will be required to be paid back, then we would need to take those terms of repayment into the calculation of the borrower’s [debt-to-income] ratio, to make sure they still qualify,” Clayton says.

However, while properly documented gifts are acceptable to lenders, you might not want to rely exclusively on the kindness of family members, he adds.

“We see that borrowers that have none of their own money in the transaction are way more likely to default on loans,” Clayton says. “I would much rather do a loan to a 600 FICO client that has 100% of their own down payment, versus a 780 client that is getting 100% [of their down payment as a] gift.”

State and local down payment assistance

Here’s a little-known source of down payment help: state and local assistance programs. Rob Chrane, CEO of Atlanta-based DownPaymentResource.com, says the service has identified close to 2,500 initiatives across the nation.

There are programs in every state, implemented by government agencies, nonprofits, foundations and even employers. Assistance can have a geographic focus as wide as the nation or as narrow as a city — all the way to hyperlocal initiatives targeted as tightly as neighborhoods, and even house by house.

Programs change often; they’re funded, defunded and sometimes funded again.

Often, it’s a matter of matching a property to a program, Chrane says, based on a home’s location and price. Assistance requirements typically set a maximum sale price for a county or other geographic definition. Obviously, these programs aren’t meant to help borrowers buy million-dollar homes or vacation properties, he says.

“There’s typically some maximum household income limit,” Chrane adds. That can vary by location, as well as the number of members in a household, he says. Even statewide programs will have income requirements that are often higher in metropolitan areas and lower in rural areas.

A 2016 study by Attom Data Solutions determined that the typical down payment assistance program benefit, calculated over the life of a loan, was $17,000. The total combined an average savings of nearly $6,000 on the down payment with over $11,000 in monthly house payment savings over the life of a loan.

Benefits can be layered. Chrane says users of the website who were eligible for assistance qualified for an average of eight programs last year.

“There are some myths and misperceptions around this,” Chrane says. “Sometimes people think, ‘Oh, this is only for really low-cost housing, in targeted census tracts, distressed neighborhoods…and very low-income households. It’s much more widely available than that.”

Tapping retirement accounts

If you have a retirement nest egg, you might be tempted to tap a portion of it to help with the down payment. Employer-sponsored 401(k) plans often allow for penalty-free hardship withdrawals or loans. But if you’re under 59½, you’ll pay income taxes and a 10% penalty on the withdrawal. And loans can trigger an immediate repayment — or taxes and a penalty — if you lose your job.

IRA withdrawals for home purchases are allowed, up to $10,000. Roth withdrawals are tax-free and without penalty if you’ve had the account for at least five years. Tapping a traditional IRA will trigger income taxes.

The most obvious strategy
There’s always the spend-less-than-you-earn-and-save-it strategy to building a down payment fund. Maybe a few savings tips can help you there.

More than likely, it may take a combination of strategies to get you into a home with a decent down payment — and still have a little left over to cover those unexpected homeownership expenses.

~Hal Bundrick, NerdWallet

King County home prices grow $100,000 in a year for first time; West Bellevue jumps 41 percent

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The median King County home price has grown more than $100,000 in just a year.

Following up on a record-breaking spring, the county’s real-estate market had its hottest month of July since such monthly records began in 2000, with prices rising 18.6 percent from a year ago.

The new median price is $658,000, or $103,000 more than last July, according to monthly data released Monday by the Northwest Multiple Listing Service.

Just a down payment on the median house costs about $20,000 more than a year ago. So first-time buyers who didn’t save up that much in the past year are further from buying a house today than they were a year ago.

 

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George Moorhead of Bentley Properties in Bothell said his office is working with 60 first-time homebuyers right now — and it’s been a struggle to find something for any of them.

“First-time homebuyers are really feeling the pinch. Some of them have been looking for a home for almost two years,” Moorhead said. “They have to keep going further and further out just to find something that’s worthwhile. It’s just slim pickings out there.”

Trade-up buyers are dealing with a similar crunch. One-third of homes across the region sold for at least $1 million this past month, according to John L. Scott Real Estate.

“Anything between $900,000 and $1.3 million, you’ll still find yourself in a multiple-offer situation — six to 10 offers,” said Lori Holden Scott, a John L. Scott broker who deals with pricier homes.

While prices have been going up for so long that increases might seem inevitable, this month’s surge is actually a bit unusual.

 

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Median prices in Seattle ($749,000) and the Eastside ($860,000) did dip slightly from June’s record highs. Both were still up about 15 percent from a year prior.

