1.) Understanding the Mortgage Market
Many are swayed from starting the home search process because of the unknown. During and after the recession, many were turned away from getting the mortgage they so desperately wanted. They have many questions but, don’t know where to go to get the right answers. So many of them just simply give up and continue renting. Well, the tide has changed and many young buyers are now being approved for home loans. Now it is easier than ever to get into the housing market and purchase the home of your dreams. As many can attest, the mortgage market can be confusing because many do not understand its structure and how it works. Many others do not understand the actual process involved. Then there are others that have no idea where to begin. Many of those vital questions can be answered by a lending professional at Nationwide Home Loans. We are expert in home loans including FHA home loans and can offer many opportunities to educate others on what should be done to get started on the process. Knowing what is involved in the process is a good first step to take. Before you get started here are a few things you may need to know to get you off on the right foot.
2.) What It Takes to Get Approved
Knowing the structure of a mortgage loan can help you to understand what your lender may be telling you to do. Without that information, what the lender may be telling you can be meaningless. First, know the difference between conforming and non-conforming loans. These terms are used to explain underwriting guidelines set by Fannie Mae and Freddie Mac which are created by the federal government and operate under the Federal Housing Finance Agency. Know that non-conforming loans are risky for lenders and have high-interest rates and fees. This type of loan is usually meant to purchase high priced properties. However, a loan can be non-conforming for reasons like a low credit score, high loan to income ratios and possibly lack of income verification. It is best to know your credit score beforehand to know where you stand. This can all be explained in detail by an NHL lending professional. Once you know the fundamental types of mortgage loans, including FHA Loans, you are better able to find the best loan for you based on current rates, fees and the best mortgage terms that fit you and your situation. This will help you to understand the mysteries of a mortgage.
3.) When Should You Apply for a Mortgage?
As stated before, make sure your credit is in order first. You want to get your credit score on the higher end. Pull your credit reports and take stock of what it has to tell you about your credit past and clean it up. You want your credit to be as flawless as you can get it. Next, once you get that credit history in order, keep it there. Do not let anyone pull your credit. Paying everything on time will help too. And, whatever you do, do not apply for new credit and do not close any account you can pay down to zero. Making other large purchases is not recommended as well as carrying a balance on any revolving account that is more than 25% of the card’s limit. If you do have a card as such, pay the balance off or below the 25% and do it when the bill arrives. Another tip is, open a separate bank account to save your down payment funds. Make sure it is dedicated to only your down payment. Lastly, if you follow the aforementioned steps, your mortgage application process will be less of a pain and will not feel like everyone is being so intrusive into your personal business.
4.) Where Should You Apply for a Mortgage?
Get to know who the best mortgage lenders are. Here at NHL Lending, we have the expertise you need to get started on your lending process and give you the support that could get you prime mortgage rates. We are the best first step in your home search process. The information we can give you is vital in making sure you are ready for all that is coming your way. We can also make the process a bit more palatable and give you more of an upper hand in choosing the right mortgage rate for you.
5.) Should You Get Pre-Approval?
And lastly, Pre-Approval. Should you, or shouldn’t you? That is a question that is asked by many because they have no idea if pre-approval will help or hurt any strides they have already made towards the purchase of their new home. Really, Pre-Approval is an evaluation to determine if the borrower qualifies for a loan. It is not to be confused with pre-qualification which is an informal meeting with your lender and give them information about your assets, your income, and liabilities. Based on the information you give them your lender will be able to give you an estimate of how much money you can borrow. It is not a sure thing as pre-approval involves more in-depth investigation. In a pre-approval, it is more formal when meeting with the lender. You will be asked to complete the official mortgage application, probably pay an application fee and then give the lender the official documents to perform an extensive check of your financial past and current credit rating. From the pre-approval, you will find out how much mortgage you are approved for and possibly find out the interest rate you will be charged on the loan. In the end, the pre-approval process will get you closer to the actual loan and speed up the home purchase process.
6.) Make sure your income is sufficient
It’s going to be your dream home. It’s going to be your lifetime home. With that being said, know what you want in your new home. Right now, you believe there is no reason not to get what you want. Or is there? From the moment you begin to look for your dream home, you dream about buying the largest and most modern home in the neighborhood. However, you may want to check your reality at your new front door, especially if you are a young home buyer. The fact is, your actual budget may be more prepared to get you a three bedroom, one and a half bath cottage starter home with the unfinished basement. Now think about your current income situation. Are you ready and able to fund the purchase of cottage without financing? If the answer is no, then it would be wise to likely rethink your plans and probably go back to the drawing board and reconsider your plans. According to Realtor Home Buyer and Seller Generational Trends Report, there were 88% of home buyers that had to finance their home. 97% of the younger generation needed approval for a mortgage. A lender will look closely at the income of potential borrowers just to make sure they can afford the loans. By verifying income, they can get a better view of what you can or cannot afford. It may be your luck or lack thereof to get a lender that have stricter policies than other lenders. Due to past financial crises and increased government regulations across the housing market, it is not surprising that lenders are being more cautious about their lending practices. When contacting a potential lender, just simply cut to the chase and secure a list of the items this lender would need. These items could include,
- Purchase contracts.
- Individual taxpayer identification and/or Social Security number.
- Current home address and any previous residences over two years.
- Names, account numbers, and current balances of checking, savings, retirement, and credit card accounts.
- Your bank’s address.
- Past three months’ checking and savings account statements.
- Income verification statements like pay stubs, W-2’s and/or proof of employment.
- Past two years’ Federal income-tax returns.
- Proof of any additional income you received.
- Balance sheets and tax returns especially if you are self-employed.
- Canceled checks showing your payment history of rent and utility bills.
- Documentation of any other consumer debts.
- If family members or organizations are helping you cover the cost, it is best to have a gift letter stating the money is a gift and will not need to be repaid.
Keep in mind, it is to your advantage to get this documentation to the lender as soon as you can. Not doing so can delay the underwriting process for months. Getting into your dream home can come in the blink of an eye. But in order to do so, you must do as much financial prep work as possible.
