Don’t let yourself ignore the important lesson of knowing what you “can afford” when buying a new home. That is why getting pre-approved through a bank, credit union or mortgage broker is not only a good idea, but a great idea. Knowing what you can afford before you start looking at homes will allow you to search in your price range and not fall in love with a home that you can’t purchase. At The Jim Allen Group, we recommend pre-approval to our clients so that they not only learn what they can afford, but to also get a better idea of their credit score and if there are credit issues that need fixing prior to making a home purchase.

What is the Difference between Pre-approval and Pre-qualification?

You may hear the terms pre-approval and pre-qualification and think they are they same, however, they vastly differ. Pre-qualification is different from pre-approval because a lender typically will not review your credit report when pre-qualifying. Thus, pre-approval provides better bargaining power since it is a solid commitment from the lender on what they will loan you, rather than an estimate. One important fact is that there may be a fee associated with pre-approval so be sure to ask in advance. Also inquire as to whether you have to pay the fee in the event your application is denied.

The Pre-Approval Process

If you are considering purchasing a home, it is a wise decision to get pre-approved. Ask others whom have already gone through the home buying process for recommendations of a lender or if you are working with a real estate agent, they may have some great resources to consider. You don’t have to go with the first lender you talk with. Shop around as many lenders offer different loan terms and its important that you are comfortable with whomever you choose.

Each lender has specific requirements on what you need however,  most likely they will ask for the following items to complete the process:

1. Proof of Income: pay stubs for the past 3 months and your most recent W-2 Tax form; if you are self-employed you may need your tax returns from the past 2 years, business-related receipts and invoices, financial statements and a copy of your business license (if applicable).

2. List of Assets: material possessions such as a home, car, boat or large ticket items and liquid assets such as cash, stocks and bonds. If you have loans associated with these items, its important to provide the details (lender, account #’s, amount).

3. Bank Statements: recent bank statements to verify that you have available money for a down payment, and to ensure the absence of large deposits from non-employment sources such as gifts or loans (from friends or family members). You will most likely be required to bring bank statements from up to the last six months showing deposits, withdrawals and consistent transactions of funds.

4. Credit Report: the lender will get approval from you to pull your credit report/s. These reports will include your FICO score which will provide the lender an idea of your credit history and your credit risk. Your credit score is important as higher numbers will deliver better loan terms (lower interests rate). Review these reports to determine if there are any inaccurate details and if necessary, get these fixed to improve your score.

Once all the appropriate information is submitted, the lender will be able to determine how much they are “willing” to lend you. The rule of thumb for determining what you can afford to borrow is based on your debt-to-income ration (what you owe and how much you make) and taking into account your credit history and also your down payment.  Lenders will then give you a pre-approval letter based on how much they are willing to lend you and that provides a buyer the knowledge that you have the funds available to purchase their home.  Also important to know is how long the pre-approval letter is good for. Typically they are good for 90 – 120 days which means, you can safely purchase a home within the determined time frame without having to go through the process again. Each lender may have a different scenario, so always get the facts.

What’s Next?

With pre-approval in hand, you can now enjoy your home search knowing exactly what you can afford without over-spending! With home prices more realistic and interest rates at historical lows, you should be comfortable with your decision for years to come!

Allen says sales of new construction are returning to pre-recession paces. With the last several months showing impressive signs of a recovery, inventory  levels lower than they have been in years and interest rates still historically low, the real estate market is more of a “Sellers-Market” than the “Buyers-Market” of the past several years.

Check out the interview with Jim Allen and Jeremy Salemson, CEO of Corporate Investors Mortgage Group on WRAL.com.

What Are Your Thoughts About the Direction of the Raleigh Real Estate Market?

Leave a comment below and tell us what you think.