West Bellevue had the county’s biggest price jump — up 41 percent from a year ago, to a new median price of $2.3 million, the priciest region in the county. Areas that saw prices zoom up more than 20 percent in the past year include West Seattle, Sodo/Beacon Hill, Central Seattle/Capitol Hill, Shoreline, East Bellevue and Redmond.

Countywide, the annual price increase in July was the largest ever in terms of absolute numbers. But the 18.6 percent growth was a bit slower than in some previous months.

“I don’t think anything is slowing down,” said Laurie Way, a managing broker at Coldwell Banker Bain in Seattle.

Both Moorhead and Way think the market has to cool a bit eventually; it’s just unclear how long that will take.

The very-long-running trend of declining inventory continues, as fewer people put homes up for sale while those properties that do hit the market get snatched up in about a week, on average.

And Moorhead said more repeat buyers are choosing to rent out their old homes, banking on getting steady rental income while knowing they could sell the home later — perhaps at an even higher price. He said his last four homebuyers all rented out their old homes.

The number of homes for sale across King County dropped 18 percent from a year ago and is at the lowest point on record for this time of year. Sales were down slightly, as well.

One bright spot for buyers: Condos across the county cost a median 5.7 percent more than a year ago, the second-slowest growth in the past two years.

 

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Downtown Seattle, where condos are the only homebuying option, actually saw prices drop a tick from a year ago. Enumclaw was the only place where single-family-home prices decreased.

Elsewhere, Snohomish County surged to a record median price of $453,000, growing 11.9 percent from a year ago.

Both Pierce and Kitsap counties dipped a bit compared with last month’s record prices, but they still were up significantly from a year ago. Pierce’s median price is $312,000, up 9.6 percent from a year ago, while Kitsap reached $322,000, an extra 11 percent from this past year.

~Mike Rosenberg, Seattle Times

How Millennials Are Changing the Housing Market

 

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Today, younger Millennials are purchasing their first homes and older ones are already moving on to buying their second. Millennials are known as the generation that will buy a $200 pair of jeans after extensive research and trying on 67 different pairs to find the exact right ones. The way they shop for homes is no different.

This research-driven culture is supported by the internet where everything they could ever possibly want to know is right at their fingertips.

The most surprising thing about the way Millennials buy their homes is that they actually want a realtor to help guide them through the process, but that’s not the only generational shift here.

Millennials Want Everything To Be Just Right
Millennials consider owning their own home as an important part of living the American Dream. Unfortunately, thanks to stagnating wages and a sharp increase in student loan debt, saving for that down payment isn’t going to be easy. As a result, there isn’t much cash left over after closing to make any updates Millennials want, so they instead seek out homes that are fully updated and move in ready to begin with.

At the top of Millennials’ wish lists are updated kitchens and bathrooms, green features like solar panels, an open floor plan, a home office, a good location, and good Internet and cell service. Almost half of Millennials would rather buy a brand new house in order to avoid any maintenance issues that might occur early on. Only 11% of Millennials consider a home to be permanent anyway.

Eventually, Millennials plan to sell their starter home as 68% view it as a stepping stone to the home they really want and making improvements is not part of that plan. The average homeowner keeps their home for ten years, while the average Millennial only keeps their home for six years.

Some Things Remain the Same Regardless of Generation
When it comes to where Millennials want to live, the suburbs still reign supreme. Half of Millennials live in the suburbs and a surprisingly low 25% live in urban areas. Research shows Millennials want to live in a place that is close to work and close to things to do, and urban areas typically provide both of those things.

Four out of five adults between the ages of 18 and 25 live outside of the urban core of a city, which indicates an even stronger shift toward the suburbs. Still, they want to be close to work to save on commute times and travel expenses, and 65% choose the location of their home based on how far it is to work.

Why Should Sellers Cater To Millennial Home Buyers?
Of all first-time home buyers, Millennials make up 66%, and they are 34% of home buyers overall. Over 66% plan to purchase a new home within the next 5 years. That’s a huge generational shift in real estate. Millennials are better informed about their options than probably any other generation before them.