7.) Calculate your monthly debt obligations
Take a close examination of what your finances look like at present and get your future financial ducks in a row. Many may wonder how much that dream house is really going to cost. Some others are surprised when they find out how much home they can really afford. Your cost can be determined by your current monthly debt payments and the current interest rate. If you want just a general idea, you can use one of many online calculators that use standard ratios. But in the end, it will be up to you to determine how much money you would be comfortable with adding to your budget. Also, keep in mind that a monthly mortgage payment could possibly change based on the type of loan you get. In addition, consider the current interest rate and other additional costs such as homeowner’s insurance, property taxes, and HOA fees if applicable. While you’re at it, toss in the cost of maintenance and repairs. Think about it, will you have any funds left over for an emergency fund? So, have you really planned for increases that may come your way in the future? One last question. Could have a sizeable mortgage get in the way of other future savings such as your retirement or a child’s college fund? There is quite a bit to consider, isn’t it? Do your homework before you go to that lender for pre-approval. Know your credit score, how much you can afford, and have the information you will need to prove it.
Also, know your debt-to-income ratio (DTI). It is an important factor in getting approved for a mortgage. The DTI will show your ability to both afford and pay back a loan. You can’t totally rely on A FICO score. It may tell the lender about your past, but it says nothing about the present. A DTI ratio can assist lenders in measuring your ability to afford a monthly mortgage payment. How is it calculated? The DTI is calculated by dividing your total recurring monthly debt by your gross monthly income. Take for example, if your monthly debts equal $1,000 and your gross monthly income is $4,000, your debt-to-income ratio is $1,000 / $4,000 = .25 or 25%. Typically, you will not qualify for a loan if you have a DTI ratio greater than 43%. This is when it is best to work on reducing your monthly recurring debt before applying for a loan.
8.) After loan approval, how long does it take to close on a house?
When homeowners were asked what part of the home purchase process kept them on pins and needles, the larger majority of them said “closing date”. They did not want anything to delay that happy day. After a mortgage loan has been given its final approval, the closing can happen quickly thereafter. It can generally take a week after mortgage approval, just enough time for the lender to assemble the loan closing packet. Many times the buyers and sellers can just simply agree on a closing date. Most times they agree to close within 30 days. Keep in mind, that many mortgage lenders will want a home appraisal before they give their final loan approval. Problems with the borrower’s finances or a home appraisal can delay the closing date. From time to time, missed closing dates happen and must be rescheduled. In this case, purchase agreements may contain specific language about closing date timelines and what must be done in the case of a missed closing date. Mortgage lenders want to assure closing dates happen as scheduled so that they can fund and close their loans.
9.) Pre-Approval for a mortgage – What is the process
Pre-approval is the first important step in the home purchase process. Your documentation in the process will typically consist of,
- Proof of Income
These documents will include, but may not be limited to:
- Thirty days of pay stubs that show current income and year-to-date income
- Two years of federal tax returns
- Sixty days or a quarterly bank statement showing asset accounts that includes your checking, savings, and any investment accounts
- Two years of W-2 statements
- Any additional income from alimony or bonuses.
All your assets could be under scrutiny, so be ready to provide documentation of what you have. Have in hand those present bank statements and investment account statements to prove that you have funds for the down payment and closing costs on the residence, as well as cash reserves. If you receive money from a friend or relative to assist with the down payment, you will need gift letters which certify that these are not loans and have not required or obligatory repayment. These letters will often need to be notarized.
Most lenders agree that if you want the lowest interest rates, a credit score of 740 or above is the charm. Anything below that, a borrower may have to pay more in interest or pay in additional discount points to lower the rate. To get an FHA loan, most lenders require a credit score of 620 or above to approve especially if you want to qualify for a 3.5% down payment. However, borrowers with a credit score below 580 would need to make a larger down payment of 10%. Lenders will often work with borrowers with a low credit score and suggest ways they can improve it.
Your lender will want to see your pay stubs and will likely call your employer to verify that you are still employed and to check on your salary. If you changed jobs recently, a lender may want to contact your previous employer. Lenders today want to make sure they are loaning only to borrowers with a stable work history. If you are Self-employed, borrowers will need to provide additional paperwork concerning their business and their income.
Lastly, the lender will need to copy your driver’s license or state ID and your Social Security number and your signature allowing the lender to pull a credit report. Be prepared for the pre-approval session and later to provide any additional paperwork requested by the lender. The more documentation you have, the easier the mortgage process will be.
10.) Are Pre-approvals a guarantee?
After you go through so much to make this dream happen, only to find out that you did not get the loan. However, there is a common misconception that many first-time home buyers have that a pre-approval letter guarantees that they will get financing. They seem to miss the keyword “might”. Pre-approval is really a preliminary look at a borrower’s livelihood to determine how much of a loan they “might” be able to borrow. Although pre-approval is helpful in getting the attention of all involved like the real estate agents and the sellers, it will also give you an advantage over other potential home buyers who did not get pre-approval. But it is not a guarantee of a loan
11.) How do you get pre-approved?
During pre-approval, the lender will check your credit and verify your financial and employment situation. With this information, the lender can determine your ability to qualify for a mortgage and approves a specific loan amount tailored just for you. It is a formal process that can get very involved. During the beginning of this process, you will complete a mortgage application, pay the application fee and then give the lender all your necessary documents needed to check into your financial background and your current credit rating. With this information, the lender can tell you the mortgage amount you will be approved for and the interest rate you will be given on the loan. Pre-approval means the lender is sure and convinced that you have the ability to make the necessary down payment and an income that can sufficiently cover mortgage payments and household bills. There is one concern that remains and that is of the lender making certain that the home must be appraised for an amount more than or equal to the purchase price.
12.) Finding Your Perfect Home – Walking Through the White Picket Fence
The moment you’ve been waiting for has finally arrived and you can finally see happiness at your doorstep. With the help of your lending professional Nationwide Home Loans, you were able to see your loan options, get prime mortgage rates and pre-approval was a snap. This morning you woke up on the sunny side of the street, ready to tackle the next obstacle. According to your lending professional, finding that home that speaks volumes about who you are is the fun part. You know how much you can borrow and you know that this will determine how much you can truly spend on that home. You have that wonderful pre-approval letter in hand and the potential sellers can now officially see that you are a serious home shopper with money in hand.
