Buying your first home is a big step. How do you really know that you are ready? There are hundreds of thousands of people out there that are considering buying a home. This is partly due to low interest rates over the past few years, and by a real push on the part of the housing industry to show the benefits of homeownership.
You've been saving your money and have enough for a down payment and your closing costs. The down payment will need to be between 3% and 20% of the purchase price or property value, whichever is lowest. Always aim to have that 20%. If you don't put at least 20% down, you will have to purchase private mortgage insurance, which will increase your monthly payment.
Closing costs usually run you 3% to 7% of the purchase price. You should receive a Good Faith Estimate of these costs within three days of applying for a mortgage. Keep in mind that this is only an estimate, and not the actual costs. But it should be close. Plan to pay the 7%, and then perhaps you will have some left over. It is better to have more than you need.
You know you are ready when you know how much home you can afford, and you are willing to stick with this. Your monthly mortgage payment should be less than 25% of your gross monthly income. There are lenders that will tell you that you can afford much more, but don't listen to them. Stick with what your budget says you can spend.
You are also aware that there are more dollars in a home than just the mortgage payment. You will need homeowners insurance, money for utilities, maintenance costs and property taxes. Owning a home is a lot of responsibility. You can't just pick up and move at 30-days notice anymore.
It is important to take the time to check your credit report for any errors and inaccuracies. Almost 90% of consumers will have an error on their credit at some point. These errors can cost you thousands in increased interest rates. Don't ever go to a lender unprepared and uninformed. Know your credit score.
If you look early enough, you may have time to fix errors or build your credit back up. Plan on at least six months for this, just in case.
You also are ready if you are willing to hold off any other loans or credit until you close on the property. The same goes for changing your jobs. You need to hold your life "as-is" from now until the closing. No new cars, no credit cards and no new jobs. Show that you are stable.
Part of being ready is just feeling ready. If you know what homes sale for in your area, you are definitely ready. If you don't know the above things, then take the time to figure them out. There is more to buying a home than just shopping and moving.
About the Author
Martin Lukac (http://www.MartinLukac.com), represents http://www.RateEmpire.com and http://www.1AmericanFinancial.com, a finance web-company specializing in real estate/mortgage market. We specialize in daily updates, rate predictions, mortgage rates and more. Find low home loan mortgage interest rates from hundreds of mortgage companies!
Tuesday, July 10, 2007
Home Buying - What Can You Afford?
Okay, youÂ’ve decided to buy a home and are trying to figure out what you can afford. Before you go home buying, you need to carefully consider what you can afford as far as a mortgage payment.
Mortgage Payments
The first step you should take in determining what you can afford is to talk to a mortgage lender.
In fact, the best step you can take is to go through the loan process to the extent required to get a pre-qualification letter. A pre-qualification letter tells you and a seller how big of a home loan the lender will give you.
So, once you have the loan in hand, that must be the amount you can afford? The answer is maybe or maybe not. The prequalification letter is based on a number of factors such as your earnings and credit. It is not based on a picture of your life, which can lead to problems.
Other Expenses
There is nothing worse than buying a home and straining to make the monthly mortgage payments. This situation occurs when a homebuyer relies solely on the pre-qualification letter or their own wishful thinking. You may have purchased your dream home, but donÂ’t let the payments be a nightmare.
In determining how much you can afford to expend on a home purchase, you must consider your overall financial situation. Although you may be in a decent financial situation at the moment, do you have future expenses that will put pressure on your finances?
Such situations might include:
1. Planning to have kids in the next year or so?
2. Are your current children going to college soon?
3. If you own a business, is the financial outlook stable?
4. If you work for a company, are you reasonably sure the company is headed in the right direction?
5. Do you have any concerns regarding the dreaded downsizing?
6. If you are the sole bread winner, what would happen if you were unable to work for a few months because of health issues?
These general questions are intended to wake you up to the possibility of over extending yourself on a mortgage. Every situation is different, so make sure you take a careful look at your life to make sure you are committing to a loan you can afford now and in the future.