In short, if you aren’t catering to this generation’s enormous buying potential you’re probably going to be missing out on a lot of opportunities. If you are considering selling your home:

Make All Necessary Repairs and Upgrades Before Listing
Consider updating kitchens and baths – these have always sold homes, but now they are more important than ever
Do an energy efficiency audit and make upgrades anywhere you can, including solar panels
Consider upgrading any old appliances
Install smart home features like programmable thermostats
Millennials do hours of online research just to buy a sweater, so they are naturally going to do even more research when it comes to buying a home. More than three-quarters of Millennial home buyers drove by a home because of photos and listings they found online, and over 60% did walkthroughs because of these listings.

Getting the information in front of them is key, and making sure you highlight relevant features is crucial.

Millennials Now Hold Massive Buying Power
Millennials hold a lot of buying power in today’s real estate market, but many are using their parents to close the deal. According to top performing Denver realtor, Denise Fisher, this makes for an interesting family dynamic with clients that she doesn’t see with other generations:

“One thing real estate agents must adapt to when working with Millennials is dealing with two sets of buyers for the same home. The millennial is usually the one that researches the home online but when it comes to the showing and buying, more and more parents are getting involved in the process. Millennials are frequently getting their down payment or the whole mortgage from their parents so when they are looking it’s a family affair. While the Millennial is my main client, I will often be talking to the parents through the transaction and while showing houses I’ll have 2 carloads of a family to walk through a house. They often have different tastes and ideas for the ideal home. This adds a new element to the sale for realtors.”

Millennials are quickly changing the face of real estate. Gone are the days of only seeing what your Realtor wants to show you. Gone are the days of the glorified fixer upper and the weekend warrior. Millennials are busy working their side hustle anyway. New homes and already fixed up homes are the ones that are going to be moving on the real estate market, an ode to the buying power of the Millennial generation.

Learn more about what Millennials want in a new home from this infographic from Nationwide Mortgages. Much like baby boomers changed the real estate market to shape the suburbs, Millennials are just now starting to make their mark.  Millenials in the Real Estate Market

 

~John White, Social Marketing Solutions

Another Record Month for the East Side Market

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It was another month of record-setting home prices in June as the area yet again took the prize for the hottest real estate market in the country. In a bright spot for buyers, the number of new listings added in June was the highest total for any single month since May 2008. While inventory is still low, the pace of sales is slowing and the number of multiple offers are down, suggesting that we may soon see a slight reprieve from the last year of rapid-fire growth.

For the full report see: East Side Market Review

More Homebuyers Making Offers Without Seeing Property in Person

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The hot housing markets in Seattle and others like it across the U.S. are leading more homebuyers to bypass the traditional concept of actually seeing, in person, the place they’re looking to buy and live in.

A new survey and report from Seattle-based real estate company Redfin reveals some of the trends being set by a new generation of homebuyers looking for ways to get ahead in the ultra-competitive landscape. The report details such things as how affordability was leading to adjustments in where to look; how political views of potential neighbors might affect the search process; what impact immigration restrictions have on Arab, Asian and Latino survey respondents; and the impact of rising mortgage rates.

But we were most intrigued by the fact that a third of homebuyers who bought a home in the last year said they made an offer on a home without first seeing it in person. Redfin says that’s up from 19 percent last year and from 21 percent two years ago. Millennials lead the charge here, with 41 percent saying they had done so.

Redfin site unseen offers

In Seattle the number is a little lower than the national average, with 22 percent making an offer site unseen. Redfin says the percentage of those willing to buy without looking tends to rise as the median home price rises. The median in the Seattle area last May was $510,000, while San Francisco, for instance, had a median price of $1,290,000 and 35 percent made an offer site unseen. Here’s the survey breakdown:
  • Home price less than $250,000 – 19.5 percent made an offer site unseen
  • Home price $250,000-$499,999 – 24.2 percent made an offer site unseen
  • Home price $500,000-$749,999 – 41.2 percent made an offer site unseen
  • Home price $750,000 – $999,999 – 51.8 percent made an offer site unseen
  • Home price $1 million plus – 58.3 percent made an offer site unseen

But it’s not like these offers are being made with no clue whatsoever about what a house looks like. Obviously there are plenty of ways to view photographs and video tours online, and now 3D photography, including Redfin’s 3D Walkthrough, lets people virtually walk through Redfin listings.

Seattle-based Zillow has also added more technology to speed the process with the test launch last month of Instant Offers, in which home sellers can avoid traditional hassles and sell more quickly.

~Kurt Schlosser, Geekwire

Some unmarried couples co-buying homes as housing prices soar

According to the Northwest MLS, between 2011 and 2016, home prices in Pierce County rose 29%.  Prices rose 38% in Snohomish County and 38% in King County.  In 2011, the median home price was $340,000, but it jumped to $548,000 in 2016.cobuy-neighborhood

Experts say those soaring prices are why we’re starting to see a growing trend of unmarried couples buying homes together.  It’s called co-buying.