13.) House Shopping, Wish List versus Reality Check
You want a big back deck for those endless cookouts, but he wants that precious man-cave for the big pool table. What could be a cause for dissension between husband and wife can be solved by looking at what you’ve got to spend. A house with both wish list items could be beyond your budget and you may have to settle for a nice backyard and a patio set. He may have to give in and accept an unfinished basement and a dart board. Face it, what you really need to understand is knowing the difference between what you want and what you can live with right now. Sure, you can have that deck built on later, much later. That unfinished basement can still become that dream man cave. With some hubby sweat, equity, and a few DIY videos, in time, that pool table will find a spot. You will soon find it necessary to revise the wish list and find your reality list. Your budget for buying your new home may not allow you to purchase the house that has everything you want, but you could most likely find the perfect house that has everything you need. Decide what you cannot live without. Could it be a window in every room, hardwood floors, no carpeting, a kitchen with an island for more counter space or at least 3 bathrooms? You can find these items easily when you use your reality list. Wait! Don’t put the wish list in the trash yet. You can still have what you want from your wish list, just have it in due time. Your dream home can still be your future dream home with these tips. Think of it as making that home truly fit your style. Home is where the heart is and you can find your heart within your budget.
14.) The Convenience of Shopping for Your Dream Home Online
Many start their home search online after learning essential home buying facts. Searching online is great for those that are unfamiliar with the desired community in which they wish to move into. We all know that one of the biggest home purchase reasons is its location. Online, you have access to every possible source of information concerning that property that you probably would not have access to otherwise. There is a plethora of information available about the area such as schools, crime statistics, and tax bracket. For the most part, searching for a home online can save time, money and footwork. Can you imagine how long it would take for you to physically visit every house with a sign in front before you would get to the perfect house for you? Online there is so much information available to you in one place and space that it can actually make your home search the fun activity it is supposed to be. It can be fast and give you many details about a home that is important to you. Not only are you able to view pictures of every room inside the home, there are now virtual walkthroughs that give you a turn-by-turn, bird’s eye view of the home. You are able to map out neighborhoods, parks, proximity to work and most importantly purchase price. Many sites now show you pricing trends and approximate monthly mortgage cost. How nice it is to use the tools the website may provide to determine your monthly budget if you were to purchase that particular home. You are also able to set variables in searchable databases so that you will automatically receive notifications when homes fitting the criteria you are searching for. Computer technology has come a long way and now it can be one of your best tools in finding the home you desire without an enormous amount of effort.
15.) The Real Estate Agent – Your Guide in the Right Direction
Some that start out searching for their new home may begin the search on their own. Many wonder why they need a Real Estate Agent. Simply put, the Real Estate Agent is your representation through the home search and purchase process and can help you avoid bad decisions. There are other things to understand about your Real Estate Agent as well. A professional real estate agent has the education, training and experience necessary to guide you and assist you in choosing the right home to fit within your budget. They help make the process palatable, understandable and practical. Most importantly, they help you in the decision process so that you won’t make regrettable choices. Your real estate agent typically knows the neighborhoods where the properties are located and can give you candid information about each. They are there to make comparisons, provide you additional information on schools, crime statistics and demographic details. Your real estate agent is your price guide and negotiator. If you want to know what price similar homes are selling for, your agent will have that information available. Knowing what the current market conditions are could give you the information you need to make the best decision about your purchase. Because your agent will have a track record of professional networking and therefore know which vendors will have a reliable and professional reputation. These are vendors whose services may come in handy during your purchase process. Just as your lending professional at NHL, your real estate agent will be by your side through closing. They all want to make sure that the purchase of your new home is complete and the white picket fence is yours.
16.) Finding the Perfect House in the Perfect Location, Searching Using Map-Based Queries
How many times have you been simply just driving around and come across a house with a sign in the yard. Have you ever looked at it, looked around the neighborhood and thought that this would be the perfect house just because of its location? Now fast forward a few years and you’ve finally decided that it is time for you to purchase your first home. Now, where do you want that home to be located? Would you be happy to be near schools, the city center, have the walkability to grocery stores or parks? If the area is new to you, searching your desired location using map-based queries such as Google Maps “Lifewire” is a great way to get started on your home purchase adventure.
When in doubt you can always just drive around or possibly get that exercise while walking through endless neighborhoods. However, if all of that twisting and turning is not your cup of tea and you want a quick and fast way to locate that home of your dreams, then a home search website may be better suited for you. Try using a home search website such as Trulia or Zillow. With the assistance of these websites, you will be able to,
- Personalize your home search. Imagine the possibilities of your dream home. By keying in your preferences, you can narrow down the type of home you are looking for from a condo or cottage to a ranch or townhome.
- Make more precise choices concerning your home floor plan. Whether you want two bedrooms and one bathroom or six bedrooms and 4 bathrooms, it is all up to you.
- What makes these websites so much better than doing the footwork or the driving is the ability to focus in on the precise neighborhoods, schools, stores and parks that fit you. Even if you wish to live out your life as a pedestrian, these websites can help you find the home where the sidewalk will come right up to your front door.
17.) Getting ideas about neighborhoods that fall within your price range
Someone once said, “Not all neighborhoods are exactly what you are looking for. Great house, wrong price.” Thinking about it that way can put a damper on the search for that perfect house that you were hoping for. Many may have been looking for that perfect house for quite a while. Some for maybe a year or more. But the home they want could possibly materialize in the neighborhood they don’t want. However, the neighborhood they do want will not give the house they can afford. A limited income will lower pre-approval amounts, limiting their options for an affordable home in the neighborhoods they desire. But keep in mind, one of the first basics of purchasing a home is loving and knowing your desired location. Getting the chance to purchase that perfect home that has all the amenities you could ever want in the neighborhood that provides all the luxuries you could ever want can be tricky.
