Unbiased Financial Information Provided by Financial Finesse
You've found a home you love and it's actually in your price range. Your real estate agent pulls out an offer form -- eight pages of legalese -- and you start thinking that renting wasn't so bad after all.
Don't let the fine print in the purchase offer, or sales contract, keep you out of your dream home. But do make sure you understand exactly what you're agreeing to and use the contract to protect yourself.
Earnest Money Deposit Proves Buyers Are Serious
Be prepared to hand your real estate agent a check, generally between half a percent to 2 percent of the purchase price, as soon as you sign the offer. This is known as earnest money. If the seller accepts the offer, the check is deposited with an escrow company to later be applied to your down payment.
If a buyer pulls out of the deal without cause allowed in the contract, the seller may keep some or all of the deposit as "liquidated damages." Some states limit the amount of liquidated damages if a deal is broken. In California, for example, the maximum is 3 percent of the offer price. The penalty for pulling out of the deal should be spelled out in the contract.
Contingencies Give Buyers a Way Out
Nearly every real estate offer will include contingencies -- things that must happen for the sale to become final. There will be a time period specified in which each contingency must be met. If any one contingency is not met on time, the buyer may be able to get out of the contract.
Common contingencies relate to appraisal, mortgage approval (often at a specified interest rate), buyer's approval/acceptance of the results of a professional home inspection and completion of needed repairs. You can even make your offer contingent upon selling your old home to get the money to buy the new one.
Government Offers Contract Advice
The U.S. Department of Housing and Urban Development (HUD) publishes a booklet called Buying Your Home: Settlement Costs and Information that includes an outline of many of the legal issues and consumer rights to be aware of in a real estate transaction.
HUD says any purchase offer should cover the following points in specific, clear language:
* The sales price
* Details on transfer of title, and procedures to ensure that the title is free and clear
* Financing arrangements, including deposits, the down payment, and mortgage arrangements
* Pest inspection
* Home inspection
* Disclosure of lead paint or other environmental hazards
* How closing costs will be paid (who pays what)
* Title company or escrow agent to be used
Most offers include a specific date when the offer expires, deadlines for each contingency to be met, and an ultimate closing date.
Do You Need a Lawyer?
In some parts of the country, the escrow or title company handles the closing process and attorneys are not typically involved. Of course, you always have the option of enlisting the help of a lawyer or other expert. If you decide to use an attorney, you can make the sale contingent on an attorney's review of the agreement if your offer is accepted. That way you don't waste time and money having a lawyer review offers that end up being rejected.
The purchase agreement doesn't have to be intimidating. If you've come this far in the home buying process, you've got enough on the ball to write a contract that protects you while still looking attractive to the seller.
http://www.techcu.com/learning/home_buying/fine_print.htm
Friday, August 17, 2007
Escrow Basics for First-Time Homebuyers
Unbiased Financial Information Provided by Financial Finesse
Escrow is like an engagement period. Both you and the seller have accepted the idea of marriage. If you can iron out the details, you'll both say, "I do." An engagement ring doesn't always guarantee a marriage, however. And an agreement on an offer doesn't guarantee a sale. Problems with the title, financing or inspections could lead to a break-up.
Analogies aside, escrow is the arrangement under which all documents and funds for your purchase go to a neutral third party, usually an escrow or title company, which coordinates and completes the paperwork, making sure that all conditions of the sale are met before the transaction is final. Expect escrow to take 30 to 45 days, though it is possible to do the whole thing in as little as a week.
What Happens During Escrow?
* A title search is done. A title search reveals the current legal owner of the home and any liens or claims against the property (e.g., tax assessments, outstanding home loans, and third party restrictions that could limit your use of the property). If there are no problems with the title and you agree to any restrictions there might be, the title is transferred to your name and recorded with the county. Title insurance policies are often purchased to protect you and the lender in case of problems down the road.
* Contingencies are removed. When you make your offer, you'll include contingencies that must be satisfied before the sale can be finalized. Examples of typical contingencies include successfully obtaining a mortgage at a particular interest rate, accepting the results of a property inspection, and, maybe, selling your current home. If any one of the contingencies is not met, the deal may be cancelled.
* The loan is funded. If you haven't applied for financing yet, you'll do it during escrow. Once the loan is approved, your escrow officer will work with the lender to make sure your mortgage papers are completed and all lender conditions are met.
At the start of escrow, call or meet your escrow officer and ask if there's any information you can provide. Be a polite pest throughout the process to make sure the necessary steps are happening and the process is not being delayed because someone isn't doing what they should be.
What Kind of Closing Costs Can You Expect?