This isn’t about love or romance but all about finances.  Relatives, friends, or groups of people are now deciding to buy a property together largely because they can’t afford a space on their own.

Stats from Zillow show people aren’t waiting for marriage to get a mortgage.  In Seattle, young unmarried couples buying homes together jumped to 14% in the last nine years.  At the same time, single people buying homes alone dropped three percent.

It’s dinner time at the Neufeld house in Lake City.  Their new construction homes offers top-notch amenities.  The journey there started ten years ago when the Neufelds moved to Seattle from Winnipeg with an idea for community on a budget.  Shortly after, they met the Linds.

“We were here for about a year in conversation with them and others living together with other unrelated adults,” said Jonathan Neufeld.

Back in 2008, the Linds and Neufelds in the basement with a separate entrance.

“The idea of sharing the mortgage payment was a huge asset and splitting all the utilities made for a very, very affordable footprint for those years we were living together,” said Neufeld.

Living together in a co-buying relationship and it continues to grow in popularity in Seattle as the growing housing costs soar out-of-budget for many.

“Necessity has been the main driver of the co-buying experience,” said Owner/Broker at Infiniti Real Estate and Development Eva Otto knows firsthand after co-buying with her brother years ago.

“We had a lifetime of trust built up between us and we knew that we both wanted to make a real estate investment so we did it together,” said Otto.

Otto joined a panel of experts at this informational session for website GoCoBuy.com  Co-founder Matt Holmes says you can co-buy on your own.  He started this site to streamline the process, answer common questions, and provide contacts of certified experts who know how to help co-buyers.

“People can log-on, build consensus, be connected with a lender. Eventually be connected with a real estate agent who can quarterback them through the process,” said GoCoBuy.com Co-founder Matt Holmes.

It takes you step-by-step from interested buyer to homeowner.  People at all stages were at this informational session including Microsoft Aaron Malveaux.

“I always thought two married people would buy a home together. I never thought unmarried people or just groups of friends could buy homes together,” said potential co-buyer Aaron Malveaux.

That possibility could be Malveaux’s reality as the native Texan gets used to the sticker shock in Seattle.

“Literally homes in Houston cost a fraction of what they cost in Seattle,” said Malveaux.

According to Zillow, the average home in Houston costs.  Less than half of the price of an average home in Seattle.  So the idea of co-buying…

“This is definitely a great option for me,” said Malveaux.

But Holmes insists money should be the only concern.  GoCoBuy.com poses more challenging and uncomfortable questions for potential co-buyers.

“How do you pay? Do you have a joint bank account? What happens if somebody wants to leave,” said Holmes.

On the site, potential buyers can answer all of those questions up front before they face challenges.

“What happens if you breakup, what happens if one of you decides to move, what happens if one of you dies?” asked Otto.

Those answers then turn into a legally binding contract.

“Having a written agreement in place, not so you can take your buddy to court, but so you have this understanding,” said Holmes.

Jonathan Neufeld says they didn’t discuss all the possible outcomes, but had the finances spelled out.

“We would have had the financial documents which described who had what share in the investment in the property itself,” said Neufeld.

They lived together in this home for six years before deciding to redevelop the property.

“Subdividing the original property into four separate properties so that everybody has their own house, it’s all legally titled to their own house,” said Neufeld.

Eva Otto is their realtor and says what the Neufelds and Linds did is the perfect co-buying long-term plan.  She says more problems arise when people co-buy single family homes and there’s no clear divide on space or ownership.

“Buying a duplex with your friend, living there for three to five years, and the tearing that duplex down and building two separate single family homes and subdividing that lot,” said Otto.

Neufeld says he appreciates their original co-buying agreement that helped them save money to build their dream property.

“We have a place we can afford in a community that we love,” said Neufeld.

~Nadia Romero

Should You Pay Off Your Student Loan or Buy a Home?

Group of college students sitting in the library and using wireless technology. Man is using digital tablet while women are using cell phone. The view is through glass.

If you’re still paying off your student loans, does it make sense to buy a house before you’ve paid off your debt?