But what should you do? Which should you truly buy for? The house or the neighborhood? Online website, Apartment Therapy give these tips,
- The best first thing to do is to go and physically visit the communities that appeal to you. Take the time to walk around the area on the weekend and go shopping at the local grocery store. Play pretend. Act like you already live in the neighborhood. Look for the things that are important to you and see if they are there. Do you want public transportation? The ability to walk to the stores and restaurants from your front door? Is there a local park for the kids? How close are the schools? Now think it out and consider how did the atmosphere feel to you?
- Go online and do some research on the cost of the available homes for sale in the area. How are they priced? Are they affordable for you? Are you financially able and ready to purchase a home in this community? If it all feels right to you and think you are ready to move forward, your next step is to get real estate agent representation to help you ascertain your best financing options.
- Get all of your paperwork ducks in a row and be prepared. In the meantime continue to look at homes online, visit open houses and continue to figure out your finances. Get your pre-approval done, so that when that home in your desired community happens to come available, you will not hesitate in grabbing the opportunity right away. Don’t let even a few hours cost you the chance to get the home of your dreams in the neighborhood you desire.
18.) Putting together a list of properties you want to see in person
There is an art form to the Open House. According to U.S. News and World Report, an Open House is an important part of the home purchase process to all buyers. Here is where you get to make so many preferential home buying decisions. To many, they may feel like a kid in a candy store when they are visiting an open house. There is so much to see and consider. The larger the house is, the more overwhelming the visit can be. However, learning to pace yourself can take the “over” out of the “whelming” and open house visits can be pleasurable and relaxed.
By taking the following measures to prepare you for personally looking at properties, will ensure that you will get the biggest benefits from home visitations.
- Go online and find the date and time of the open houses in your desired neighborhoods.
- Go check out the neighborhood. Make yourself familiar with this neighborhood, taking close note of the adjacent properties, especially those that are up for sale nearby.
- Visit the homes on your list, being sure to take your time. Open doors, open cabinets and write down any questions concerning the property you may have. But take heed, when asking the listing agent these questions, it is best NOT to share details such as your timeline, mortgage approval or how much you are in love with the home. You would not want to compromise any power you may have later to negotiate.
- Tell the agent you are simply browsing. Make it a no-pressure “look-see”.
- If you already have an agent, feel free to bring them along. Why not keep everyone on the same page. If there is any real talking to be done, allow your agent to speak to the listing agent on your behalf.
Purchasing a new home can be one of the most stressful purchases you could make over your lifetime. By making the right decisions during the process, everything could go completely right. Before you know it, you will be at the closing and keys in hand. By not following through, making quick and potentially wrong decisions, you could delay your closing thus making the process a nightmare. Last month we covered home location, your ideal neighborhood and the beauty of the Open House. This month we will look at steps you can take to make sure you get the home you desire without putting yourself through too much anxiety. These are steps such as proposing questions, property information search, time on market and listing nuances. Below we will clarify these steps to make the home buying process even easier and more concise.
19.) Before you view a property, put together a list of questions to ask the agent on site.
Viewing a property that you are interested in can give you a vision of how it would be to live in that home. You can walk through and imagine yourself flowing through that open floorplan every day and how it would feel to cook in a new spacious kitchen. Just imagine, in a few months to a year, this home or one like it could be all yours. It even has the hardwood floors you’ve been looking for. But there’s more, lots more. Well, at least you should be asking more. That is why having a list of key questions when you walk through the door is important. And remember, no question is a silly question except for the one that is not asked. If your questions can not be answered, feel free to do a deeper investigation on your own before you proceed further into the purchase of this home. Try these questions out for size, to begin with:
- What is the sale’s history of this home?
You want to know when was the last time this house was sold, why was it sold if possible and how much did the current owners pay for it provided there are current owners. If the person showing the home can’t answer these questions, the answers can easily be found on the MLS listing. This is “must know” information so that you are better able to make decisions concerning the offer you are about to make.
- What major renovations and additions did the sellers make?
When you know how much money the seller put into the home, it gives you an idea of how much they could possibly expect to get out of this sale. Be aware, you do not have to assume that you will have to pay out the amount they put in.
- How much are the property taxes?
This is a question that you should know upfront and foremost. The answer can also be found on the MLS listing. But never be afraid to ask. Since the property tax is based on a percentage of the value of the house, it could affect your purchase price. Why wait to find out there is an additional expense that could affect your budget?
- Where there any past broken pipes, sewer backups or roof leaks and the age of the current roof?
You really want to know about these. What happened in their past, could be a view of your future. You want to know how extensive were the repairs. With this information, you can give your inspector a heads up to look deeply into these situations. You would like to know ahead of time how soon you might need to fork over a substantial amount of cash for repair and replacements.
- What “Unusual” history does the house have?
If that question sounds strange, it really isn’t. The home could have a past history of being used as a movie filming location to being the scene of a deadly crime. Although the owners are legally bound to disclose this information in many states, you would not want to take the chance that you are in a state where they can legally let this little tidbit of information pass you by. You would want to know if the house you’ve fallen in love with has a history of being haunted or paranormally branded. Considering you still want the house after you are made aware, knowing these details could give you a little more negotiating power.
20.) Do your own homework and search for information on the property.
When working with an agent, it is the agent that can find out much of the realty information on the property. But you can also take your own initiative and research this information on your own. Much of it can be found on the MLS. A property record search can give you so many valuable details about the home that you can use when making an offer and in writing the purchase contract. Also, know that property record searches will show matters of public record and can show you how long the owner owned the property and whether the home is in foreclosure. These public records are usually kept at the county courthouse or city hall. If you are computer savvy, go to the internet. Many county offices simply keep these records online. Even more, you can go to other websites such as Realtor.com, Zillow or Trulia to get additional information on this property.
21.) When you want to know how many times the home has been on the market.
“It has been on the market for how long? So, what’s wrong with it?” Yes, that’s the question typically asked when a property has been on the market for a long time. But you never know, maybe the real estate market in that area is slow. After you’ve done your work making sure the property itself it in sound condition, the fact that the property has been on the market for a substantial amount of time may give you, the potential buyer, more negotiating power. If you want to go ahead and purchase the home, go with a low offer because, by that time, the seller might be desperate to sell it and accept your offer.