Buying your first home? Here’s what you need to know
You’ve made the decision to make one of the largest investments you’ll ever make in your life-buying your first home. You’re excited, but at the same time anxious. Some of the questions you may be asking are: Will I be able to afford the home of my dreams? Do I have enough money for a down payment? Can I get a home inspected before I make an offer?
Rest assured, you are not alone. According to the 2000 National Association of REALTORS® Profile of Home Buyers and Sellers, first-time homebuyers accounted for 40 percent of the homes purchased in 1999. The homebuying process can be overwhelming, but if you go into it prepared, your first purchase can be a good experience. Here are some things to consider before making the plunge. Getting a mortgage - Fear of being rejected for a home loan is one of the main concerns for first-time homebuyers. To lessen the stress, you may want to get pre-approved for a loan before looking at prospective homes. This will not only help you feel more confident, it will also give you an advantage when there are multiple offers for a specific home. The fact that your loan has already been approved is of great value to the seller: because it shortens the purchase process and there is less of a chance that the buyer will back out of the sale. Mortgage Payments - The costs involved in the purchase of a home can be overwhelming to first-time buyers. However, with the help of a real estate professional, you can calculate out how much they you be able to pay each month in mortgage payments, and from there, what prospective homes offer a feasible payment plan. Down-Payment - The down-payment amount varies depending on the value of the home you choose and your mortgage lender. And in some cases, first-time home buyers can purchase a home with no money down. Although it varies from state to state, most offer government-funded programs for first-time buyers that help people buy a home with no down-payment. Your real estate professional will be able to explain the different options available to you. Closing Costs - First-time buyers often forget to consider the closing costs when making an offer on a home. Paying closing fees of up to 10 percent of the home sale amount is not unusual. Add that to the down-payment and you’ll have quite a sum to raise before the final papers can be signed. However, a smart first-time buyer takes this into account before making an offer, and with some professional help, the costs can be estimated in advance. Making offers - Don’t feel pressured into making an offer on the first home you see. This is a common mistake of many first-time homebuyers. Make sure you view different homes to get a feel for the marketplace. When you do decide on a home to make a bid on, work with your real estate professional to get all of your questions answered first before making an offer. But don’t wait too long to make an offer. The longer you wait, the greater the chance other prospective buyers may place offers, making it harder for you to negotiate a good deal. Condition of the Home - Buying a “problem” home is another fear of first-timers. A home that needs major repairs can become a costly venture. And, unless the asking price is adjusted to reflect the hidden repairs needed, chances are the home is not worth as much as the seller is asking for it. To avoid unfortunate surprises, your real estate professional may advise you to hire a home inspector before making a serious offer. That way, you know what you are getting into. Above all, remember that there are no silly questions. Make sure you understand and are comfortable with every aspect of the transaction. Your real estate professional can be an invaluable asset in helping you make educated decisions so that your first-home purchase is a rewarding experience.http://www.totalrealestatesolutions.com/articles/disp.cfm?aid=70&typeid=1&winpop=0&nav=1
Buying Pre-Construction? Here’s Why A Real Estate Professional Should Represent You
It might not seem necessary to involve a real estate professional in a transaction where a buyer can deal directly with a builder. Think again! A real estate professional representing the buyer’s interests, can guide you along the right path, smooth the rough places and help ensure you make a decision you can live with (and in) for many years. Here’s how:
* Just as a real estate professional calls on experience and knowledge of an area to help buyers locate pre-owned homes in a community, he or she can also direct buyers interested in newly built homes to developments and communities that match client specifications.
* An agent can suggest builders based on their reputation for delivering a high-quality product, responding quickly to issues, and being financially sound.
* An agent may be familiar with how a builder prices his products and where there may be room to negotiate price or upgrades.
* Without agent representation, you are one buyer purchasing only one home. But an agent can significantly impact a builder’s bottom line by providing a steady supply of customers. The agent’s leverage may work in your favor at the negotiating table. [Note: The builder may require your agent to accompany you on your first visit to the site. Check with the builder.]
* When relocating to a new area, agents can be particularly valuable resources. In addition to providing local area information regarding schools, day care or elder care services, public transportation, proposed development, and so on, once construction is under way, an agent can periodically stop by the work site, supply you with progress reports, and photograph or videotape phases of the construction.
