Rules for purchasing a home without buying trouble
Home buying should be a pleasant experience. There's no reason it won't be if you know how to avoid the possible pitfalls. Following just a few simple rules will make the process painless and even enjoyable.
- Shop for home financing first. Many home buyers begin by looking at homes they can't afford, thus w
asting the time of real estate agents and home sellers. A better approach is first to talk to several mortgage lenders to learn the maximum mortgage for which you can qualify. Inquire about both fixed rate and adjustable rate mortgages. Of course, after you have a home tied up on a purchase contract, you can shop further to see if the mortgage terms can be improved.
Mortgage lenders are especially eager to make loans today, because their business volume is down, but their vaults are bulging with mortgage money to loan. Home buyers should be aware mortgage lenders need borrowers as much as borrowers need lenders. Don't be intimidated. If a mortgage company isn't responsive and cooperative, there are dozens of other lenders who are.
- Become the neighborhood expert. Before making an offer to buy a home, inspect as many houses as possible in the neighborhood. Weekend open houses are an excellent time to inspect many homes in a short time period. After you inspect about 20 houses you will know more about an area's homes than do most real estate agents.
This understanding is critical to a successful home purchase. Home buyers should be careful what they tell the salesperson, because that agent legally represents the home seller and is obligated to tell the seller every material fact known about the buyer.
- Before making an offer bid, ask for a competitive market analysis. Just to be certain you are not overpaying for a home. Before making a purchase offer bid, be sure to ask the realty agent for a written competitive market analysis. This form shows recent sales prices of similar nearby comparable homes, as well as asking prices of neighborhood homes currently for sale. By adding and subtracting market value for the pros and cons of the home you want to buy, you can make an offer that is neither too high nor too low.
- Insist on mortgage and inspection contingency clauses. There are two contingency clauses your home purchase offer bid should contain to protect against unexpected but often encountered problems.
The first is the mortgage contingency clause. No matter how certain you are of obtaining a home loan, be sure to include a simple finance contingency. Such a clause might read: "This purchase offer is contingent upon property and buyer qualifying for a first mortgage of at least $80,000 at a fixed interest rate not exceeding 10.5 percent for at least 30 years with a 2 point maximum loan fee and a maximum $731.79 monthly payment." If the specified loan cannot be obtained, then you need not proceed and your good faith deposit must be refunded.
In addition to a termite inspection, if customary in your area, the other important contingency clause to consider involves a physical inspection. Such a clause might read: "This purchase offer contingent upon buyer obtaining at his expense within 10 days a satisfactory professional inspection report on the property; buyer to notify the seller if such report is unsatisfactory and this sale shall then be cancelled with the buyer's earnest money deposit promptly refunded."
Home buying can be an enjoyable experience for buyers who understand the process. By knowing what price home you can afford, inspecting many neighborhood homes before making a purchase offer, understanding who the agent represents, insisting upon a competitive market analysis before making a purchase offer and including finance and inspection contingencies, home buying will be a pleasurable purchase of your best investment.
http://www.ezilon.com/information/article_15457.shtml
Thursday, September 6, 2007
Negotiating to buy a home
Understanding the dynamics of negotiation
While every real estate transaction is different, buyers and sellers often fall back on standard negotiating techniques to get to a signed contract both can live with. Understanding the dynamics of negotiation can help you stay focused and emotionally detached during a sometimes anxious process.
After price, there are literally hundreds of terms that can be negotiated in a real estate transaction. Most likely you'll be dealing with just a handful, such as the standard financing and home inspection contingencies, when making your offer.
But most purchase contracts, especially if they are standard documents, are replete with boilerplate language that may not fit your situation and may in fact be unfavorable to you. These are areas you want to negotiate carefully. And the more you know about the language and art of negotiation, the better a deal you can make for yourself, saving yourself hundreds if not thousands of dollars in the process.
The Art of the Deal: Negotiating strategies
* Start low and move up: Works best for properties that are overpriced in slow markets; Some possible outcomes are that the seller rejects outright or counters to get you to increase offer. You move up and agree on a price that comes close to what you ultimately wanted to pay.
* Offer close to asking price: Works best for properties that are priced well in active markets; Some possible outcomes are that the seller may accept outright or counter to get you to increase offer slightly.
* Offer the top price you can afford: Works best in slow markets; Some possible outcomes are that the seller may reject and you may have to walk away.
* Save terms to bargain: Works best in market or situation where seller is highly motivated; Some possible outcomes are that the seller may trade price concessions for quick closing date or your taking charge of repairs after the inspection.
* Give up something to get something: Works in most situations; Seller ends up taking something you really don’t want but you ask for initially to gain a lower price or other concession.
* Move in small increments: Works best for overpriced properties in slow markets; Seller may agree to lower price if given time to adjust to idea.
* Focus on issues you can resolve to keep momentum going: Works best after several rounds of negotiation; Seller and buyer come to terms after resolving easiest issue first.
* Be unpredictable: Works best after several rounds of negotiation; Seller accepts our offer after you suddenly make sizeable change.
* Make an either/or offer: Works best after several rounds of negotiation; Seller accepts one of two scenarios you offer.
* Split the difference: Works best after several rounds of negotiation; Seller and buyer settle on price exactly between asking and offering price.
* Set deadlines for action: Works best in any situation; Seller and buyer will act more quickly and decisively if given a time limit.
Tips for making the trade
If you've done your research on the market, comparable recent sales, the neighborhood and the seller, you have probably put together what you think is your best offer. Beware of being wed too strongly to your initial offer, however good you think it is. Every term in a purchase contract is negotiable, not just the price, and most sellers don't accept initial offers. Remember, you and the seller have different goals: You want the most for the least money and the seller wants to give you the least for the most money. Keep the top price you can afford to pay to yourself and stay flexible. But be prepared to walk away from a deal that would force you to overpay or accede to a highly undesirable term, such as no home inspection.