22.) Has this property been withdrawn from the market and put back on as a new listing?
A property may spend many days listed on the market. Some buyers may think this is because something is wrong with the home and that’s why others have passed it up. This can lead to many buyers thinking that the seller is now desperate to give it up. These buyers could be wrong on both assumptions. Most times, homes may linger longer than the average days on market because of:
- Overpricing, because the agent’s listing misled the seller to believe that the home was worth more than the market.
- Making a seller’s worst mistake, testing the market by pricing high to see if there is really a buyer out there willing to pay that price.
- Unsuitable to show, when the seller places the home on the market before they are ready to let buyers see it.
However, the most typical reason is a practice by agents of relisting a property to reset the days on the market. They will withdraw a listing from MLS after a number of days have gone by and then relist it all over again as a new listing. They know that this will typically draw in buyers who usually only want to see new listings. Sure, it may seem misleading, but believe it or not it is not unusual for that property to sell within five days after being put back on as a new listing. Also, there are times when listings just simply expire. Then a new agent acquired by the seller can swoop in and relist the property as a new listing and get the rewards of a sale.
When purchasing that first home there must be a lot of thought put into the process. Your thoughts and decisions are important from the moment you decide that purchasing is right for you to the moment you paint that first wall after you move in. Although human nature comes with the territory, purchasing your first home can be emotional and require a great deal of logic. In addition, there are external factors that may influence how we purchase that new home. Just as we typically purchase many things in our lives from food to clothing, a high percentage of these . Many would believe that purchasing a home would be a more deliberate action than impulsive. But as we will see, that can be very much far from the truth. When there is so much on the table and much more to consider, it is important first and foremost to do your research. It will help you to stay focused. This way, you are able to remain rational by validating and verifying the information on homes that you see.
23.) Buying a House Based on Emotion Just Might Break Your Heart
June Cotte, a Marketing Instructor at the UWO’s Ivey School of Business, states that the price, square footage and location can all be trumped by the instinctive reaction to seeing a home. The subliminal effect of smells, colors and sounds can have an influence on your decision-making process. It is best to know ahead of time how emotion and logic can affect your decisions will help you in the home purchase process. It can help you to alleviate the stress that may accompany the process. That way, you will feel more in control and have a better home purchase experience. The mental, and sometimes internal struggle of emotion and logic is very common amongst those that have embarked on what is supposed to be a very happy time in their lives. It is important to say that if you happen to leave emotion or logic unchecked, they can critically complicate the home purchase process. In the end, it could leave you with . When purchasing that home, it is best to try and stay rational. Try not to let expectations, fears or desires for status to influence you.
24.) Sleeper Costs – What are They?
Finally closing on that new home and holding those keys in your hand is a happy moment for everyone. You’ve gone through all the toils of the home purchase process, from qualifying for the loan to actually putting in the key and walking through your front door for the first time. This is a grand and auspicious occasion. Now, to get all of your things from the old place to the new. Are you going to reserve a moving company or will you do it yourself? But wait, will you get a few friends over first to help paint the rooms or will you contract a painter? The lawn is bare, will you DIY or hire the landscaping company the realtor suggested? Now, the final question. Did you make room in your budget for these and other potential expenses? These additional expenses are called “”. These are the expenses that are typically not thought about during the home purchase process. With so many greater things to consider during the purchase process, many of these additional expenditures tend to go by the wayside. That is until you realize they are truly a necessity. Do you want to be prepared for them? Be sure to budget for them before and during the home purchase process.
25.) Border Dispute – Has the Property Been Surveyed?
Your new home. Your own personal space of solace, rest and relaxation. It all belongs to you. Or does it? Do you really know where your property boundary lines are? Will adding in the new fence you are planning in the near future encroach on the property of your neighbor? Did the shed your neighbor put up last week go over the boundary into your yard? How do you find out where your boundaries are? You seek out the expertise of a . The surveyor is the person to call to complete that professional survey for the placement of the lines between your property and your neighbor’s. It is not always immediately apparent where these lines truly are physically in accordance with courthouse plat records. Getting a boundary line certification will tell you whether or not the legal description of your property is accurate. Even when you want to build that addition of a second story to the back of your home, requires the skill of a surveyor.
When you need to know the laws of your local ordinance regarding height and dimension of home improvements, a surveyor will advise you of any potential violations of current law.
26.) Differentiate Yourself from Other Buyers, Make an Offer Close To or Above the List Price
Some would think that the potential buyer that makes the highest offer is the one that will ultimately get the home. Many times that may be true, but in many ways, it is not. The price can be a big part of the equation. However, terms and conditions are just as and possibly more important. To win on just the selling price, make your bid as compelling as you can by offering flexibility in regard to the seller’s needs. Provided you have gotten as much information on the seller as possible, use this information to your advantage. Knowing that the seller just bought a new place, they may need quick escrow. Go ahead and give it to them. Move that inspection up so that it can be done as soon as the offer is accepted. Another tip is to have a very professional realtor. You want one that can present your offer in person, presenting a typed contract and pre-approval letter from the lender. Also, don’t forget the cover letter presenting you as the buyer. Go ahead and sign any disclosures prior to making your offer. Show the seller that you are a serious and that is ready to move forward if the seller chooses you.
Last month we focused on the home purchase process and how your emotions can play a big part in your choice of home. We also took a look at how the choices we make can affect not only the price we pay but also the neighborhood we choose to live in. This month, we will cover what is probably the most important factor when it comes to the home purchase process, funding the purchase.
Buying a home can be an expensive endeavor. At times, it can become downright complicated. No matter who you ask, no one person can give you an exact answer of how much money should you be prepared to have on hand for the expenses that go along with purchasing a home. You can simply go online and conduct research. You will find many available options and ideas for saving the money you will need to move forward in the process. Let’s face it. We need money to purchase a home. Even the most-savvy person that is very familiar with the home purchase process will tell you that it is very hard to prepare for expenses associated with purchasing a home. The initial challenge for everyone is preparing to save the amount of cash needed. You can have the concept of purchasing a home in mind, but not have enough cash in the bank to pay the earnest money or the down payment. It can become a hindrance to many who do not have those funds at hand. It can even cause others to give up their dream of purchasing a home altogether. However take heart, there are ways that can help the potential home buyer and give them the will to continue to pursue the dream of owning a home.