Closing costs generally range from two to five percent of the home price. Who pays what usually depends on where you live, though there may be room for negotiation.
Closing costs include:
* Loan fees, which generally range up to three percent of the loan amount. The lender is required to give you a good faith estimate of closing costs within three days after you apply for a loan, then usually an update after the loan is approved and another just before you close. Typical charges may include property appraisal, credit reports, loan document preparation and points (loan-origination fees). Each point equals one percent of the loan amount.
* Escrow fees include title search, document preparation, overnight delivery, and notary charges. There will also be fees for transferring title and recording the deed of trust.
* Your lender may require you to pay up to a year's worth of homeowner's insurance before closing. You'll also make a one-time payment for title insurance policies for you and your lender. You might also be required to prepay some private mortgage insurance - a monthly payment apart from your mortgage payments - if you put less than 20 percent down (the insurance protects the lender if you default).
* And, of course, there are property taxes, which you'll reimburse the sellers for if they prepaid them.
Time to Move In
Just before the final papers are signed, your escrow officer will give you a closing statement outlining all the charges and accounting for all the money that exchanged hands in the sale. Read this carefully to catch any mistakes. You'll also have to pay any outstanding balance at this time. On the closing day, the escrow officer pays the seller and tells you the deed has been recorded.
Now you can put the bubbly on ice and try to find the champagne flutes in all those moving boxes.
http://www.techcu.com/learning/home_buying/escrow.htm
Escrow is like an engagement period. Both you and the seller have accepted the idea of marriage. If you can iron out the details, you'll both say, "I do." An engagement ring doesn't always guarantee a marriage, however. And an agreement on an offer doesn't guarantee a sale. Problems with the title, financing or inspections could lead to a break-up.
Analogies aside, escrow is the arrangement under which all documents and funds for your purchase go to a neutral third party, usually an escrow or title company, which coordinates and completes the paperwork, making sure that all conditions of the sale are met before the transaction is final. Expect escrow to take 30 to 45 days, though it is possible to do the whole thing in as little as a week.
What Happens During Escrow?
* A title search is done. A title search reveals the current legal owner of the home and any liens or claims against the property (e.g., tax assessments, outstanding home loans, and third party restrictions that could limit your use of the property). If there are no problems with the title and you agree to any restrictions there might be, the title is transferred to your name and recorded with the county. Title insurance policies are often purchased to protect you and the lender in case of problems down the road.
* Contingencies are removed. When you make your offer, you'll include contingencies that must be satisfied before the sale can be finalized. Examples of typical contingencies include successfully obtaining a mortgage at a particular interest rate, accepting the results of a property inspection, and, maybe, selling your current home. If any one of the contingencies is not met, the deal may be cancelled.
* The loan is funded. If you haven't applied for financing yet, you'll do it during escrow. Once the loan is approved, your escrow officer will work with the lender to make sure your mortgage papers are completed and all lender conditions are met.
At the start of escrow, call or meet your escrow officer and ask if there's any information you can provide. Be a polite pest throughout the process to make sure the necessary steps are happening and the process is not being delayed because someone isn't doing what they should be.
What Kind of Closing Costs Can You Expect?
Closing costs generally range from two to five percent of the home price. Who pays what usually depends on where you live, though there may be room for negotiation.
Closing costs include:
* Loan fees, which generally range up to three percent of the loan amount. The lender is required to give you a good faith estimate of closing costs within three days after you apply for a loan, then usually an update after the loan is approved and another just before you close. Typical charges may include property appraisal, credit reports, loan document preparation and points (loan-origination fees). Each point equals one percent of the loan amount.
* Escrow fees include title search, document preparation, overnight delivery, and notary charges. There will also be fees for transferring title and recording the deed of trust.
* Your lender may require you to pay up to a year's worth of homeowner's insurance before closing. You'll also make a one-time payment for title insurance policies for you and your lender. You might also be required to prepay some private mortgage insurance - a monthly payment apart from your mortgage payments - if you put less than 20 percent down (the insurance protects the lender if you default).
* And, of course, there are property taxes, which you'll reimburse the sellers for if they prepaid them.
Time to Move In
Just before the final papers are signed, your escrow officer will give you a closing statement outlining all the charges and accounting for all the money that exchanged hands in the sale. Read this carefully to catch any mistakes. You'll also have to pay any outstanding balance at this time. On the closing day, the escrow officer pays the seller and tells you the deed has been recorded.