Budge Husky, President & COO Coldwell Banker Real Estate LLC, Jim Allen and Jim GillespieCEO of Coldwell Banker Real Estate LLC

The Jim Allen Group has been ranked #6 in North America for teams in Adjusted Gross Commission Income and #4 in North America for teams in Total Units Sold for the Coldwell Banker® System in 2011. These awards were presented at the Generation Blue Experience in New Orleans, LA among thousands of Coldwell Banker real estate professionals.

Established in 1983 and  comprised of 17 Buyers Agents, office staff, and Jim Allen, the agency generates 100% of its sales from the Triangle, Wake, Franklin and Granville counties. Jim Allen has the unique distinction of being the #1 Agent in the Triangle since 1996. The group has won numerous accolades and awards including being ranked the #1 Coldwell Banker Real Estate Team in the Carolina’s; REALTrends and The Wall Street Journal The Thousands List 2011 as #64 Real Estate Team in the US; and Coldwell Banker’s International President’s Premier award.

“The Jim Allen Group and Jim Allen’s extensive knowledge and understanding of the overall real estate industry and Raleigh, NC and surrounding communities personify the success embodied by the Eagle’s Ledge Statuette and ranking among the top 10 nationally,” says Jim Gillespie, chief executive officer of Coldwell Banker Real Estate LLC. “It’s this type of attention to detail and dedication that have defined the Coldwell Banker brand for over 100 years, and with The Jim Allen Group, will continue for years to come.”
Although the housing market has been stressed for several years, there are many signs of improvements. The Raleigh/Durham real estate market is strong and continues to show growth in homes sales and the stabilization of home prices. Interests rates are at historical lows however, the stringent policies and approval process is making home buying a complicated process. With inventory levels coming down, promising results will show growth in the near future. These results may be subtle, but continual.

TLMS Data of Closed Home Sales by Month and Year from 2007 to 2011

The graph to the left reveals that June is historically the busiest month (with the exception of 2009 where July had 50 more sales) and January is the slowest, with a few exceptions. Even at the peak of home sales in 2006, it is the inventory levels that drive sales and home prices. An abundance of inventory provides for a buyers market and likewise for a sellers market with not enough inventory. We may not see the number of homes sales on a monthly or yearly basis of 2006 or 2007 however, based on current inventory levels and market activity, we will see that the decline of sales will level off and show much improvement. This will provide for a healthier market where home prices will remain steady. Note that in the last 6 months of 2011, there has been constant growth in home transactions as compared to 2010. All but December has produced double digit increases. This is the bright spot in a gloomy market. I believe this trend will continue and our activity in the first weeks of January are showing positive results.

The next graph shows just the closed transactions for Wake County. Similar to the pattern of all of Triangle transactions, the largest decline was between 2007 & 2008. Also important is that the same growth over the past 6 months shows double digit increases with the exception of December which posted an 8% gain.

As the growth of Wake County continues to prosper and the market begins to rebound, it is important to understand inventory levels. Inventory levels pertain to the number of available homes in the specific markets (new construction vs. re-sale) and  price points. Any price point that has an inventory of under 5 months is an Extreme Seller’s Market. Any price point that has an inventory of 5+ to 8 months supply is a Good Seller’s Market. Any price point that has an inventory greater than 8 months is a Buyer’s Market. Currently, in Wake County much of the landscape is a Seller’s market with only the price range of $475,ooo to $500,000 of Re-Sales Listings showing a 10.5 month inventory. So, next time you hear that the real estate market in weak – look at the facts and figures and know that growth is happening. Get ready for a HOT spring market in Wake County and surrounding communities. Here at The Jim Allen Group, optimism is abundant and we are excited about the new year and  selling some houses!

Wake County Transactions based on Monthly and Yearly Activity since 2006. Data from TMLS

Wake Forest, Area 14 - Inventory Levels by Price Point & Type

The event was an opportunity for local area realtors to visit the neighborhood and experience the charm and amenities offered. With expansive lot sizes, unique home plans and styles and a planned playground, pool and clubhouse, this is a wonderful neighborhood at a great price point.