Get it in writing
It may seem cumbersome, but do all of your negotiating in writing. There are absolutely no guarantees with verbal agreements or commitments, so avoid any such interaction with the seller or the seller's agent while your offer is on the table. The dance of the paperwork begins with your purchase offer. You, your agent or lawyer will probably use a standard purchase contract, which will not contain all of the terms and conditions you want.
Make sure that any additions or amendments that you make to the purchase offer are clearly typed or written into the contract with your initials beside them. The seller should also respond in writing, either with a new purchase contract countering your proposal or a counteroffer penciled in on the back of your offer. Some sellers will return the offer merely with revisions marked up and initialed on the document. All are valid forms of communication during negotiations. If negotiations go back and forth again, and the original document is heavily marked up, take the time to prepare a fresh one incorporating the penciled-in revisions to avoid any misunderstandings. The contract is ratified, or official, when you and the seller sign on the dotted line.
http://www.bestformortgage.com/articles.aspx?id=8
While every real estate transaction is different, buyers and sellers often fall back on standard negotiating techniques to get to a signed contract both can live with. Understanding the dynamics of negotiation can help you stay focused and emotionally detached during a sometimes anxious process.
After price, there are literally hundreds of terms that can be negotiated in a real estate transaction. Most likely you'll be dealing with just a handful, such as the standard financing and home inspection contingencies, when making your offer.
But most purchase contracts, especially if they are standard documents, are replete with boilerplate language that may not fit your situation and may in fact be unfavorable to you. These are areas you want to negotiate carefully. And the more you know about the language and art of negotiation, the better a deal you can make for yourself, saving yourself hundreds if not thousands of dollars in the process.
The Art of the Deal: Negotiating strategies
* Start low and move up: Works best for properties that are overpriced in slow markets; Some possible outcomes are that the seller rejects outright or counters to get you to increase offer. You move up and agree on a price that comes close to what you ultimately wanted to pay.
* Offer close to asking price: Works best for properties that are priced well in active markets; Some possible outcomes are that the seller may accept outright or counter to get you to increase offer slightly.
* Offer the top price you can afford: Works best in slow markets; Some possible outcomes are that the seller may reject and you may have to walk away.
* Save terms to bargain: Works best in market or situation where seller is highly motivated; Some possible outcomes are that the seller may trade price concessions for quick closing date or your taking charge of repairs after the inspection.
* Give up something to get something: Works in most situations; Seller ends up taking something you really don’t want but you ask for initially to gain a lower price or other concession.
* Move in small increments: Works best for overpriced properties in slow markets; Seller may agree to lower price if given time to adjust to idea.
* Focus on issues you can resolve to keep momentum going: Works best after several rounds of negotiation; Seller and buyer come to terms after resolving easiest issue first.
* Be unpredictable: Works best after several rounds of negotiation; Seller accepts our offer after you suddenly make sizeable change.
* Make an either/or offer: Works best after several rounds of negotiation; Seller accepts one of two scenarios you offer.
* Split the difference: Works best after several rounds of negotiation; Seller and buyer settle on price exactly between asking and offering price.
* Set deadlines for action: Works best in any situation; Seller and buyer will act more quickly and decisively if given a time limit.
Tips for making the trade
If you've done your research on the market, comparable recent sales, the neighborhood and the seller, you have probably put together what you think is your best offer. Beware of being wed too strongly to your initial offer, however good you think it is. Every term in a purchase contract is negotiable, not just the price, and most sellers don't accept initial offers. Remember, you and the seller have different goals: You want the most for the least money and the seller wants to give you the least for the most money. Keep the top price you can afford to pay to yourself and stay flexible. But be prepared to walk away from a deal that would force you to overpay or accede to a highly undesirable term, such as no home inspection.
Get it in writing
It may seem cumbersome, but do all of your negotiating in writing. There are absolutely no guarantees with verbal agreements or commitments, so avoid any such interaction with the seller or the seller's agent while your offer is on the table. The dance of the paperwork begins with your purchase offer. You, your agent or lawyer will probably use a standard purchase contract, which will not contain all of the terms and conditions you want.
Make sure that any additions or amendments that you make to the purchase offer are clearly typed or written into the contract with your initials beside them. The seller should also respond in writing, either with a new purchase contract countering your proposal or a counteroffer penciled in on the back of your offer. Some sellers will return the offer merely with revisions marked up and initialed on the document. All are valid forms of communication during negotiations. If negotiations go back and forth again, and the original document is heavily marked up, take the time to prepare a fresh one incorporating the penciled-in revisions to avoid any misunderstandings. The contract is ratified, or official, when you and the seller sign on the dotted line.
http://www.bestformortgage.com/articles.aspx?id=8
Understanding the purchase contract
There may be no such thing as a perfect real estate purchase contract
There may be no such thing as a perfect real estate purchase contract, but getting this legally binding document right will save you money, time and heartache.
There are no stupid questions when it comes to buying real estate. An important time to ask them is when you are drafting the terms and conditions of your offer in the purchase contract, whether you are doing it yourself or with an agent or attorney. Curious about contingencies? Ask. Fuzzy about fixtures? Ask again. You don't have to become an expert in real estate jargon and practice to craft a perfect contract. The more you know about how a contract works, however, the more effectively you can tailor it to your desired specifications. You'll also be a much savvier negotiator when the seller comes back with a counteroffer.
Read the fine preprint
Many residential purchase contracts are crafted with standard real estate boilerplate. Many firms, in fact, use preprinted forms. While preprinted or computer-stored forms have improved the efficiency of the home-buying process, it can be at the expense of the buyer. So it pays to get a copy early on of the contract you're likely to use. Read it and don't hesitate to rewrite or toss out what you don't like. If you'll be working with a pre-print, get a copy when you first start looking for a house and highlight terms or conditions you like or may want to modify when you're ready to make an offer. Circle what you dislike, too; it's a good way to catch buyer-unfriendly fine print. After that, you're ready to sit down and write an offer you hope the seller won't refuse.
What every contract should have
Whether you're writing your own contract or using a preprinted form, every contract should have between 10 and 20 basic elements. These include the address of the property, contingencies, financing terms, purchase price, closing date and others.