* An agent can assist you as you face hundreds of design choices and consider which upgrades could potentially add value to the home when it comes time to sell.
* An agent can accompany you at the site while you okay the plumbing and electrical locations prior to drywalling, as well as on the walk-through or builder orientation.
* By now, you should be convinced of a real estate professional’s value as you search for and purchase a newly built home. Still, here’s one more great reason to work with an agent-the builder pays the agent’s commission. You enjoy individual attention and support at no cost to you. What a great way to start life in a new home!
http://www.totalrealestatesolutions.com/articles/disp.cfm?aid=67&typeid=1&winpop=0&nav=1
* Just as a real estate professional calls on experience and knowledge of an area to help buyers locate pre-owned homes in a community, he or she can also direct buyers interested in newly built homes to developments and communities that match client specifications.
* An agent can suggest builders based on their reputation for delivering a high-quality product, responding quickly to issues, and being financially sound.
* An agent may be familiar with how a builder prices his products and where there may be room to negotiate price or upgrades.
* Without agent representation, you are one buyer purchasing only one home. But an agent can significantly impact a builder’s bottom line by providing a steady supply of customers. The agent’s leverage may work in your favor at the negotiating table. [Note: The builder may require your agent to accompany you on your first visit to the site. Check with the builder.]
* When relocating to a new area, agents can be particularly valuable resources. In addition to providing local area information regarding schools, day care or elder care services, public transportation, proposed development, and so on, once construction is under way, an agent can periodically stop by the work site, supply you with progress reports, and photograph or videotape phases of the construction.
* An agent can assist you as you face hundreds of design choices and consider which upgrades could potentially add value to the home when it comes time to sell.
* An agent can accompany you at the site while you okay the plumbing and electrical locations prior to drywalling, as well as on the walk-through or builder orientation.
* By now, you should be convinced of a real estate professional’s value as you search for and purchase a newly built home. Still, here’s one more great reason to work with an agent-the builder pays the agent’s commission. You enjoy individual attention and support at no cost to you. What a great way to start life in a new home!
http://www.totalrealestatesolutions.com/articles/disp.cfm?aid=67&typeid=1&winpop=0&nav=1
Friday, July 6, 2007
Twenty Terms You Must Know and Understand Before You Sign Off On Your Mortgage!
Buying a home is a major achievement in most everyone’s life. Pride of ownership, tax breaks and equity are just a few of the many benefits you’ll enjoy with your new home. Your home purchase may also be one of the largest you will ever make.
During the emotional excitement of buying a home, you may encounter terms with which you are unfamiliar. For some, it can be bit embarrassing to ask what they consider too many questions. Others may make a note of their questions but simply forget to revisit those points. To ensure that you have complete confidence during your home loan process, invest a moment to read this report and become familiar with the concepts and terms you’ll encounter. Knowledge is power and the more you know the more successful will be your decisions and the more soundly will you sleep at night having made them.
Adjustable Rate Mortgage (ARM)
Also referred to as a Variable Rate Mortgage. A mortgage in which the interest rate is adjusted periodically based on a pre-selected index.
Annual Percentage Rate (APR)
An interest rate that reflects the cost of a mortgage as a yearly rate. This rate takes into account any points and fees and is based on the loan going to it’s full-term.
Assumption
An agreement between buyer and seller in which the buyer assumes responsibility for the seller’s existing mortgage. This agreement usually saves the buyer money because closing costs and the current interest rate, possibly higher, do not apply.
Buy-down
A method of lowering the buyer’s monthly payment for a short period of time. The lender or homebuilder subsidizes the mortgage by lowering the interest rate for the first few years of a loan.
Caps
A limit in the amount the interest rate or monthly payments for an adjustable rate mortgage that may change.
Closing
Also referred to as settlement. The meeting at the conclusion of a real estate sale in which the property and funds are exchanged between the two parties involved.
Debt-to-Income Ratio
The ratio, expressed as a percentage, which results from dividing a borrower’s monthly payment obligation on long-term debts by the borrower’s gross monthly income.