Now you can put the bubbly on ice and try to find the champagne flutes in all those moving boxes.
http://www.techcu.com/learning/home_buying/escrow.htm
The sub-prime backlash—Why Prime lenders offer the safest mortgage solutions
The sub-prime mortgage market is seeing some tough times. Several heads of sub-prime mortgage companies have been summoned to appear before Congress. Freddie Mac is stepping in to help borrowers who are in bad loan situations. Fannie Mae is calling upon mortgage lenders to reduce rates and monthly payments for the thousands of borrowers nationwide with mortgages they can’t afford. While only 20% of all sub-prime loans are estimated to actually default to the point of foreclosure, everyone is pointing fingers at the sub-prime lending industry for today’s sluggish real estate market.
Why were so many people sucked into sub-prime loans? For people with less-than-perfect credit, sub-prime loans were a godsend. The original concept behind sub-prime loans was a good one—if you have troubled credit, you can get a sub-prime loan now, improve your credit, and refinance into a prime loan (at a lower rate) when your rate adjusts. The reason that sub-prime lenders were able to extend loans to borrowers with lower credit scores (typically FICO scores between 540 and 680) was that they were more willing to assume higher risk of default. To mitigate the risk factor and protect themselves, sub-prime lenders charged higher rates, depending on the borrower’s credit profile.
As the sub-prime market started to really pick up speed between 2003 and 2005, more competition for the same pool of borrowers caused sub-prime lenders to increase their risk-tolerance thresholds and make imprudent lending decisions. Loans offering more than 100% loan-to-value ratios, debt-to-income ratios above 50%, and loans that required no income or asset verification grew in popularity, attracting more borrowers who otherwise would not have qualified for a loan. Sub-prime mortgage brokers and real estate professionals with sales quotas added to the frenzy, matching borrowers up with loans that helped on the short term but ultimately eroded their financial health.
The difference between a sub-prime lender and a prime lender isn’t just in the rates they charge or the types of mortgage options they offer. It has to do with risk. While sub-prime lenders measure risk in terms of their own bottom line, prime lenders measure risk with the borrower in mind. Prime lenders look at the whole picture—while they want to help get borrowers into a loan they can afford on the short-term (offering one-year to five-year adjustable-rate mortgages that keep the rate low initially), they also look for ways to make sure that the borrower can stay in the loan or can easily refinance when their loans adjust (offering no-prepayment-penalty options, expedited refinancing options for existing borrowers, etc.).
And if a borrower doesn’t qualify for a prime loan, responsible prime lenders will help that borrower to understand why they didn’t qualify and what they can do to improve their chances for a loan (improve their credit score, reduce their debt-to-income ratio by paying off debt, increase or reduce their number of tradelines, seek out a more affordable home to buy, etc.).
During the height of the sub-prime boom, many credit unions and smaller lenders were pressured to start underwriting sub-prime loans—and many jumped on the bandwagon. Without the risk management infrastructure that most large sub-prime companies could afford, smaller financial institutions are now finding themselves in hot water with low demand for new loans and high default rates on loans in their portfolios.
Even though there was significant demand from the market, Technology Credit Union did not originate sub-prime loans. By holding true to our prime strategy, Technology Credit Union was not only able to avoid the sub-prime backlash, but was also able to increase our portfolio to over $1 billion in loans in 2006. While Tech CU does not originate sub-prime loans, Tech CU does offer opportunities for borrowers who may have faced financial hardship in the past. As a credit union, Tech CU looks out for what’s best for the member—including educating members about how to improve their financial situation and offering loans to them once they’ve got their credit on track.
For more information about Tech CU’s lending programs, please contact a Tech CU mortgage consultant.
http://www.techcu.com/learning/home_buying/SubPrime.htm
Why were so many people sucked into sub-prime loans? For people with less-than-perfect credit, sub-prime loans were a godsend. The original concept behind sub-prime loans was a good one—if you have troubled credit, you can get a sub-prime loan now, improve your credit, and refinance into a prime loan (at a lower rate) when your rate adjusts. The reason that sub-prime lenders were able to extend loans to borrowers with lower credit scores (typically FICO scores between 540 and 680) was that they were more willing to assume higher risk of default. To mitigate the risk factor and protect themselves, sub-prime lenders charged higher rates, depending on the borrower’s credit profile.
As the sub-prime market started to really pick up speed between 2003 and 2005, more competition for the same pool of borrowers caused sub-prime lenders to increase their risk-tolerance thresholds and make imprudent lending decisions. Loans offering more than 100% loan-to-value ratios, debt-to-income ratios above 50%, and loans that required no income or asset verification grew in popularity, attracting more borrowers who otherwise would not have qualified for a loan. Sub-prime mortgage brokers and real estate professionals with sales quotas added to the frenzy, matching borrowers up with loans that helped on the short term but ultimately eroded their financial health.