Other musts include:
* Time to respond: Specific amount of time for seller to answer your offer. Contingencies also should set time limits.
* Seller’s responsibilities: Include passing clear title to the property, maintaining the property in its present condition until closing, making any agreed-upon repairs and delivering the property clean and free of personal possessions and debris.
* Disposition of deposit: Who gets your good-faith deposit if contract is terminated. Varies with circumstances, such as failure to get loan approval (seller would get deposit) or unsatisfactory home inspection (buyer would get deposit).
* What stays: What fixtures and personal property is included in the sale. Make your list detailed; any verbal agreements are not binding.
* Terms of withdrawal: What conditions allow you or the seller to withdraw from the agreement. You might not think you'll need them, but it's good protection.
* Final walk-through: Your chance to make sure the house is in order shortly before closing. Contract should specify seller's responsibility should walk-through be unsatisfactory.
Problem solving
As much as possible, your purchase contract should help you and the seller resolve any issues that crop up. For example, your interest rate is only good for 60 days and the seller indicates they may not be able to close in that time. One solution would be to include a provision in your contract that sets a firm closing date and allows the sellers to rent back to you at a cost equal to your monthly payment. Despite your best efforts, you may find yourself in court--for example, if you or the seller withdraws from the contract for a reason not in the contract. The seller might be able to sue you and you probably would lose your deposit. You also could sue the seller, either for damages or for specific performance. If you win a suit for specific performance, the court will require the sellers to abide by the purchase contract.
Protect yourself from defects
Defects that surface after closing can be a problem. Most real estate purchase contracts include a seller warranty clause. Although the clauses vary, they usually require the seller to deliver the property to the buyer with a watertight roof and with the operating systems of the house (plumbing, electrical, heating, cooling, built-in appliances) in working condition. The clause also may require the seller to disclose known defects.
Never a remorseful buyer be
Do not enter into a binding contract to buy a property unless you are sure you want to buy it. Even though contingencies are included in a purchase contract to protect you, your deposit could be at risk if you fail to complete the purchase. Few sellers will be willing to include a contingency that permits the buyers to back out risk-free if they are simply suffering from buyer's remorse.
A seller's out button
An escape clause, also called a release or kick-out clause, is a provision in a purchase contract that gives the sellers the opportunity to cancel the contract under certain conditions. Escape clauses are most common in purchase contracts contingent on the sale of the buyer's property.
http://www.bestformortgage.com/articles.aspx?id=9
There may be no such thing as a perfect real estate purchase contract, but getting this legally binding document right will save you money, time and heartache.
There are no stupid questions when it comes to buying real estate. An important time to ask them is when you are drafting the terms and conditions of your offer in the purchase contract, whether you are doing it yourself or with an agent or attorney. Curious about contingencies? Ask. Fuzzy about fixtures? Ask again. You don't have to become an expert in real estate jargon and practice to craft a perfect contract. The more you know about how a contract works, however, the more effectively you can tailor it to your desired specifications. You'll also be a much savvier negotiator when the seller comes back with a counteroffer.
Read the fine preprint
Many residential purchase contracts are crafted with standard real estate boilerplate. Many firms, in fact, use preprinted forms. While preprinted or computer-stored forms have improved the efficiency of the home-buying process, it can be at the expense of the buyer. So it pays to get a copy early on of the contract you're likely to use. Read it and don't hesitate to rewrite or toss out what you don't like. If you'll be working with a pre-print, get a copy when you first start looking for a house and highlight terms or conditions you like or may want to modify when you're ready to make an offer. Circle what you dislike, too; it's a good way to catch buyer-unfriendly fine print. After that, you're ready to sit down and write an offer you hope the seller won't refuse.
What every contract should have
Whether you're writing your own contract or using a preprinted form, every contract should have between 10 and 20 basic elements. These include the address of the property, contingencies, financing terms, purchase price, closing date and others.
Other musts include:
* Time to respond: Specific amount of time for seller to answer your offer. Contingencies also should set time limits.
* Seller’s responsibilities: Include passing clear title to the property, maintaining the property in its present condition until closing, making any agreed-upon repairs and delivering the property clean and free of personal possessions and debris.
* Disposition of deposit: Who gets your good-faith deposit if contract is terminated. Varies with circumstances, such as failure to get loan approval (seller would get deposit) or unsatisfactory home inspection (buyer would get deposit).
* What stays: What fixtures and personal property is included in the sale. Make your list detailed; any verbal agreements are not binding.
* Terms of withdrawal: What conditions allow you or the seller to withdraw from the agreement. You might not think you'll need them, but it's good protection.
* Final walk-through: Your chance to make sure the house is in order shortly before closing. Contract should specify seller's responsibility should walk-through be unsatisfactory.
Problem solving
As much as possible, your purchase contract should help you and the seller resolve any issues that crop up. For example, your interest rate is only good for 60 days and the seller indicates they may not be able to close in that time. One solution would be to include a provision in your contract that sets a firm closing date and allows the sellers to rent back to you at a cost equal to your monthly payment. Despite your best efforts, you may find yourself in court--for example, if you or the seller withdraws from the contract for a reason not in the contract. The seller might be able to sue you and you probably would lose your deposit. You also could sue the seller, either for damages or for specific performance. If you win a suit for specific performance, the court will require the sellers to abide by the purchase contract.
Protect yourself from defects
Defects that surface after closing can be a problem. Most real estate purchase contracts include a seller warranty clause. Although the clauses vary, they usually require the seller to deliver the property to the buyer with a watertight roof and with the operating systems of the house (plumbing, electrical, heating, cooling, built-in appliances) in working condition. The clause also may require the seller to disclose known defects.
Never a remorseful buyer be
Do not enter into a binding contract to buy a property unless you are sure you want to buy it. Even though contingencies are included in a purchase contract to protect you, your deposit could be at risk if you fail to complete the purchase. Few sellers will be willing to include a contingency that permits the buyers to back out risk-free if they are simply suffering from buyer's remorse.