Discount Points
Prepaid interest assessed at closing by the lender. A point is equal to 1 percent of the loan amount.
Down Payment
Cash paid by the buyer at closing that makes up the difference between purchase price and the mortgage amount.
Earnest Money
Money given by a buyer to a seller as a deposit to commit the buyer to the future transaction. Earnest money is subtracted from closing costs.
Equity
The value an owner has in real estate over and above the obligation against the property. Equity is fair market value minus the current indebtedness.
Escrow
Funds given to a third party which will be held to cover payments such as tax or insurance payments and earnest money deposits.
Fixed Rate Mortgage
A mortgage in which the interest rate remains constant throughout the life of the loan.
Loan-to-Value Ratio
The ratio between the amount of the mortgage loan and the appraised value of the property.
Market Value
The price that a property could possibly bring in the marketplace.
Mortgage Insurance
Insurance that protects lenders against loss if a borrower defaults. This is required when the loan-to-value ratio is greater than 80 percent.
Origination Fee
A fee charged by a lender for processing a loan application; usually computed as a percentage of the loan.
PITI
Refers to Principal, Interest, Taxes, and Insurance.
Underwriting
The decision-making process of granting a loan to a potential homebuyer.
Variable Rate Mortgage
Also referred to as Adjustable Rate Mortgage. A mortgage in which the interest rate is adjusted periodically based on a pre-selected index.
http://www.totalrealestatesolutions.com/articles/disp.cfm?aid=206&typeid=1&winpop=0&nav=1
During the emotional excitement of buying a home, you may encounter terms with which you are unfamiliar. For some, it can be bit embarrassing to ask what they consider too many questions. Others may make a note of their questions but simply forget to revisit those points. To ensure that you have complete confidence during your home loan process, invest a moment to read this report and become familiar with the concepts and terms you’ll encounter. Knowledge is power and the more you know the more successful will be your decisions and the more soundly will you sleep at night having made them.
Adjustable Rate Mortgage (ARM)
Also referred to as a Variable Rate Mortgage. A mortgage in which the interest rate is adjusted periodically based on a pre-selected index.
Annual Percentage Rate (APR)
An interest rate that reflects the cost of a mortgage as a yearly rate. This rate takes into account any points and fees and is based on the loan going to it’s full-term.
Assumption
An agreement between buyer and seller in which the buyer assumes responsibility for the seller’s existing mortgage. This agreement usually saves the buyer money because closing costs and the current interest rate, possibly higher, do not apply.
Buy-down
A method of lowering the buyer’s monthly payment for a short period of time. The lender or homebuilder subsidizes the mortgage by lowering the interest rate for the first few years of a loan.
Caps
A limit in the amount the interest rate or monthly payments for an adjustable rate mortgage that may change.
Closing
Also referred to as settlement. The meeting at the conclusion of a real estate sale in which the property and funds are exchanged between the two parties involved.
Debt-to-Income Ratio
The ratio, expressed as a percentage, which results from dividing a borrower’s monthly payment obligation on long-term debts by the borrower’s gross monthly income.
Discount Points
Prepaid interest assessed at closing by the lender. A point is equal to 1 percent of the loan amount.
Down Payment
Cash paid by the buyer at closing that makes up the difference between purchase price and the mortgage amount.
Earnest Money
Money given by a buyer to a seller as a deposit to commit the buyer to the future transaction. Earnest money is subtracted from closing costs.
Equity
The value an owner has in real estate over and above the obligation against the property. Equity is fair market value minus the current indebtedness.
Escrow
Funds given to a third party which will be held to cover payments such as tax or insurance payments and earnest money deposits.
Fixed Rate Mortgage
A mortgage in which the interest rate remains constant throughout the life of the loan.
Loan-to-Value Ratio
The ratio between the amount of the mortgage loan and the appraised value of the property.
Market Value
The price that a property could possibly bring in the marketplace.
Mortgage Insurance
Insurance that protects lenders against loss if a borrower defaults. This is required when the loan-to-value ratio is greater than 80 percent.