“Getting into a home can be a good way to build savings and to pay yourself rather than paying someone else for the cost of your housing,” says Matt Ribe, senior director of legislative affairs and corporate secretary for the National Foundation for Credit Counseling. “[But] given the interest rates that are typically associated with student loans, it’s not unreasonable to want to prioritize paying those when you’re just starting out.”

The bottom line? Limit your debt to what you can afford to pay. Here are some questions to ask yourself before making this important decision:

What’s the Interest Rate on Your Student Loans?

“Typically, subsidized government loans are in the 6.5 – 7% range,” says Ribe. “Private loans can be even higher. Even with refinanced loans, you’d be extremely lucky to get less than 5%.” The higher your interest rate, the greater your incentive to pay off your loans before you buy a home.

Are You Making Progress on Paying Down Your Loans?

“It’s possible with some of the income-driven student loan repayment plans to achieve a very low monthly payment,” Ribe says. “But if that payment is not covering the amount of interest that’s accruing every month, then you’re not making progress on repaying your student loan, which means you may have longer-term affordability issues. Don’t conflate your [lower] monthly student loan payment with room in your budget without doing a more thorough analysis.”

What’s Your Debt-to-Income Ratio?

To qualify for a mortgage, your debt-to-income ratio (DTI) should be less than 43%, but many experts recommend it be no higher than 36%. The lower your DTI, the lower the stress of monthly payments.

If your DTI exceeds 43%, focus on paying down your student loans and other debt before pursuing homeownership. “Credit card balances typically have the highest interest rates,” Ribe says, “so we certainly advocate paying those down first.”

Do you have a rainy-day fund?

Experts recommend you have at least three to six months’ worth of expenses put aside in the event of an emergency. As a homeowner, you’ll also want savings to cover inevitable repairs.

“The total cost of a home is much greater than your monthly payment,” says Ribe. “There are some maintenance and homeownership costs, mortgage insurance, property taxes, etc. … so make sure you have some money set aside after you cover your down payment to take care of those types of contingencies.”

If your monthly student loan payments are standing in the way of your ability to build a hefty rainy-day fund, consider holding off on a home purchase until your cash reserves can adequately cover repairs and other emergencies.

Are You Contributing to Your Retirement?

Purchasing a house may be a personal goal and may even be a good investment, but don’t let it completely replace your retirement savings. If your employer is matching your contribution, at a minimum you should be contributing at least as much as your employer match annually to ensure you aren’t leaving free money on the table.

Remember that contributions to your retirement account in your 20s provide far higher returns than those made in your 40s. That said, once you’ve covered your employer match, it may make sense for you to buy a home or pay off high-interest student loans instead of investing more in your retirement account. That will depend on your income, tax bracket, investment returns and other personal factors.

How’s Your Credit Score?

The best mortgage rates go to buyers with excellent credit scores (above 740). But if your score is below 680, you may be better off waiting to buy a home until you have a chance to improve it.

Paying your student loans on time each month and never missing payments helps you earn a better credit score. Student loans also add to your credit mix of installment and revolving loans, which can have a small beneficial impact on your credit score, according to FICO.

When you pay off your student loans in full, it helps lower your DTI, but your credit score may dip slightly if you don’t have another installment loan in good standing on the books. In this scenario, to keep a good mix of credit after your loans are paid off, you might consider applying for credit in the form of a mortgage – if your financial circumstances allow. If not, focus on paying down your other debt and getting your credit utilization below 30% on each account.

Can You Get a Good Mortgage Rate?

Usually, getting the most favorable mortgage terms requires 20% down, but not always. “There are a number of first-time homebuyer mortgage products that are attractive in terms of being able to purchase a home with a low down payment at a good rate,” says Ribe. Just make sure you plan to stay in the home long enough to build some equity.

If you can’t get a good mortgage rate, your focus should be on paying down your student loans and shrinking your DTI. This could increase your chances of getting a better rate when you finally apply for a home loan.

Do You Plan to Live in the Home for the Foreseeable Future?

The longer you plan to own a home, the greater your chances of building equity. If you aren’t quite sure where you want to settle down or envision a job transfer out of the area, for example, it may be best to wait.

“Anything less than five years, you’re going to want to rethink your options,” Ribe says. So, if there’s a pretty good chance you’ll move soon, focus on paying off your student loans.

In the end, choosing whether to pay off your student loans before buying a house is both a financial and personal decision. “There’s no one-size solution that fits everyone, so I encourage people thinking about this to speak with an expert counselor,” advises Ribe. You can find a counselor through the National Foundation for Credit Counseling website.

~Mary Purcell