A seller's out button
An escape clause, also called a release or kick-out clause, is a provision in a purchase contract that gives the sellers the opportunity to cancel the contract under certain conditions. Escape clauses are most common in purchase contracts contingent on the sale of the buyer's property.
http://www.bestformortgage.com/articles.aspx?id=9
Choosing A Loan That’s Best For You
What loan is right for you? Figuring out your current needs as well as future goals will help you make that decision
What loan is right for you? Figuring out your current needs as well as future goals will help you make that decision. A few questions to ask yourself before heading into the process: What�s your current financial situation? Do you expect it to change or to remain constant? Do you plan to keep your job? Is your employment stable, or do you imagine you�ll have to look for new work sometime soon?
There are other factors to keep in mind. Are you committed to your geographical area, or do you envision selling your home and moving in the future? How about your family structure? If you plan on adding to your household -- having children, or another family member moving in -- you should have that in mind before seeking out a loan.
Finally, would you prefer a mortgage payment that remains consistent or that may fluctuate with time? The answers to these questions will drive the rest of your loan-seeking process.
The State of Rates
With apologies to Bob Dylan: The rates they are a-changing. Federal Reserve chairman Alan Greenspan cut rates 13 times between January 2001 and May 2003, driving its benchmarks federal funds rate to a nearly half-century low of 1 percent. But with rising economic tides spurring fears of inflation, Greenspan is taking a more aggressive stance by raising rates for the first time since March 2000.
What does this mean for borrowers? The upshot is that they�ll be feeling the pinch, particularly when opting for variable-rate mortgages. Though short-term rates are projected to stay relatively low even with the hikes -- analysts say the Fed funds rate should hit 2.25 by Christmas 2004 -- rising rates are something to remember as you ponder your options.
Fixed-Rate or Adjustable?
Fixed-rate loans are the most common loan program. You can opt for terms of 30 years, 20 years, 15 years, or 10 years. The most common are 30- and 15-year loans. Fixed-rate loans break down into two types: long-term and short-term. Long-term fixed-rate loans have unchanging interest rates. Therefore, when you lock in an interest rate, it�s yours for the life of the loan. Your payments and interest will be consistent, but over time you�ll be paying a higher rate and more interest. Long-term fixed mortgages generally also require higher down payments. Ultimately, you�re paying for predictability.
Short-term fixed mortgages also translate to consistent payments and interest, but you�ll be getting a lower interest rate and less total interest paid. These loans also offer a more rapid payoff timetable. However, they also require a higher monthly payment, and it�s tougher to qualify.
Fixed mortgages may best suit borrowers who want to lock in a low current rate, make lower monthly payments, or are looking to stay in their home long-term. Those interested in Veterans Administration (VA) loans or with little or no down payment should also consider fixed-rate programs.
Adjustable-rate mortgages (ARMs) have rates that closely follow federal funds percentages. These types of loans vary, so it�s best to ask individual lenders what they offer. In general, however, borrowers who plan to stay in their home short-term (five years or less), believe that interest rates will decrease, and are comfortable with a varying mortgage payment should keep their minds on ARMs.
Choices of ARMs include 6-month certificate of deposit (CDs), 1-year treasury spot, 6-month treasury average, and 12-month treasury average. The 6-month CD is considered most volatile, while the 12-month treasury is most stable.
Specific Loan Programs
If you�re looking for a program that doesn�t require a large down payment, a Federal Housing Administration mortgage might be for you. These FDA-insured loans require an annual fee and hefty initial mortgage-insurance premium upon closing. However, these costs can also be incorporated as part of the loan. Loan caps vary depending on the borrower�s county of residence. FDA also offers specific loans for incorporating energy-efficient improvements into the purchase of a new home, as well as reverse mortgages which enable borrowers 62 and older to borrow against the equity in their home either as a loan or a line of credit.
Conventional loans may be another avenue. These loans are backed by government-sponsored entities, the most well-known of which are Fannie Mae and Freddie Mac. Borrowers can top conventional-loan sources to purchase or refinance homes with first or second mortgages. Currently Fannie Mae and Freddie Mac offer loans up to $333,700 for first mortgages on single-family homes. Private investors also offer conventional loans for higher amounts, but these so-called jumbo loans carry higher interest rates since they�re not federally sponsored.
Bad Credit Loans
Borrowers with less-than-perfect credit may not qualify for standard loans. People who fall into this category may consider the subprime market -- but use caution and do their homework as there are predatory lenders waiting to pounce. To counterbalance the higher risks presented by borrowers with bruised credit, the subprime market typically offers loans that require higher down payments and steeper rates.
This relatively new market has emerged within the last 15 years to serve buyers who otherwise wouldn�t be able to finance their home purchases. Experts caution that subprime loans should be used as short-term (two to four years) solutions only. During that time, it�s best to work toward bettering your credit so that you can refinance into a loan with more optimal terms.
Getting the Best Terms
Getting a lock on the best loan program for you also depends on what you bring to the table. The best-qualified buyers have good credit and payment history, a sizable down payment, and/or a low debt-to-income ratio. The ability to pay all or most closing costs will also lower your interest rate.
Remember, you can always refinance if your situation or needs change. Still, doing your homework beforehand will save you the hassles of having to backtrack. Check your financial picture, assess your needs, talk to lenders, collect references, and make sure you�re committing to what you want before signing on the dotted line.
http://www.bestformortgage.com/articles.aspx?id=11
What loan is right for you? Figuring out your current needs as well as future goals will help you make that decision. A few questions to ask yourself before heading into the process: What�s your current financial situation? Do you expect it to change or to remain constant? Do you plan to keep your job? Is your employment stable, or do you imagine you�ll have to look for new work sometime soon?
There are other factors to keep in mind. Are you committed to your geographical area, or do you envision selling your home and moving in the future? How about your family structure? If you plan on adding to your household -- having children, or another family member moving in -- you should have that in mind before seeking out a loan.
Finally, would you prefer a mortgage payment that remains consistent or that may fluctuate with time? The answers to these questions will drive the rest of your loan-seeking process.