The difference between a sub-prime lender and a prime lender isn’t just in the rates they charge or the types of mortgage options they offer. It has to do with risk. While sub-prime lenders measure risk in terms of their own bottom line, prime lenders measure risk with the borrower in mind. Prime lenders look at the whole picture—while they want to help get borrowers into a loan they can afford on the short-term (offering one-year to five-year adjustable-rate mortgages that keep the rate low initially), they also look for ways to make sure that the borrower can stay in the loan or can easily refinance when their loans adjust (offering no-prepayment-penalty options, expedited refinancing options for existing borrowers, etc.).
And if a borrower doesn’t qualify for a prime loan, responsible prime lenders will help that borrower to understand why they didn’t qualify and what they can do to improve their chances for a loan (improve their credit score, reduce their debt-to-income ratio by paying off debt, increase or reduce their number of tradelines, seek out a more affordable home to buy, etc.).
During the height of the sub-prime boom, many credit unions and smaller lenders were pressured to start underwriting sub-prime loans—and many jumped on the bandwagon. Without the risk management infrastructure that most large sub-prime companies could afford, smaller financial institutions are now finding themselves in hot water with low demand for new loans and high default rates on loans in their portfolios.
Even though there was significant demand from the market, Technology Credit Union did not originate sub-prime loans. By holding true to our prime strategy, Technology Credit Union was not only able to avoid the sub-prime backlash, but was also able to increase our portfolio to over $1 billion in loans in 2006. While Tech CU does not originate sub-prime loans, Tech CU does offer opportunities for borrowers who may have faced financial hardship in the past. As a credit union, Tech CU looks out for what’s best for the member—including educating members about how to improve their financial situation and offering loans to them once they’ve got their credit on track.
For more information about Tech CU’s lending programs, please contact a Tech CU mortgage consultant.
http://www.techcu.com/learning/home_buying/SubPrime.htm
Monday, August 6, 2007
home buying - "Home Buyers: How to Avoid Costly Mistakes!"
There are some simple steps that homebuyers often miss when looking for their new home. Taking the time to consider these steps can save you thousands of dollars, but more importantly, can smooth the process of buying a new home, saving time and money, as well as alleviating stressful situations in advance.
1. Begin by being up front and honest with your REALTOR and lender about your credit history. Your credit, whether good or bad, affects everything from your down payment to your interest rates. Your REALTOR or a professional mortgage consultant can often advise you as to how you can get credit problems cleared up or completely eliminated from your credit report before you apply for financing or make an offer on a new home.
2. Getting pre-qualified for a loan by a professional lender before you begin your search for a new home will allow you to know in advance exactly what kind, and how much, mortgage you can afford. This makes it possible for you to make an offer on your new home with confidence that enough funding is available.
3. If the seller does not offer a home warranty on the house you want, ask your REALTOR to make it a part of the written offer that you make. A home warranty can save you thousands of dollars in repairs, and can often be obtained for a very nominal annual fee. A standard warranty covers the electrical, plumbing, heating and air conditioning systems as well as major home appliances.
4. Ask your REALTOR for a market analysis of the home, in comparison to similar homes in the neighborhood or throughout the city, before you make an offer. A home is not just a place where you live - it is also an investment. Take the time to view several homes before you make an offer so you know exactly what is on the market. Be certain you are making a wise investment.
5. Make your offer contingent upon a home inspection and ask the seller to make the required repairs. Hire a professional to inspect every aspect of the home thoroughly. This can save you thousands of dollars in costly repairs and many headaches in the future. A good inspection can also allow you to negotiate for any repairs prior to closing. If the seller is not willing to make the necessary repairs, remind them that the lender will also require the home to be in good condition before they make a loan for the purchase.
6. Take into account your present homeowner or renter status. If you already own a home and must sell it before you buy a new one, it is best to get a REALTOR to do a complete market analysis on your present home. This allows you to know how much you can sell your current home for before you make an offer on a new one. If you are leasing or renting, the lease's expiration date will give you a timetable for your new purchase. Review this with your REALTOR well in advance of when you want to move.
7. Choose your agent wisely. Working with a full-time professional real estate agent is a must. Ask questions of your agent. Find out how knowledgeable he or she is about houses currently for sale in your price range and also of houses that have recently sold. Can your agent recommend a good lender that has the reputation of excellent customer service and low rates? Does your agent ask questions of you to have a full understanding of what you are looking for and to help you get the most home for the money?
http://www.realestateinvestmentarticles.net/Article/home-buying----Home-Buyers--How-to-Avoid-Costly-Mistakes--/3100
1. Begin by being up front and honest with your REALTOR and lender about your credit history. Your credit, whether good or bad, affects everything from your down payment to your interest rates. Your REALTOR or a professional mortgage consultant can often advise you as to how you can get credit problems cleared up or completely eliminated from your credit report before you apply for financing or make an offer on a new home.