Tri County Parade of Homes Awards

At the end of the tour, guests enjoyed a delicious array of appetizers, beer and wine and the opportunity to win an iPad and Cash Prizes. The grand prize winner of the iPad was Keith Weaver of Coldwell Banker HPW and Cash Prize winners included: Jane Mansell of Sensational Realty, Kay Lavelle of Allen Tate, Allison Coudell of Re/MAX Preferred and Missy Robbins of Baily Wright.

Two of the five homes won Silver Awards from the Tri-County Parade. The five homes included:

• 280 Plantation Drive, Lot #10 – Built by MBC Homes, LLC – SILVER WINNER
• 236 Plantation Drive, Lot #96 – Built by  Sumner Construction – SILVER WINNER
• 21 Larkspur Court, Lot #24 ­– Built by Brandywine Homes, Inc.
• 225 Plantation Drive, Lot # 43 – Built by Grant Construction, Inc.
• 149 Meadowrue Lane, Lot #72 – Built by MBC Homes, LLC

You can visit Winston Ridge located off US-1 N/ Capital Blvd.; Turn left on Hwy 96 and the neighborhood is .5 miles ahead, on your right. Homes are Energy Star and offer 100% Finance to qualified buyers.

Tri-County Parade of Homes Builder Team

The Tri-County Parade of Homes encompasses Franklin, Granville and Vance counties and runs until the 15th of October. This year the parade had 35 entries and The Jim Allen Group represented 17 of those. The neighborhoods include: Ashton Meadows, Hawthorne, Rivers Edge, Stoneridge, Winston Ridge, Woodcroft and Woodford. The custom builders of these fine homes are partners with The Jim Allen Group and are among the finest in the area.

On Wednesday night, there was a banquet held at Green Hill Country Club in Louisburg where all winners were announced. There where 8 categories determined by price point and within each category, a Gold, Silver and Bronze Award was given. We are thrilled to announce that a majority of our of our 17 entries won an award!

We serve the finest group of new home builders and appreciate the opportunity to partner with such outstanding group! Here is a list of our building partners:
Lawrence Homes, McDuffie Custom Homes, Pinnacle Custom Homes, Foxwood Builders, Inc., Sumner Construction, Satterwhite Construction, NRV Homes, LLC, Grayson Homes, MBC Homes LLC, Brandywine Homes, Grant Construction, Inc., Sawyer Homes, Matt Baldwin Homes, LLC, Ross Construction and Imperial Custom Homes.

HAWTHORNE: 681 Juliette Court, Lot # 118 Built by Pinnacle Custom Homes

ASHTON MEADOWS: 80 Cranbrooke Drive, Lot #20 Built by Satterwhite Construction

STONERIDGE: 145 Siltstone Drive, Lot 62 Built by Grayson Homes

WOODFORD: 20 Banbury Road, Lot #17 Built by Ross Construction

HAWTHORNE: 3047 East Bay Court, Lot #128   Built by Sumner Construction

RIVERS EDGE: 220 Rivers Edge Drive, Lot #56 Built by NRV Homes, LLC

WINSTON RIDGE: 280 Plantation Drive, Lot #10  Built by MBC Homes, LLC

WINSTON RIDGE: 236 Plantation Drive, Lot #96 Built by Sumner Construction, Inc.

WOODFORD: 65 Middleton Drive, Lot #48 Built by Imperial Custom Homes

HAWTHORNE: 669 Albin Place, Lot # 26 Built by Lawrence Homes

HAWTHORNE: 3042 East Bay Court, Lot #116 Built by McDuffie Custom Homes

WOODCROFT: 20 Ardmore Court, Lot #242 Built by Sawyer Homes, Inc.

Despite these facts, homeownership rates have taken a hit since the recession in 2009. Falling home prices along with reduced access to credit has kept many would-be buyers from entering the market. According to Morgan Stanley, the current homeownership rate is around 59.2%. This is lowest rate since the Census Bureau began tracking in 1965. Has this reduction been a fear-based one?