The State of Rates
With apologies to Bob Dylan: The rates they are a-changing. Federal Reserve chairman Alan Greenspan cut rates 13 times between January 2001 and May 2003, driving its benchmarks federal funds rate to a nearly half-century low of 1 percent. But with rising economic tides spurring fears of inflation, Greenspan is taking a more aggressive stance by raising rates for the first time since March 2000.
What does this mean for borrowers? The upshot is that they�ll be feeling the pinch, particularly when opting for variable-rate mortgages. Though short-term rates are projected to stay relatively low even with the hikes -- analysts say the Fed funds rate should hit 2.25 by Christmas 2004 -- rising rates are something to remember as you ponder your options.
Fixed-Rate or Adjustable?
Fixed-rate loans are the most common loan program. You can opt for terms of 30 years, 20 years, 15 years, or 10 years. The most common are 30- and 15-year loans. Fixed-rate loans break down into two types: long-term and short-term. Long-term fixed-rate loans have unchanging interest rates. Therefore, when you lock in an interest rate, it�s yours for the life of the loan. Your payments and interest will be consistent, but over time you�ll be paying a higher rate and more interest. Long-term fixed mortgages generally also require higher down payments. Ultimately, you�re paying for predictability.
Short-term fixed mortgages also translate to consistent payments and interest, but you�ll be getting a lower interest rate and less total interest paid. These loans also offer a more rapid payoff timetable. However, they also require a higher monthly payment, and it�s tougher to qualify.
Fixed mortgages may best suit borrowers who want to lock in a low current rate, make lower monthly payments, or are looking to stay in their home long-term. Those interested in Veterans Administration (VA) loans or with little or no down payment should also consider fixed-rate programs.
Adjustable-rate mortgages (ARMs) have rates that closely follow federal funds percentages. These types of loans vary, so it�s best to ask individual lenders what they offer. In general, however, borrowers who plan to stay in their home short-term (five years or less), believe that interest rates will decrease, and are comfortable with a varying mortgage payment should keep their minds on ARMs.
Choices of ARMs include 6-month certificate of deposit (CDs), 1-year treasury spot, 6-month treasury average, and 12-month treasury average. The 6-month CD is considered most volatile, while the 12-month treasury is most stable.
Specific Loan Programs
If you�re looking for a program that doesn�t require a large down payment, a Federal Housing Administration mortgage might be for you. These FDA-insured loans require an annual fee and hefty initial mortgage-insurance premium upon closing. However, these costs can also be incorporated as part of the loan. Loan caps vary depending on the borrower�s county of residence. FDA also offers specific loans for incorporating energy-efficient improvements into the purchase of a new home, as well as reverse mortgages which enable borrowers 62 and older to borrow against the equity in their home either as a loan or a line of credit.
Conventional loans may be another avenue. These loans are backed by government-sponsored entities, the most well-known of which are Fannie Mae and Freddie Mac. Borrowers can top conventional-loan sources to purchase or refinance homes with first or second mortgages. Currently Fannie Mae and Freddie Mac offer loans up to $333,700 for first mortgages on single-family homes. Private investors also offer conventional loans for higher amounts, but these so-called jumbo loans carry higher interest rates since they�re not federally sponsored.
Bad Credit Loans
Borrowers with less-than-perfect credit may not qualify for standard loans. People who fall into this category may consider the subprime market -- but use caution and do their homework as there are predatory lenders waiting to pounce. To counterbalance the higher risks presented by borrowers with bruised credit, the subprime market typically offers loans that require higher down payments and steeper rates.
This relatively new market has emerged within the last 15 years to serve buyers who otherwise wouldn�t be able to finance their home purchases. Experts caution that subprime loans should be used as short-term (two to four years) solutions only. During that time, it�s best to work toward bettering your credit so that you can refinance into a loan with more optimal terms.
Getting the Best Terms
Getting a lock on the best loan program for you also depends on what you bring to the table. The best-qualified buyers have good credit and payment history, a sizable down payment, and/or a low debt-to-income ratio. The ability to pay all or most closing costs will also lower your interest rate.
Remember, you can always refinance if your situation or needs change. Still, doing your homework beforehand will save you the hassles of having to backtrack. Check your financial picture, assess your needs, talk to lenders, collect references, and make sure you�re committing to what you want before signing on the dotted line.
http://www.bestformortgage.com/articles.aspx?id=11
Home Appreciation
Learn how to handle it
Appreciating Appreciation
When property values go up, homeowners cheer and home buyers are forced to dig deeper into savings to buy. But appreciation is an unpredictable thing. Learn how to handle it!
Think of appreciation, an increase in home values, as the paper profits in real estate. Paper profits exist only on paper--in this case your deed--until you actually sell the house. If you buy a house in a rapidly appreciating area, there is no guarantee that property values will be the same or greater when it comes time to sell whether you live there five years or 30. The economy could sour or your neighborhood may lose its luster. Furthermore, if you buy at the height of an upswing, when demand ratchets up prices, you may overpay. Just like in the stock market, the flip side of a boom is a bust, or at least a correction. If you overpay, and prices settle out 10 percent lower down the road, you may not recoup all of your investment. The lesson in all this: Appreciation is a nice thing to have, but not something to bank on when you buy a house.
TIP: If you're buying in the middle of a big price run-up, try to avoid overpaying by making your offer more favorable in ways other than price, such as closing early or reducing the number of contingencies. Also be prepared to give houses a more rigorous look the first time around so that if you must submit an offer quickly, you're comfortable with what you've seen.
What affects appreciation
Almost every aspect of the national economy affects real estate appreciation: employment levels, healthy businesses, housing supply and demand, affordability and, of course, interest rates. A healthy economy and low interest rates drive demand, which pushes up prices and appreciation. Regional economic changes come into play as well, at times whipsawing housing prices up and down.
But demographics play a significant role, too. In the 1980s, housing demand soared as the huge number of people born in the 1940s and '50s hit the market. Prices went up and many areas experienced appreciation that was greater than the rate of inflation, making real estate not only an investment in shelter but a profitable investment as well. As this group has settled into homeownership, lower demand has slowed appreciation to below inflation, making real estate less profitable than, say, mutual funds.