Origination Fee
A fee charged by a lender for processing a loan application; usually computed as a percentage of the loan.
PITI
Refers to Principal, Interest, Taxes, and Insurance.
Underwriting
The decision-making process of granting a loan to a potential homebuyer.
Variable Rate Mortgage
Also referred to as Adjustable Rate Mortgage. A mortgage in which the interest rate is adjusted periodically based on a pre-selected index.
http://www.totalrealestatesolutions.com/articles/disp.cfm?aid=206&typeid=1&winpop=0&nav=1
Secrets Lenders Don’t Want You to Know!
The right or wrong decision when signing your home mortgage can mean thousands of dollars difference in interest paid. There are very important considerations to evaluate before you commit to a 15 or 30 year note. For many of us our mortgage payment is the most important financial decision we’ll ever make. Doesn’t it make sense to know as much as possible about the financing of our home? Take the time to thoroughly investigate all of your options!
Unbelievably, many of us sign the first mortgage placed in front of us. Typically the excitement of the new home purchase reduces the mortgage to not much more than an afterthought. What you read here could save you hundreds or even thousands of dollars. Your real estate professional has established relationships with the top lenders in your area. By aligning yourself with a professional agent you ensure that all the financial steps are taken care of properly and economically.
- Utilize a Lender With Established Ties to an Agent - Lenders are much more flexible with the real estate agents who have done business with them previously. This relationship then establishes them as a team. The lender and agent work effectively together, referring each other business. That’s why a good agent can make substantial difference in setting up the most economical financing. And the right financing can, literally, save you tens of thousands of dollars over the life of your loan!
- Don’t Attempt Paperwork Alone - All the paperwork required to complete the purchase of a home can be quite intimidating and frustrating for a home buyer. Make sure you have your lenders help you with all the paperwork. Get help from your team, your lender and agent. Their expertise will help alleviate the stress and it will prove to be invaluable before you sign your mortgage.
- Look at All Your Options - Make sure you see at least 5 loan programs for your mortgage. Lenders have at least 10 programs and should work with you and your agent on deciding what is best for your circumstances. Evaluate all your options. After all it’s your money you’re spending - not theirs!
- Demand Service - There is little difference between a bank, savings and loan, or a mortgage broker when it comes to the competitiveness of their loan rates. The difference is in the service they provide. It is their job to serve you! You want to get the loan approved and move into your new home as quickly as possible, but don’t overlook the fact that you are the one spending the money and they are the ones who should cater to your needs. Don’t let the process become so intimidating that you lose that understanding.
- Stay in Complete Touch - You should receive a written report from your lender about every step. This will ensure that no details are overlooked and there will be no surprises.
- Negotiate a Flexible Loan - Don’t just accept the terms they lay down in front of you. Lenders are in the business of loaning money and they want your business. Make sure you examine every option available to you. If you negotiate a variable rate loan, many lenders have the ability to move you into a fixed loan if rates start going up. Make sure that you understand whether or not that is an option in the package you are looking at.
- Don’t Give Up on the First No - Initial decisions are not always final decisions. Going to a higher authority can sometimes get you the loan, but do so with the assistance and compliance of your lender and agent. Many times special circumstances when explained properly to the person in charge, will win you the loan.
- Don’t Wait for the Bottom of the Market - The odds of you hitting the bottom of your market are about like the odds of you hitting your state lotto! You will almost never hit the bottom of a market. And trying to time it exactly right is often costly. It usually causes a person or family to miss out on the opportunity to purchase a very nice property. You’re better off simply negotiating the best rate and terms you can at the time you find a property. If interest rates go down, you can refinance. This is a much better approach because you won’t miss out on the property you’ve spent so much time locating.
- Be Honest With Your Lender - Your lender wants to help you with your loan. The only time they get paid is when you get approved. The more information (good or bad) you provide your lender, the easier it will be for them to get an approval. It helps them present the loan in the best light. This in turn helps the loan get the highest approval rating.
- Become Completely Educated - Pick your lender’s brain. Lenders will teach you all about your various options, even if you haven’t found the right property yet. They will be very patient with you while you are looking, especially if you have aligned yourself with the right agent. They understand all the up-front work will pay off in future business. Your agent will then continue to refer people to the courteous and service-minded lender on down the line.