2. Getting pre-qualified for a loan by a professional lender before you begin your search for a new home will allow you to know in advance exactly what kind, and how much, mortgage you can afford. This makes it possible for you to make an offer on your new home with confidence that enough funding is available.
3. If the seller does not offer a home warranty on the house you want, ask your REALTOR to make it a part of the written offer that you make. A home warranty can save you thousands of dollars in repairs, and can often be obtained for a very nominal annual fee. A standard warranty covers the electrical, plumbing, heating and air conditioning systems as well as major home appliances.
4. Ask your REALTOR for a market analysis of the home, in comparison to similar homes in the neighborhood or throughout the city, before you make an offer. A home is not just a place where you live - it is also an investment. Take the time to view several homes before you make an offer so you know exactly what is on the market. Be certain you are making a wise investment.
5. Make your offer contingent upon a home inspection and ask the seller to make the required repairs. Hire a professional to inspect every aspect of the home thoroughly. This can save you thousands of dollars in costly repairs and many headaches in the future. A good inspection can also allow you to negotiate for any repairs prior to closing. If the seller is not willing to make the necessary repairs, remind them that the lender will also require the home to be in good condition before they make a loan for the purchase.
6. Take into account your present homeowner or renter status. If you already own a home and must sell it before you buy a new one, it is best to get a REALTOR to do a complete market analysis on your present home. This allows you to know how much you can sell your current home for before you make an offer on a new one. If you are leasing or renting, the lease's expiration date will give you a timetable for your new purchase. Review this with your REALTOR well in advance of when you want to move.
7. Choose your agent wisely. Working with a full-time professional real estate agent is a must. Ask questions of your agent. Find out how knowledgeable he or she is about houses currently for sale in your price range and also of houses that have recently sold. Can your agent recommend a good lender that has the reputation of excellent customer service and low rates? Does your agent ask questions of you to have a full understanding of what you are looking for and to help you get the most home for the money?
http://www.realestateinvestmentarticles.net/Article/home-buying----Home-Buyers--How-to-Avoid-Costly-Mistakes--/3100
Kenya's Middle-Class Home-Buying Boom
NAIROBI -- One recent Sunday, Paul Abeno, a mid-level computer sales executive, shuffled through aisles of brass cabinet pulls, colored tiles and tiny glass-encased models of three-bedroom homes landscaped with paper trees. He stared through the glass at Baobab Village.
"Too late," he said to himself, noting the sold-out sign.
But there were other offerings at the third annual home expo here, and he wandered over to Acacia Court, Simba Villas and Green Park, three of the many new developments along the Kenyan capital's edges.
"I was told all these are bought and everyone's moved in," Abeno said, looking down at the red roofs. "I've just come to see what's on offer so in the near future I can get one for myself."
Traipsing through the Nairobi Exhibition and Convention Center on this weekend were small-business owners, teachers, civil servants, farmers, recent college graduates and others, who make up a group of Kenyans often invisible to the outside world: neither desperately poor nor outlandishly rich but someplace in between.
On a continent where people are often trying to escape or simply survive, here were people perusing six-burner stoves who said they wished to stay, aspiring homeowners who have been fueling what amounts to a construction boom in this east African city of skyscrapers and rusted slums; leafy, moneyed neighborhoods; and lately, it seems, a thousand half-built cinder-block condominiums with pools, gyms and broadband Internet.
Although the Kenyan economy is growing at 6 percent a year, economists are uncertain whether the proliferation of new housing and accompanying mortgages reflects a growing middle class or simply a more prosperous one.
The dominant economic picture of the country, they say, is one of entrenched inequality, with the number of people slipping into poverty increasing and the gap between rich and poor widening.
But that statistical picture does not account for the sense of fragile optimism along the aisles at the convention center on a Sunday or, for that matter, around a city where billboards advertising mortgages promise "a new lifestyle" with images of a well-dressed man walking across a sun-splattered lawn.
"Looking at these houses, you see a whole life," said Nicholas Kinoti, a clothing designer with his own shop, which caters to a wealthy clientele. "I thought instead of paying rent, I could adjust and pay a mortgage."
He was among dozens swarming the booth for a new development of Kansas-made prefabricated houses called Green Park, whose managing director is a former aid worker who once dealt with the Ethiopian famine.