This doesn't mean you shouldn't buy a house, but you should understand how appreciation is playing in your market and in the neighborhood where you want to buy:
* Look at recent sales: Do a comparative market analysis or go through public records at the tax assessor's office. You should be able to get a feel for sales volume, price direction and whether final sales prices are exceeding asking prices (a sure sign of a hot and appreciating market).
* Pay attention to local business news: Monitor reported real estate trends, but also find out about new industries coming to your area or other economic changes that could dramatically affect the supply and demand of housing.
* Know the neighborhood: Find out the recent appreciation history of the area where you want to move. Have prices steadily risen, bounced up and down, or been stable over the years? Is the neighborhood historically been a desirable one, either because of its amenities or its affordability?
* Is there a lot of new development nearby? A sudden glut in the supply of new housing can lower property values in existing areas.
Buying on the upswing
If you are going to buy in a rapidly appreciating area, weigh your decision carefully, Compare the after-tax costs of renting with the after-tax cost of owning over five years: Renting may pencil out as the better bargain for now. Rent costs should include rent, insurance and utilities. On the ownership side, tally up your loan payment, property taxes, insurance, utilities and estimated maintenance costs against deductions for mortgage interest and property taxes. If you decide to buy:
* Buy as much house as you need, not what you can afford: The bigger the house, the greater the proportion you'll possibly overpay. If you have down payment left over, invest it elsewhere.
* Avoid a low-down-payment mortgage: Should property values drop, and you have to sell for some reason, you may not have enough equity in the house to pay off the mortgage and the costs of selling the house, much less walk away with any cash yourself.
Risky business
Many homeowners use appreciation as a way to draw on the equity in their house. If you bought a $125,000 house that's now worth $150,000, you could borrow much more than what you have invested so far when you take out a home equity loan. But beware. If property values plunge, you could end up owning more on the house than it's worth, which could be a real problem if you had to suddenly sell.
The bottom line
Consider appreciation a surprise, not a sure thing, many experts advise. Buy a reasonably priced house in a stable and likeable neighborhood, invest in home improvements that add value (not eccentricity), and you are much more likely to get your money back when you sell. You may even make a profit, especially if you avoid buying when the market is overheated. Just don’t plan to retire on your home's nest egg.
http://www.bestformortgage.com/articles.aspx?id=3
Appreciating Appreciation
When property values go up, homeowners cheer and home buyers are forced to dig deeper into savings to buy. But appreciation is an unpredictable thing. Learn how to handle it!
Think of appreciation, an increase in home values, as the paper profits in real estate. Paper profits exist only on paper--in this case your deed--until you actually sell the house. If you buy a house in a rapidly appreciating area, there is no guarantee that property values will be the same or greater when it comes time to sell whether you live there five years or 30. The economy could sour or your neighborhood may lose its luster. Furthermore, if you buy at the height of an upswing, when demand ratchets up prices, you may overpay. Just like in the stock market, the flip side of a boom is a bust, or at least a correction. If you overpay, and prices settle out 10 percent lower down the road, you may not recoup all of your investment. The lesson in all this: Appreciation is a nice thing to have, but not something to bank on when you buy a house.
TIP: If you're buying in the middle of a big price run-up, try to avoid overpaying by making your offer more favorable in ways other than price, such as closing early or reducing the number of contingencies. Also be prepared to give houses a more rigorous look the first time around so that if you must submit an offer quickly, you're comfortable with what you've seen.
What affects appreciation
Almost every aspect of the national economy affects real estate appreciation: employment levels, healthy businesses, housing supply and demand, affordability and, of course, interest rates. A healthy economy and low interest rates drive demand, which pushes up prices and appreciation. Regional economic changes come into play as well, at times whipsawing housing prices up and down.
But demographics play a significant role, too. In the 1980s, housing demand soared as the huge number of people born in the 1940s and '50s hit the market. Prices went up and many areas experienced appreciation that was greater than the rate of inflation, making real estate not only an investment in shelter but a profitable investment as well. As this group has settled into homeownership, lower demand has slowed appreciation to below inflation, making real estate less profitable than, say, mutual funds.
This doesn't mean you shouldn't buy a house, but you should understand how appreciation is playing in your market and in the neighborhood where you want to buy:
* Look at recent sales: Do a comparative market analysis or go through public records at the tax assessor's office. You should be able to get a feel for sales volume, price direction and whether final sales prices are exceeding asking prices (a sure sign of a hot and appreciating market).
* Pay attention to local business news: Monitor reported real estate trends, but also find out about new industries coming to your area or other economic changes that could dramatically affect the supply and demand of housing.
* Know the neighborhood: Find out the recent appreciation history of the area where you want to move. Have prices steadily risen, bounced up and down, or been stable over the years? Is the neighborhood historically been a desirable one, either because of its amenities or its affordability?
* Is there a lot of new development nearby? A sudden glut in the supply of new housing can lower property values in existing areas.
Buying on the upswing
If you are going to buy in a rapidly appreciating area, weigh your decision carefully, Compare the after-tax costs of renting with the after-tax cost of owning over five years: Renting may pencil out as the better bargain for now. Rent costs should include rent, insurance and utilities. On the ownership side, tally up your loan payment, property taxes, insurance, utilities and estimated maintenance costs against deductions for mortgage interest and property taxes. If you decide to buy:
* Buy as much house as you need, not what you can afford: The bigger the house, the greater the proportion you'll possibly overpay. If you have down payment left over, invest it elsewhere.
* Avoid a low-down-payment mortgage: Should property values drop, and you have to sell for some reason, you may not have enough equity in the house to pay off the mortgage and the costs of selling the house, much less walk away with any cash yourself.
Risky business
Many homeowners use appreciation as a way to draw on the equity in their house. If you bought a $125,000 house that's now worth $150,000, you could borrow much more than what you have invested so far when you take out a home equity loan. But beware. If property values plunge, you could end up owning more on the house than it's worth, which could be a real problem if you had to suddenly sell.