Here are the top five benefits of homeownership that have not changed, even in a down economy:

1. Savings:  long-term homeownership is still a way to get big savings.
2. Tax Breaks: Many homeowners are still able to take the mortgage interest deduction (MID) each year, along with great rebates and credits associated with upgrades made to your home.
3. Equity: When you pay a landlord, it’s money down the drain. When you pay on a mortgage, you are paying towards owning a piece of something. You may still owe $100,000, but perhaps the home is worth $200,000. This means you have $100,000 worth of equity you’ve built up over time.
4. Budgeting: Unless you live in a rent-controlled apartment, then each lease renewal could mean a jump in prices. A fixed-rate mortgage, however, means your monthly payment is the same amount for the life of the loan. A $1,000 a month payment on a 30-year mortgage is the same now as it will be in 30 years!
5. Security: When you own, it’s yours. You can paint, improve, and decorate. Most homeowners are in neighborhoods with other homeowners, meaning more time to build relationships and friendships. Recent studies have also shown that homeowners rank themselves as healthier than their renter counterparts.

Should you rent or buy? Each person or couple need to do their home work, figure out the advantages and disadvantages as they pertain to them. Look at the long-term goals and stability of your jobs. Research rental fees and availability and compare to the cost of owning a home. Location is important in both decisions but look into the resale of a home and getting out of a lease.

Experts have recommended for years that if you’re planning on staying put for 5+ years, buying becomes an increasingly better deal. You have time to recoup any extra expenses found in closing costs and are now making an investment in your future through home price appreciation. Home affordability is at near record highs. Now is a good time to run the numbers and see if buying makes good financial sense. If it does, then you’re in store for a wealth of benefits that only homeowners can experience.

Recently, new regulations have been established that provide a more defined and clear picture of closing costs that you can expect to pay. As a rule, home buyers can expect to pay closing costs that are equivalent to about 5 percent of their loan amount. This is fees that are in addition too the down payment.

It is no surprise that the Good Faith Estimate is exactly that – an estimate of costs. This paperwork describes the closing fees associated with your mortgage loan and can include: lender related fees, taxes, stamps and processing. You must receive this within 3-days of your close.  In addition, there may be the inspection, appraisal and lawyer fees included in the Good Faith Estimate. In January of 2010, the government implemented restriction and made it illegal for these estimated costs to rise more than 10 percent of what is stated on the Good Faith Estimate.

Costs that cannot change include points, loan origination fees (once the loan is locked) and transfer taxes. Fees that may increase but no more than 10%, include title related services and recording fees, title services not required by the lender, home owner’s insurance and escrow deposits.

It is important to ask questions if something doesn’t make sense. Understand what it is you are paying for and its your right to request clarification on any fees associated with your loan. The more you know – the smoother the process will be. If after you close on your home and realize that a mistake has been made – you have the ability to have the error rectified, especially if you have been overcharged.

If your new to the home buying process, ask friends and relatives for advise and referrals to a good lender. Meet with the lender prior to making an offer on a  home – it’s best to know the important facts and figures of getting a loan before you need one. Don’t get surprised with extra costs or issues at the closing. If you have a good lender – they will assist you through the process.

Right now, interest rates are at record low percentages which makes buying a home a perfect opportunity. Make sure you do your homework and meet with lenders to find out what you qualify for, what to expect and to establish a good relationship with someone you can trust. Then make sure you have a realtor whom will work with you to find the perfect home!

“We have some of our members that are saying they’re having the best year they’ve had in many years,” said Heather Crews with the North Carolina Home Builders Association. “Some people are still struggling.”

Crews says it really does come down to price and location. Other factors like falling foreclosure rates and continued low-interest rates should yield higher builder confidence.

“I think a good description of our builders would be cautiously optimistic,” said Crews.

Home Builder Magazine listed Fayetteville as the state’s only questionable housing market. The All-America City has seen a decline in new housing permits from 2010, but continues to see growth.