Kinoti counts himself among a relatively small but notable group of Kenyans who have climbed their way into a kind of life their parents barely imagined. His mother and father were subsistence farmers and managed to send their son to a university in Nairobi. He got a job with a travel agency afterward and, with help from brochures of Paris and heavy doses of television, developed a taste for fashion and an urban lifestyle.;
http://www.washingtonpost.com/wp-dyn/content/article/2007/06/18/AR2007061801621.html
"Too late," he said to himself, noting the sold-out sign.
But there were other offerings at the third annual home expo here, and he wandered over to Acacia Court, Simba Villas and Green Park, three of the many new developments along the Kenyan capital's edges.
"I was told all these are bought and everyone's moved in," Abeno said, looking down at the red roofs. "I've just come to see what's on offer so in the near future I can get one for myself."
Traipsing through the Nairobi Exhibition and Convention Center on this weekend were small-business owners, teachers, civil servants, farmers, recent college graduates and others, who make up a group of Kenyans often invisible to the outside world: neither desperately poor nor outlandishly rich but someplace in between.
On a continent where people are often trying to escape or simply survive, here were people perusing six-burner stoves who said they wished to stay, aspiring homeowners who have been fueling what amounts to a construction boom in this east African city of skyscrapers and rusted slums; leafy, moneyed neighborhoods; and lately, it seems, a thousand half-built cinder-block condominiums with pools, gyms and broadband Internet.
Although the Kenyan economy is growing at 6 percent a year, economists are uncertain whether the proliferation of new housing and accompanying mortgages reflects a growing middle class or simply a more prosperous one.
The dominant economic picture of the country, they say, is one of entrenched inequality, with the number of people slipping into poverty increasing and the gap between rich and poor widening.
But that statistical picture does not account for the sense of fragile optimism along the aisles at the convention center on a Sunday or, for that matter, around a city where billboards advertising mortgages promise "a new lifestyle" with images of a well-dressed man walking across a sun-splattered lawn.
"Looking at these houses, you see a whole life," said Nicholas Kinoti, a clothing designer with his own shop, which caters to a wealthy clientele. "I thought instead of paying rent, I could adjust and pay a mortgage."
He was among dozens swarming the booth for a new development of Kansas-made prefabricated houses called Green Park, whose managing director is a former aid worker who once dealt with the Ethiopian famine.
Kinoti counts himself among a relatively small but notable group of Kenyans who have climbed their way into a kind of life their parents barely imagined. His mother and father were subsistence farmers and managed to send their son to a university in Nairobi. He got a job with a travel agency afterward and, with help from brochures of Paris and heavy doses of television, developed a taste for fashion and an urban lifestyle.;
http://www.washingtonpost.com/wp-dyn/content/article/2007/06/18/AR2007061801621.html
Saturday, August 4, 2007
Buying a Home: What You Can Afford?
If you're thinking of purchasing your first home, you probably have a lot of great ideas about what you'd like - such as several thousand square feet of living space, a two-car garage, large fenced-in lot, one or two fireplaces and a panoramic view. But it may be time for a reality check.
Most first-time buyers want their dream home right away. However, that dream home likely sells for several hundred thousand dollars and the down payment is more than you earn in two years. Not to mention the mortgage payments - which are three times your monthly take-home salary!
The best way to deal with this reality is to match your financial capabilities with the home that meets as many of your needs as possible.
Many first-time buyers purchase what is commonly known as a "starter home." There's nothing wrong with this approach. In fact, it's good common sense to avoid buying a home that will stretch your budget to its breaking point. Remember, the starter home is just that - a way to get started in long-term real estate investment.
To see how much you can afford, you should take a close look at your financial situation. The vast majority of home buyers lack the funds required to buy a home without assistance from a bank or other financial institution (commonly called a "lender"). So, for most of us, buying our first home means combining our savings with money borrowed through a special type of borrowing arrangement called a "mortgage."
Borrowing to purchase is not only acceptable, it's desirable. Even people buying millions of dollars' worth of real estate borrow to make the purchase
There are two types of costs in buying a home:
the amount of money you'll need for the initial purchase; this consists mainly of the down payment and other costs such as legal fees and taxes; and
the ongoing costs of paying back your mortgage, along with monthly operating costs for utilities, maintenance, insurance and annual property taxes.
osts of buying a home =
* Down payment & * Mortgage
* Legal fees
* Utilities
* Inspection fees
* Maintenance
* Taxes
* Insurance
* Property taxes
When lenders assess your ability to buy, they look at your ability to pay both types of costs in determining how much money they will lend you. Before you ever visit a lender, you can predetermine this amount, using the same formulas they do.
Lenders use several factors in judging your ability to handle a mortgage, including your income, employment record and credit worthiness. However, one way you can estimate the price range you can afford is to look at the amount of money you have available for a down payment.