The first thing you must do when you consider purchasing a home is to be prepared. Building a savings plan may not be easy, but in the long run, it will be to your advantage. The road to home ownership may end up being a bit bumpy. That still does not mean you will not be able to do it, it just means that you will have to do a bit of extra work to make it happen. That entails getting your funds and funding sources together and ready for any eventualities that may occur. Again, preparation is key. Because you expect to incur fees during standard real estate transactions, here are some tips that could be valuable. To begin with, talk with your real estate agent and find out what costs will be covered by the seller. If so, that is where you may be able to glean a bit of saving. Also, consider that another portion of fees could possibly be rolled into your mortgage. You can speak to your lender about this being another source for paying your fees. You should expect to pay some common expenses that occur for every home purchase.
- Earnest money is customarily 1 to 3% of the offer price and becomes part of your down payment once the offer is accepted.
- The amount of your down payment will be determined by the type of loan you get and the lender. You can expect to pay from 3.5 to 20% down.
- Getting a home inspection can cost in a range from $300 to $500. Keep in mind, the cost of a typical home inspection will vary depending on the location, square footage and any additional evaluations needed.
- Closing costs are typically due on the day of closing and can include such items as attorney fees, tax payments, title and mortgage processing fees. The amount you pay varies on the price of the home. Experts recommend that you budget 2 to 5% of your purchase price.
Depending on your lender, there could be the requirement to have cash reserves. You cash reserves should amount to a total of roughly 2 to 6 months of mortgage payments.
28.) Do you really want to save for that home?
Many people wonder how they can save for a home while in the meantime, “life” continues to happen. Consulting with a in advance of making any changes that could impact your credit or bank balances would be the best first step. However, there are three sure and true steps that you can follow for saving for that home and all the purchase expenses that accompany it.
- Tracking your spending. It may be hard at first, but setting up a monthly budget will help you to visually see where your money is being spent. It allows for “in your face expenditures” that you would not otherwise see. With that, you can adjust your spending and streamline it to save money and not make unnecessary purchases. Once a week, take the time to look at your purchases and how much they cost you. Think about were these purchases really worth it? Was there something you purchased that you could have done without? In time, the process will become easier and a part of your daily living.
- Setting your goals. Keep your eye on the prize. Take a look at how much you already have in savings. Now, what is the ideal amount you would like to have to purchase that home and what is your timeline to get it all saved? The next thing is a comparison. How much money do you have left over after you’ve paid all your expenses? Are your savings on the mark? If not, maybe you should consider extending your timeline thus reducing your monthly savings amount.
- Look for ways to reduce your expenses. Sure we all hate to do it. But remember your goal. That beautiful home that is now yours. There are always things that you can cut back on. Maybe it is housing expenses. Do you really need cable right now? There are many things that you can cut back on temporarily. Sure cooking is not your favorite thing. Instead of eating out every night, cook a quick and simple meal six nights a week and only reserve one weekend night a week for that special restaurant meal. Think of it as a reward for being so diligent through the week. This will help you get one more step closer to your goal of the home of your dreams.
Take the time to follow these steps and you will be much better for it. In the end, you will pick up improved spending habits that will not only help you now, but you can also use to accomplish other savings goals such as your retirement fund.
Our discussion in March detailed the nuances of finding the best financing for your big investment, your new home. Without the proper financing, you would not be able to consider the possibilities of home ownership.There is much that goes into the process of purchasing a home and much of it can change from day to day and week to week. What was needed to qualify for a loan last year may have changed this year.
can fluctuate at the blink of an eye and if you’re not prepared for every eventuality, you could miss out on the home of your dreams. After finding the right financing for your new home, taking the time to do your research about the mortgage and closing process will help to make the steps to home purchase simpler.
This month, we will cover the next topic in the series which questions the length of time required to process and close a mortgage.
29.) How long does it take to process and close a mortgage?
There is no standard span of time that it should take to process and close a mortgage. Every home buyer’s situation is different. Depending on how prepared they are, their process could move quickly or drag on slowly. The time it takes to close a mortgage loan also varies with the type of mortgage and the efficiency of the lender. It is best to assume that the typical mortgage loan can take four to six weeks to close from the date the application is completed. The most important key is for you to have a completed application as soon as possible. It must be said that certain loans could require a longer period to reach closing.
You can estimate a the day your application is complete. Some people think simply submitting a mortgage application is sufficient. It is not complete until you submit it and it is accompanied with income verification, two recent pay stubs and the past two years’ tax returns, and any other documentation your lender needs. In addition, they will want up to six months of bank statements from your primary banks, proof of down payment cash, purchase agreement, and a letter of explanation for any negative items on your credit report. Now, this is the point in the process where you can get ready to hurry up and wait.
Know that any loan not given by or insured by the U.S. government is called a . These mortgages typically take from three to four weeks for an easy refinance loan to six weeks for what is called a “purchase without problems” loan. Your mortgage lender need only to order and analyze your credit report and receive a completed appraisal without problems. Next, they must verify the availability of your down payment funds to issue an approval. This may take one to two weeks. Once you accept the loan, the lender sends your file to a closing agent/ attorney, escrow or title company, so that they can search the title and prepare closing documents. These closing documents include notes, deeds and disclosures.
When a is the loan you’ve qualified for, it may take a bit longer to get to closing. You may be looking at a time span of eight weeks. But take heart, because in recent years, FHA has improved the process and can often close on loans as quickly as conventional mortgages. Previously extra time resulted because FHA does not make loans. They only insure the loan amount that your lender approves. Now because of the improvements in technology, it allows for FHA approvals to move faster.
Just like the FHA, the does not make direct mortgages. They insure the loans from others. What used to be a tedious and time-consuming process are now ready for closing in six to seven weeks. Keep in mind, just like the FHA process, there are the required income verification documents. You will also need to submit a Certificate of Eligibility, obtained from the VA, indicating your period of military service, separation date and type of discharge. You also have the convenience of downloading the required eligibility form from the internet to further speed up this process.