The bottom line
Consider appreciation a surprise, not a sure thing, many experts advise. Buy a reasonably priced house in a stable and likeable neighborhood, invest in home improvements that add value (not eccentricity), and you are much more likely to get your money back when you sell. You may even make a profit, especially if you avoid buying when the market is overheated. Just don’t plan to retire on your home's nest egg.
http://www.bestformortgage.com/articles.aspx?id=3
Wednesday, September 5, 2007
Avoid Foreclosure
Falling behind on your bills can be very stressful, but falling behind on your mortgage can be downright frightening. The thought of losing your home may be so overwhelming that you try to avoid even thinking about it. But that’s never the best approach.
If you’re having trouble keeping up with your mortgage, this booklet will give you strategies for getting back on track.
How Does It Work?
How long it takes a lender to foreclose on your home, and the steps they must take to do so, varies by state. Foreclosure laws are specific to the state in which the property is located. States usually have either judicial foreclosure proceedings or non-judicial or statutory foreclosure proceedings. In judicial foreclosure states, the mortgage holder must take you to court and get the court’s order to foreclose. If you’re working with an attorney, this may give you an opportunity to stay in your home longer, or even stop the proceedings.
In non-judicial or statutory foreclosure states, lenders may be able to foreclose without going to court, which can be faster and easier for the lender. Some states allow a combination of both, depending on how the contract is written.
For information on state foreclosure laws, visit: www.foreclosures.com or talk with a consumer law attorney in your area.
While the rules regarding foreclosure proceedings vary by state, here’s what you can generally expect if you fall behind on your mortgage payments.
If you haven’t made your payment by the 15th day after the due date, you’ll be assessed a late fee, which is usually 4% of the loan amount. If you have still not paid by the second month, you’ll likely get a phone call and/or letter to find out what’s going on.
Lenders can usually begin the foreclosure process after you have missed a few payments. If you can’t work out an arrangement with the lender to catch up, they may then send a Notice of Acceleration, which basically tells you that you now must pay the loan in full if you want to keep your home. Getting one of these letters is serious, because lenders may not be willing – or obligated – to work out a payment arrangement with you.
In some states, borrowers still have an opportunity to “redeem” the property by paying the amount due plus costs for a certain period after foreclosure.
Important: Many states allow lenders to collect a “deficiency judgment” if the home is sold for less than the full balance due, or for less than market value. This may leave the former homeowner with a debt that must be paid even after the home has been sold.
A foreclosure remains on your credit report for seven years from the date of the foreclosure and is considered a very serious negative mark.
http://www.consolidatedcredit.org/debt-learning-center/avoid-foreclosure.aspx
If you’re having trouble keeping up with your mortgage, this booklet will give you strategies for getting back on track.
How Does It Work?
How long it takes a lender to foreclose on your home, and the steps they must take to do so, varies by state. Foreclosure laws are specific to the state in which the property is located. States usually have either judicial foreclosure proceedings or non-judicial or statutory foreclosure proceedings. In judicial foreclosure states, the mortgage holder must take you to court and get the court’s order to foreclose. If you’re working with an attorney, this may give you an opportunity to stay in your home longer, or even stop the proceedings.
In non-judicial or statutory foreclosure states, lenders may be able to foreclose without going to court, which can be faster and easier for the lender. Some states allow a combination of both, depending on how the contract is written.
For information on state foreclosure laws, visit: www.foreclosures.com or talk with a consumer law attorney in your area.
While the rules regarding foreclosure proceedings vary by state, here’s what you can generally expect if you fall behind on your mortgage payments.
If you haven’t made your payment by the 15th day after the due date, you’ll be assessed a late fee, which is usually 4% of the loan amount. If you have still not paid by the second month, you’ll likely get a phone call and/or letter to find out what’s going on.
Lenders can usually begin the foreclosure process after you have missed a few payments. If you can’t work out an arrangement with the lender to catch up, they may then send a Notice of Acceleration, which basically tells you that you now must pay the loan in full if you want to keep your home. Getting one of these letters is serious, because lenders may not be willing – or obligated – to work out a payment arrangement with you.
In some states, borrowers still have an opportunity to “redeem” the property by paying the amount due plus costs for a certain period after foreclosure.
Important: Many states allow lenders to collect a “deficiency judgment” if the home is sold for less than the full balance due, or for less than market value. This may leave the former homeowner with a debt that must be paid even after the home has been sold.
A foreclosure remains on your credit report for seven years from the date of the foreclosure and is considered a very serious negative mark.
http://www.consolidatedcredit.org/debt-learning-center/avoid-foreclosure.aspx
Twenty Years Later, Buying a House Is Less of a Bite
PORTLAND, Me. - Despite a widespread sense that real estate has never been more expensive, families in the vast majority of the country can still buy a house for a smaller share of their income than they could have a generation ago.
A sharp fall in mortgage rates since the early 1980's, a decline in mortgage fees and a rise in incomes have more than made up for rising house prices in almost every place outside of New York, Washington, Miami and along the coast in California. These often-overlooked changes are a major reason that most economists do not expect a broad drop in prices in 2006, even though many once-booming markets on the coasts have started weakening.
The long-term decline in housing costs also helps explain why the homeownership rate remains near a record of almost 69 percent, up from 65 percent a decade ago.
Nationwide, a family earning the median income - the exact middle of all incomes - would have to spend 22 percent of its pretax pay this year on mortgage payments to buy the median-priced house, according to an analysis by Moody's Economy.com, a research company.
The share has increased since 1998, when it hit a low of 17 percent before house prices began rising sharply in many places. Although the overall level has reached its highest point since 1989, it remains well below the levels of the early 1980's, when it topped 30 percent.
"This is a good deal - a good, fair price," Dale Ruttenberg, a 53-year-old bar manager said of a tan one-bedroom bungalow, with a remodeled kitchen and finished hardwood floors, that he is buying for $211,000 after having rented in Portland for most of the last decade. "Within a couple hours of being here, it was like, 'I'm home.' "
In high-profile places like New York and Los Angeles, home to many of the people who study and write about real estate, families buying their first home often must spend more than half of their income on mortgage payments, far more than they once did. But the places that have become less affordable over the last generation account for only a quarter of the country's population.