- Get Prequalified - Lenders will provide you with a certificate of pre-qualification. By getting prequalified you know exactly what financial parameters to stay within. Your agent and lender will consult with you and help you get qualified for the loan that best fits your needs. Many times they are able to get you a larger loan than you may have thought possible.
The Nine Most Common Mistakes to Avoid When Obtaining a Home Mortgage!
You are about to make what will most likely be the largest transaction of your life: your home mortgage. Unfortunately, many homebuyers do not take the time to research some of the little but weighty intricacies of mortgages. Researching the mortgage process takes little time compared to the tens of thousands of dollars it could save you.
Doesn’t it make sense to become as completely informed as possible before you buy your next home? This special report is designed to help you avoid nine common mistakes. Remember that the right lender can help you make good, sound business decisions based on your personal financial situation.
- Find a Reputable Lender - This is the most important choice you can make when starting the mortgage process. If you don’t trust your lender, you are in for a long and stressful home-buying experience.
- Pricing - Don’t be lured into a mortgage company strictly by promises of low rates. Find out how long the advertised rate is guaranteed for. Make sure there is enough time to close on your loan. Some companies may make these "promises" but will try changing the rate prior to closing. They may claim that your "lock-in" rate has expired so make sure you have the expiration date in writing. In some cases, the lender may even try to delay your closing to break the "lock-in" rate. In other cases the delay may be beyond the lender’s control. Make sure to allow yourself plenty of time for closing. Delays in the process are common and everyone (builders, title companies, even yourself) is responsible.
- Programs - You will see several programs that offer special low-interest rates. Keep in mind that they may not be the best program for your situation. Make your lender explain what programs they feel best serve your needs and more importantly, why.
- Fixed or Adjustable Rate Mortgage (ARM) - Conventional thinking is that fixed is always better and while this is sometimes true, it is not always the case. The key here is to ask, "How long am I going to live at this property?" An ARM can actually be a better choice if you are going to be in the home for a short time. The average for how long a first time homebuyer keeps their mortgage is less than four years. In general, the longer you plan on staying in your home, the better a fixed rate mortgage will suit your needs.
- Don’t try to bottom out the market - Deciding when to lock in to a mortgage rate can be difficult. Many people will float, trying to guess when rates have hit bottom. Unfortunately, a lot of times they will wait too long and end up with a much higher interest rate. There is nothing wrong with floating but keep a close eye on economic indicators. Your daily newspaper or even the nightly news can be an excellent source of information on the latest interest rate activity. As closing nears, it might be worth locking in.
- Negotiate problems prior to closing – Its common for a problem to arise before closing. Waiting until closing will rarely be in your best interest. For instance, if you accept $400 at closing in lieu of the seller making a repair and after closing you find that the repair will actually cost $600, you’ve obviously made a poor decision. Whether the builder agreed to add an item and has not or the seller has made a repair that is not acceptable to you, discussing a solution prior to closing will give both parties time to analyze and determine options.
- Be prepared for closing costs – In addition to the down payment, you will be required to pay fees and other closing costs at the time of the final transaction. Closing costs typically range from 2 percent to 6 percent but will be dependent upon your situation. Lenders must provide you with a "Good Faith Estimate." The "Good Faith Estimate" will breakdown all costs so that you may know what to expect at closing.
- Close at the end of the month – When making a mortgage payment, you will be paying interest that has accrued from the previous month. Upon closing however, your lender will charge you prepaid interest for the date the loan is recorded through the end of that month. Therefore, one way to lower your closing costs is to close in the latter part of the month. This will lower the amount of prepaid interest that you must pay.
- Look out for hidden fees -- Check for certain miscellaneous fees such as inspection, notary, and document preparation. These types of fees can mean hundreds of dollars in closing costs. Remember that this is your money at stake. Never should you be afraid to ask for explanations of fees you are being charged.
http://www.totalrealestatesolutions.com/articles/disp.cfm?aid=201&typeid=1&winpop=0&nav=1
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