Attention to detail is the best advice to give. There is always the chance that there will be delays in processing when there is missing information. While the three major mortgage categories: conventional, FHA and VA may require around the same time to reach closing, missing information and an incomplete application can delay the process. Be proactive and pay close attention as your approvals progress and ask questions when you encounter delays. If your lender asks you for additional documents, like a letter of explanation, don’t delay in your response. Try your very best to respond immediately and ask them what is the quickest way to deliver the information to them. Don’t allow yourself to sabotage your own process. Mortgage lenders want to close loans quickly. They need completed applications to make final approval decisions. Incomplete applications are useless to them and it also can waste precious time. It takes extra time that they do not have to bring the process to a halt and contact you to request more information. You can imagine what happens next. They put your application aside while waiting for the requested documentation to arrive. As your paperwork sits, your information can quickly become stale and outdated. This could require a refresh or additional processing, slowing the process even further and putting off a closing date.
As you can see, timing is everything. Timing can play to your advantage or to your detriment if you are not attentive to the process itself. Leaving out the smallest of details can take what should be a positive experience and leave you with the worst of negative connotations. Paying close attention to detail and making sure all line items are completely filled out on the application and all documents are submitted in a timely manner is key to the quickest closing possible.
You’re still trying to get financing to purchase your new home. You are antsy and can’t wait till closing day comes and every piece of your world and belongings have been moved in. For the most part, you want everything to go as planned. That feeling of enjoying the new place is so close you can touch it, but yet too far away to attain it. is the one hold–out and you still have a few questions you would like to ask a mortgage broker to make sure you make the right decisions about getting a loan. You have options, but not all options are the best of ideas. Let’s take a close look at three of those mortgage lending ideas to see if any of them could be a viable option.
30.) Should I Borrow from My 401(k) to Obtain a Mortgage?
What do you think would be the biggest hinderance in purchasing a home? Of course, many would say obtaining the . However, the truth is, obtaining the funding for a down payment is the biggest obstacle to purchasing a home. Let’s face it. More times than not, credit scores are not “perfect” or high enough. In addition, it always seems that as the months and years go by, home values climb. When you combine these two factors, no matter how much money you put into your savings, it is never enough because the down payment amount grows. But wait, there is one more thing you’ve forgotten. Closing costs. Just go ahead and add on another several thousand in closing costs to the 10% down payment you are trying to raise. How are your chances of purchasing that home looking now? You so desperately want your new home and visiting other options seem plausible. So, what can you do? The same as other buyers who choose to borrow from their . Before your do, here are a few facts to know when you want to borrow from your 401(k) retirement plan in order buy a home.
First, know what a 401(k) is. It is a special retirement plan for U.S. employees, sponsored by an employer. As an employee, you are allowed to make pre-tax contributions to an investment plan. Pay less taxes by investing in your 401(k) plan. But keep in mind, taxes are paid on the 401(k) at the time of withdrawal. Now, if you are borrowing this money from your 401(k), just know that there could be some reasons why this would not be a good idea.
- Borrow that 10%, but pay back much more. During the time your 401(k) loan is outstanding you will not be able to make full contributions to your existing retirement plan. How would you like to miss out on nearly five years of contributions?
- You will not get any matching contributions from your employer.
- Leave the company on your own or get fired, and you will have 60 days to pay back every cent of the loan. Don’t make that repayment, the amount becomes taxable and subject to a 10% tax.
So, in essence borrowing from your 401(k) to purchase your home is a long-term risk.
Why take such a risk? There are other programs that you utilize in your quest to get down payment funding such as 7 low-downpayment programs available to today’s home buyers. Nearly all are backed by the U.S. government, too, which means that they’re not going away soon.
- The VA loan (Department of Veterans Affairs) allows 100% financing
- The FHA loan (Federal Housing Administration) allows a 3.5% downpayment
- The FHFA, which runs Fannie Mae and Freddie Mac, requires just 5% down
- The HomeReady™ program (Fannie Mae) requires just 3% downpayment
- The Conventional 97 loan (Fannie Mae) allows 3% down
- The USDA loan (U.S. Department of Agriculture) requires 0% down
- The Good Neighbor Next Door program (HUD) allows for a $100 down
The bottom line is, when you borrow from a 401(k), you put yourself at risk. When you consider other options to purchase a home with less than 20% down, there is little need to borrow from a 401(k).
31.) Should I Take Out an Interest-Only Mortgage?
To answer that question, you must first understand what an “Interest-Only Mortgage” is comprised of. In an , the borrower only pays the interest on the mortgage through monthly payments for a term that is fixed on an interest–only mortgage loan. The term is usually between 5 and 7 years. After the term is over, many refinance their homes, make a lump sum payment, or they begin paying off the principal of the loan. There are advantages of an Interest Only loan such as,
- Affordability during the term as monthly payments are typically low.
- If the borrower chooses, by qualifying for a larger loan amount later on, they can purchase a larger home.
- Because you keep more money in your pockets, you can take that money and invest it to build net worth.
- For a mortgage up to $750,000 and throughout the interest only mortgage term, the entire amount of your monthly payments are tax deductible.
Sounds good doesn’t it? But wait! Before you go out and start making plans for this type of mortgage, consider the . Take a look at what could possibly happen that would prevent this from being the solution you hoped it would be.
- An adjustable rate mortgage in conjunction with rising mortgage rates would increase risks.
- Those that lack money management skills would spend the extra money gained instead of investing it.
- Those that lack discipline find that they are unable to afford the principal payments when the time comes.
- Who knows what the future holds? Who can say for sure what their income will be in a few years. What if it does not grow as quickly as you imagined it would?
Again, the future could be troublesome if the home does not appreciate as fast as you thought it would.
Keep in mind, all that glitters is not always gold. Do your homework before considering an Interest-Only Mortgage. Make sure it is right for you and that you are sure about your future before diving in.