Elsewhere, families tend to spend far less on housing. In Dallas, the share of income needed to buy a typical house has fallen to 13 percent this year, from 14 percent in 1995 and 31 percent in 1980. In Tampa, it has dropped to 21 percent, from 26 percent in 1980. Even in New England, where the soaring prices of the last decades have frustrated many young families, house values have still not reached the heights of the early 1980's, when calculated as a share of income.
"Over 20 years, affordability has definitely improved because interest rates are much lower," said Kenneth T. Rosen, chairman of the Fisher Center for Real Estate and Urban Economic Research at the University of California, Berkeley. Houses have also grown bigger during that time, he said, so people are getting more for their money.
Here in Portland, a smaller version of the big-city real estate boom has been in full swing until just the last few months. House prices have jumped since 2000, hundreds of new real estate agents have gotten their licenses and an old factory along the waterfront, once famous for making bright-red hot dogs, is set to be replaced with condominiums.
With many suburban houses now selling for $300,000 and up, young families have a much harder time buying their first home than they did a few years ago. Still, housing has been less expensive this year - as a share of local incomes - than at any point during the 1980's, according to Moody's Economy.com.
Beyond cost, many families who simply could not have bought a house 10 or 20 years ago find themselves able to do so, thanks to changes in the ways banks lend money. In the past, a home buyer often needed to make a down payment equal to 20 percent of a house's value to get a mortgage; today, little or no down payment is common.
The most money that Tim W. Gilbert has ever had in his possession was $15,000, he said, in the form of a check for a job he had done as a carpenter. But he and his wife, Marjorie, were still able to buy a 1936 Cape Cod-style house this year for $176,000 in Poland, about 45 minutes north of Portland.
They took out two mortgages rather than making a down payment and they use Mr. Gilbert's $5,000 or so in pretax monthly income to cover $1,600 in mortgage, tax and insurance payments. Ms. Gilbert, a writer, home schools their daughters, ages 4 and 6. "I paid rent for 18 or 19 years," Mr. Gilbert, 38, said. "We waited years and years. We wanted to make this happen."
http://www.nytimes.com/2005/12/29/realestate/29afford.html?ex=1293512400%26en=c879fd45fe416f13%26ei=5088%26partner=rssnyt%26emc=rss
A sharp fall in mortgage rates since the early 1980's, a decline in mortgage fees and a rise in incomes have more than made up for rising house prices in almost every place outside of New York, Washington, Miami and along the coast in California. These often-overlooked changes are a major reason that most economists do not expect a broad drop in prices in 2006, even though many once-booming markets on the coasts have started weakening.
The long-term decline in housing costs also helps explain why the homeownership rate remains near a record of almost 69 percent, up from 65 percent a decade ago.
Nationwide, a family earning the median income - the exact middle of all incomes - would have to spend 22 percent of its pretax pay this year on mortgage payments to buy the median-priced house, according to an analysis by Moody's Economy.com, a research company.
The share has increased since 1998, when it hit a low of 17 percent before house prices began rising sharply in many places. Although the overall level has reached its highest point since 1989, it remains well below the levels of the early 1980's, when it topped 30 percent.
"This is a good deal - a good, fair price," Dale Ruttenberg, a 53-year-old bar manager said of a tan one-bedroom bungalow, with a remodeled kitchen and finished hardwood floors, that he is buying for $211,000 after having rented in Portland for most of the last decade. "Within a couple hours of being here, it was like, 'I'm home.' "
In high-profile places like New York and Los Angeles, home to many of the people who study and write about real estate, families buying their first home often must spend more than half of their income on mortgage payments, far more than they once did. But the places that have become less affordable over the last generation account for only a quarter of the country's population.
Elsewhere, families tend to spend far less on housing. In Dallas, the share of income needed to buy a typical house has fallen to 13 percent this year, from 14 percent in 1995 and 31 percent in 1980. In Tampa, it has dropped to 21 percent, from 26 percent in 1980. Even in New England, where the soaring prices of the last decades have frustrated many young families, house values have still not reached the heights of the early 1980's, when calculated as a share of income.
"Over 20 years, affordability has definitely improved because interest rates are much lower," said Kenneth T. Rosen, chairman of the Fisher Center for Real Estate and Urban Economic Research at the University of California, Berkeley. Houses have also grown bigger during that time, he said, so people are getting more for their money.
Here in Portland, a smaller version of the big-city real estate boom has been in full swing until just the last few months. House prices have jumped since 2000, hundreds of new real estate agents have gotten their licenses and an old factory along the waterfront, once famous for making bright-red hot dogs, is set to be replaced with condominiums.
With many suburban houses now selling for $300,000 and up, young families have a much harder time buying their first home than they did a few years ago. Still, housing has been less expensive this year - as a share of local incomes - than at any point during the 1980's, according to Moody's Economy.com.
Beyond cost, many families who simply could not have bought a house 10 or 20 years ago find themselves able to do so, thanks to changes in the ways banks lend money. In the past, a home buyer often needed to make a down payment equal to 20 percent of a house's value to get a mortgage; today, little or no down payment is common.
The most money that Tim W. Gilbert has ever had in his possession was $15,000, he said, in the form of a check for a job he had done as a carpenter. But he and his wife, Marjorie, were still able to buy a 1936 Cape Cod-style house this year for $176,000 in Poland, about 45 minutes north of Portland.
They took out two mortgages rather than making a down payment and they use Mr. Gilbert's $5,000 or so in pretax monthly income to cover $1,600 in mortgage, tax and insurance payments. Ms. Gilbert, a writer, home schools their daughters, ages 4 and 6. "I paid rent for 18 or 19 years," Mr. Gilbert, 38, said. "We waited years and years. We wanted to make this happen."
http://www.nytimes.com/2005/12/29/realestate/29afford.html?ex=1293512400%26en=c879fd45fe416f13%26ei=5088%26partner=rssnyt%26emc=rss
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