The most common mortgage is a "conventional mortgage." In this type of arrangement, lenders will loan up to 75 per cent of the "appraised" value (estimated market value) of the property or the purchase price - whichever is lower. The remaining 25 per cent is the amount you will contribute as down payment.
If you want to buy a home that has an appraised value of $200,000, a lender may loan you 75 per cent or $150,000 on a conventional mortgage when you contribute a down payment of $50,000.
If you plan to borrow funds through a conventional mortgage, multiply the money you have available for a down payment by four. For example, if you have access to $40,000, you may be able to purchase a home with an appraised value of $160,000 ($40,000 x 4 = $160,000).
This assumes, of course, that you have sufficient income to make the payments on a $120,000 mortgage (75 per cent of $160,000). Most lenders will not permit a borrower to take on a debt load the borrower can't carry. That's why reputable lenders "qualify" potential borrowers before issuing mortgages.
Most lenders say that your monthly housing expenses (mortgage payment and taxes), plus condominium maintenance fee, if applicable, would not exceed 30 per cent of your monthly gross family income.
This is called your Gross Debt Service (GDS) ratio. Some lenders will go as high as 35 per cent, depending upon a number of variables.
Lenders also use a second calculation in qualifying you for a mortgage. It's called the Total Debt Service (TDS) ratio. Generally speaking, no more than 40 per cent of your gross family income may be used when calculating the amount you can afford to pay for mortgage payments and taxes plus other fixed monthly expenses.
These other fixed costs are your ongoing commitments and can include auto, student or personal loans, as well as revolving charge accounts. Again, the 40 per cent calculation may vary slightly among lenders.
By knowing exactly what you can afford, you can make your home purchase with confidence.
http://www.alamq.com/index_files/homebuyingtips1.htm
Most first-time buyers want their dream home right away. However, that dream home likely sells for several hundred thousand dollars and the down payment is more than you earn in two years. Not to mention the mortgage payments - which are three times your monthly take-home salary!
The best way to deal with this reality is to match your financial capabilities with the home that meets as many of your needs as possible.
Many first-time buyers purchase what is commonly known as a "starter home." There's nothing wrong with this approach. In fact, it's good common sense to avoid buying a home that will stretch your budget to its breaking point. Remember, the starter home is just that - a way to get started in long-term real estate investment.
To see how much you can afford, you should take a close look at your financial situation. The vast majority of home buyers lack the funds required to buy a home without assistance from a bank or other financial institution (commonly called a "lender"). So, for most of us, buying our first home means combining our savings with money borrowed through a special type of borrowing arrangement called a "mortgage."
Borrowing to purchase is not only acceptable, it's desirable. Even people buying millions of dollars' worth of real estate borrow to make the purchase
There are two types of costs in buying a home:
the amount of money you'll need for the initial purchase; this consists mainly of the down payment and other costs such as legal fees and taxes; and
the ongoing costs of paying back your mortgage, along with monthly operating costs for utilities, maintenance, insurance and annual property taxes.
osts of buying a home =
* Down payment & * Mortgage
* Legal fees
* Utilities
* Inspection fees
* Maintenance
* Taxes
* Insurance
* Property taxes
When lenders assess your ability to buy, they look at your ability to pay both types of costs in determining how much money they will lend you. Before you ever visit a lender, you can predetermine this amount, using the same formulas they do.
Lenders use several factors in judging your ability to handle a mortgage, including your income, employment record and credit worthiness. However, one way you can estimate the price range you can afford is to look at the amount of money you have available for a down payment.
The most common mortgage is a "conventional mortgage." In this type of arrangement, lenders will loan up to 75 per cent of the "appraised" value (estimated market value) of the property or the purchase price - whichever is lower. The remaining 25 per cent is the amount you will contribute as down payment.
If you want to buy a home that has an appraised value of $200,000, a lender may loan you 75 per cent or $150,000 on a conventional mortgage when you contribute a down payment of $50,000.
If you plan to borrow funds through a conventional mortgage, multiply the money you have available for a down payment by four. For example, if you have access to $40,000, you may be able to purchase a home with an appraised value of $160,000 ($40,000 x 4 = $160,000).
This assumes, of course, that you have sufficient income to make the payments on a $120,000 mortgage (75 per cent of $160,000). Most lenders will not permit a borrower to take on a debt load the borrower can't carry. That's why reputable lenders "qualify" potential borrowers before issuing mortgages.
Most lenders say that your monthly housing expenses (mortgage payment and taxes), plus condominium maintenance fee, if applicable, would not exceed 30 per cent of your monthly gross family income.
This is called your Gross Debt Service (GDS) ratio. Some lenders will go as high as 35 per cent, depending upon a number of variables.