32.) Interest Versus Principal – Here’s How It Works
Do you know the difference between your interest and your ? It is really not hard to understand. You know that mortgage payment you make on your home? It is primarily determined by the size and term of the entire mortgage loan. It makes sense that the larger the loan the larger your monthly payment will be. However, if the term of the loan is longer, your monthly mortgage payment will be smaller. Now consider that mortgage payment. Some of it will be towards paying off the principal amount of the loan and the other part of it will pay the interest amount to the lender. The higher the interest rate, the higher the mortgage payment will be. Take a look at that interest rate. Do you know that the interest rate you receive will be determined by current mortgage rates plus your riskiness to the lender? Also, having a high credit score and a low debt to income ratio becomes a positive to the lenders. So, having a high credit score is a good thing for you in order to get the best mortgage rate.
Your lender will calculate the per payment as a percentage of the amount of your outstanding principal. If you really want to know how much of each of your payments will go toward your interest, try dividing your interest rate by the number of payments you will make every year. Take that number and multiply it by your outstanding principal. Know that in the first few years of your mortgage, it will be comprised of more interest. There will be less principal as you continue to pay interest on the entire loan.
So, there you are. A bit more understanding of the home purchase process. Owning a home can be a happy opportunity. But there is a great amount of responsibility to know where your money goes and how it affects your livelihood throughout the term of your loan. It would be to your advantage to understand every expense and know how long it will take to finance and pay off your new investment.
For our next addition, we will discuss more about the home buying process.
When you are ready to purchase a home, it is a guarantee you will have questions about the . This is especially true if this is the first home. For many people the most puzzling part of the home purchase process is obtaining funding. The bottom line is, it all comes down to money. It can be a matter of how much money do you have at your disposal right now versus how much money you need to get from a lender. The or you get is dependent on so many factors. Without the help of a knowledgeable lender, you could find yourself sinking into the abyss of uncertainty. No one wants to go through a process that is supposed to be a happy moment that quickly turns into a nightmare. Where do you begin and what comes first? There is a myriad of funding possibilities, but which one is for you? What steps can you take to make sure your journey into home ownership goes smoothly? Here, we will review some key funding information. What you read here could possibly save you from the angst of purchasing your new home and give you the joy of the moment that you expect.
33.) Conforming Mortgage Versus FHA Mortgage
It is not always immediately clear which type of mortgage is better for you. Can it be an FHA or a ? There are many facts to know and understand such as current mortgage rates and insurance premium schedules. You must also factor in the down payment percentage you expect to pay in conjunction with your credit score. After you weigh all your factors, you will be easily able to choose which of the two types of mortgages is best suited for you and your budget. There are key differences between the two mortgages. Both are very popular with 30-year fixed rates. Your conforming mortgage is offered by Fannie Mae and Freddie Mac. An “FHA” mortgage is offered and insured by the Federal Housing Administration. To understand the major differences, we can take a look at the pros and cons of both.
For many searching for that affordable mortgage, the first thing they consider is the down payment. In this case, the FHA mortgage comes out as the true winner. What is the appeal? No matter what type of property you are looking to purchase, your FHA down payment will come in at 3.5 percent. That is what makes it so attractive to all of those looking for their first single-family home or condominium. That is a sweet deal for limited purchase budgets. For others with a conforming mortgage, the purchaser could be subject to that can vary from 5 percent to as much as 25 percent. That span of percentage amount can be a bit more than some would like to deal with. So, when it comes to the down payment, the FHA mortgage comes out on top. It is best to talk with your loan officer about choosing the type of mortgage that fits you. Especially because you want to consider your short- and long-term goals for the home and pick your most suitable loan.
34.) How Do FHA 203K Mortgages Work?
In the past, when you purchase your home you are expecting to live there for many years to come. In most cases, this home would become the “family” home, especially if you had small children. The children would grow up and become life-long residents. Today, people have options as the home ages and grown children move away. Many are posed with the question of whether they should upgrade their current home or just buy a new home. In either case, financing is an important part of the decision process. Most often than not, many homeowners decide to upgrade. Unfortunately, they soon find out that financing that upgrade many not be so easy. With not many banks willing to give construction loans, their only other funding options are to use their own cash or apply for a . Choosing the FHA 203K program gives an all-in-one mortgage primarily for home upgrade projects. It combines your current mortgage amount with the costs of the upgrade. This is the perfect solution for those that are buying foreclosed, abandoned or run-down homes. It provides all the funding needed for the project.
- No investment properties will qualify, all homes must be owner-occupied.
- No new construction, all homes must b 1-4 units, and must be at least one year old.
- Any construction and renovation must comply with zoning and building codes.
- All living units will be added to the existing property, and they must be attached to the original structure.
If you plan to demolish a structure as a part of your 203K loan, the plans must assure that the home’s existing foundation will remain in place and the new home will be built on top of it.
35.) Using Rate Locks to Obtain a Lower Mortgage Rate
As you see, the mortgage rate game can be a bit tricky. Just like you would shop for the best price of everything else in life, finding the best affordable mortgage is no different. You must shop around. But just the same, there are ways to make sure that you get the lowest rate possible. To ensure that you can get the best rate, here are four pointers,
- Do what you can to get a higher credit score.
- Make a larger down payment.
- Get a higher credit score in conjunction with making a larger down payment.
- Pick a smarter closing date. Your lender may tell you that by closing on your loan on certain specified number of days, they will guarantee your locked mortgage rate for you.
Now, about that . There is the basic concept that rate locks are made in 15-day increments. You can choose from any of the following: 15-day rate lock; 30-day rate lock; 45-day rate lock; 60-day rate lock. But keep in mind, the longer your rate lock is the higher your mortgage rate will be. Take for example the following,
- 15-day rate lock : 1/8 percent lower than the 30-day rate lock
- 30-day rate lock : The basis for all other pricing
- 45-day rate lock : 1/8 percent higher than the 30-day rate lock
- 60-day rate lock : 1/4 percent higher than the 30-day rate lock
So you see, by choosing a better , your mortgage rates will be lower. It would be best to consider how time has the ability to change the amount you pay for your mortgage. It is all about saving money. Be sure to use time to your advantage and get a mortgage that is affordable for you now and in the future.