Lenders also use a second calculation in qualifying you for a mortgage. It's called the Total Debt Service (TDS) ratio. Generally speaking, no more than 40 per cent of your gross family income may be used when calculating the amount you can afford to pay for mortgage payments and taxes plus other fixed monthly expenses.
These other fixed costs are your ongoing commitments and can include auto, student or personal loans, as well as revolving charge accounts. Again, the 40 per cent calculation may vary slightly among lenders.
By knowing exactly what you can afford, you can make your home purchase with confidence.
http://www.alamq.com/index_files/homebuyingtips1.htm
What kind of home is for you?
When most of us think about owning a home, we usually imagine a typical two-storey, detached house. However, today’s homebuyer has a wide array of home ownership options available.
With so many choices, how do you choose the type of home that’s right for you? Your first step should be to enlist the services of a REALTOR. He or she can assist you in finding a home that matches both your financial needs and your lifestyle. Your REALTOR can also help you consider the pros and cons of different housing options. Some of those options include:
Single-family detached – which includes two-storey, bungalow…
●Semi-detached
●Townhouse
●Duplex
●Condominium
To condo or not to condo?
Condominium living is a great choice for people who don’t want the upkeep of a traditional home. Many first time buyers choose the condo option because it’s often far less expensive than a house meaning they can get into the housing market sooner. Also, condo living is ideal for “empty-nesters” or retirees who wish to downsize.
Keep in mind that in addition to your monthly mortgage payments and taxes, you will be required to pay a monthly maintenance fee. This fee is your share of owning and maintaining the common areas of the condo development.
Resale or new house?
Deciding to buy a brand new or resale home really depends on your preferences. Ask your REALTOR to help you weigh the benefits and drawbacks of each.
One advantage to a new home is that it’s likely more up-to-date and usually has larger room sizes and better storage. It also hasn’t been subjected to someone else’s decorating touches. The downside is you will need to put out extra cash for landscaping, fencing, window coverings and appliances.
With a resale home, you often get these additional features for little or no extra cost. Many resale homes have already been upgraded over the years to include expensive items like central air conditioning, finished basements, decks or even a pool. Buyers of resale homes are usually fortunate to be able to purchase these upgrades as part of the selling price.
Choosing the home that’s right for you is a matter of weighing your list of needs and wants against the benefits and drawbacks of the different housing choices available.
Whatever your choice, you’ll want to have a REALTOR on your side to ensure you make the smoothest move possible. For more information on buying a home and choosing a REALTOR, contact the Ontario Real Estate Association at 1-800-265-OREA (6732) and ask for your free copy of "How to buy your home."
http://www.alamq.com/index_files/homebuyingtips1.htm
With so many choices, how do you choose the type of home that’s right for you? Your first step should be to enlist the services of a REALTOR. He or she can assist you in finding a home that matches both your financial needs and your lifestyle. Your REALTOR can also help you consider the pros and cons of different housing options. Some of those options include:
Single-family detached – which includes two-storey, bungalow…
●Semi-detached
●Townhouse
●Duplex
●Condominium
To condo or not to condo?
Condominium living is a great choice for people who don’t want the upkeep of a traditional home. Many first time buyers choose the condo option because it’s often far less expensive than a house meaning they can get into the housing market sooner. Also, condo living is ideal for “empty-nesters” or retirees who wish to downsize.
Keep in mind that in addition to your monthly mortgage payments and taxes, you will be required to pay a monthly maintenance fee. This fee is your share of owning and maintaining the common areas of the condo development.
Resale or new house?
Deciding to buy a brand new or resale home really depends on your preferences. Ask your REALTOR to help you weigh the benefits and drawbacks of each.
One advantage to a new home is that it’s likely more up-to-date and usually has larger room sizes and better storage. It also hasn’t been subjected to someone else’s decorating touches. The downside is you will need to put out extra cash for landscaping, fencing, window coverings and appliances.
With a resale home, you often get these additional features for little or no extra cost. Many resale homes have already been upgraded over the years to include expensive items like central air conditioning, finished basements, decks or even a pool. Buyers of resale homes are usually fortunate to be able to purchase these upgrades as part of the selling price.
Choosing the home that’s right for you is a matter of weighing your list of needs and wants against the benefits and drawbacks of the different housing choices available.
Whatever your choice, you’ll want to have a REALTOR on your side to ensure you make the smoothest move possible. For more information on buying a home and choosing a REALTOR, contact the Ontario Real Estate Association at 1-800-265-OREA (6732) and ask for your free copy of "How to buy your home."
http://www.alamq.com/index_files/homebuyingtips1.htm
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