Tag: buying a home

10 Common Misconceptions People Have About Buying a Home

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Spend Less – Get More! Buying a home is very rewarding in many ways.

This is the number 1 reason why people buy a home. The home buying process can be daunting. It’s one of the largest purchases that you will make during your lifetime. That said, the process is easier when you have the right team on your side. A good lender, REALTOR® and home inspector will guide you through the process stress free.

Right now in most areas we are in a buyer’s market. Rates are still low so it’s really the perfect time to buy.

What’s holding you back? Let’s explore some common misconceptions.

 

1. You need 20% down to buy a home

Many buyers believe that they need 20% down to buy a home. This is a very common misconception. There are FHA loans that will permit a 3.5% down payments and some conventional loans that will go as low as 3%. If you are or were in the military, VA loans require zero down! In addition, if the home is a rural area, USDA loans will also require no down payment.

2. You need a credit score in the 700s or better

This is no longer the case. There are many different loan programs available that will qualify many different buyers. It’s important to speak to a lender and have them analyze your situation. In most cases they will be able to get you qualified. If you like a list of mortgage lenders contact me at ali@happyclientsrealtygroup.com.

3. Don’t have too many lenders check your credit because that will lower your score

You have the right to shop for a loan. FICO, the company that computes the credit scores lenders use. Allow consumers to “rate shop”. When doing to make sure that you are comparing the same types of products. Don’t focus exclusively on interest rates. Sometimes a lender will increase your closing costs by making you pay down points in order to get you a better interest rate.

4. Adjustable rate mortgages are bad

We all heard a lot of negative things about adjustable mortgage rates after the mortgage melt down in 2008. Adjustable mortgage rates are not all bad and can be a great option for someone that plans of paying off a home in 5 years or if you plan on selling the home within 5 years. This will provide you will a low interest rate for the first five years on the loan and that maybe all you need. Speak to a lender about options.

5. You just need enough money to cover your down payment in savings

There are several upfront cost when buying a home. The down payment is usually the largest but you will need to cover the following as well:

  • Earnest Funds: Once your offer for a home is accepted, you will have to deposit your earnest funds with the title company. Earnest funds are typically 1% of the sales price. For example: if the home is being sold for $200,000, your earnest funds will be $2000. These are funds that will be applied towards your down payment at closing so they are not in addition to the sales price offered.
  • Option Fee: An option fee is a fee that is offered to the seller in exchange for a set number of days for you to complete your due diligence and be able to cancel the agreement if you find something that you don’t like. This fee will also typically be credited towards the balance due at closing if you proceed with the purchase. This is money well spent because as little as approximately $200 or less you can take your time and inspect the property before you fully commit.
  • Inspection Fee: It’s always a good idea to have your home inspected. This usually will cost about $350-$450 on average. This is also money well spent. This is a large purchase and it’s important to know the condition before you commit to the sale.
  • Appraisal Fee: This is a fee that the bank will ask you to pay in advance for the appraisal of the property. This fee will run between $450-550 typically. It is part of the closing cost and will be credited at closing.
  • Reserves: The lender will usually want to see that you have around 2 months of mortgage payments in savings as reserves.
  • Closing Costs: When you first get pre-qualified by a lender they will give you wants called a loan estimate. In it, the lender will disclosure all your costs; including your down payment, loan costs and closing costs. Closing costs can add up. Most of the closing costs go to what’s call pre-paids. This is a set amount that the lender will require to start your escrow account.

6. It’s cheaper to rent than it is to buy

Rent is expensive and normally there are a lot of upfront fees when renting a home. Along with those fees there are restrictions. Explore the option to buy. I think you’d be surprised that your monthly payment can be the same or less than a rental property.

New Construction

7. You don’t need a home inspection for new construction

Whenever you are buying a home, be it new or a resale, it is always best that you have the home inspected. Even new homes have issues that come up during an inspection. A home is a major purchase. The investment in a home inspection is nothing compared to the cost of buying a home with major problems

8. It is cheaper to buy a home that needs work

It can be but in many cases you end up spending a lot more on a rehab than you do on a move-in ready home. Many people watch these HGTV shows and feel that rehabbing a loan is easy. It’s not! There are always surprises and these surprises can be costly.

In many cases buyers go in with good intentions of getting the work done but faced with the cost and time of the repairs, they are put off. Over time they let the repairs go and ultimately they are never get done.

9. I can save money by not using a REALTOR®

As a buyer, it will normally not cost you anything to have an agent on your side. In most instances the seller pays the buyer’s commission. There is not reason to not have ally on your side.

Before submitting an offer it’s important to review comparable sales in the area and overall market conditions. Every home is different and it’s important to look at all aspects of the home before submitting an offer. The surrounding area is very important. You can change things about the home but you can’t change its location.

10. I need to find a home before I speak to a mortgage lender

This would be false. It’s important to be pre-qualified before you start looking. Sometimes the bank will qualify you for more or less than expected.

When you find that perfect home, your offer is submitted with your pre-qualification letter. Don’t run the risk of losing the perfect home. By the time you get qualified the home might be gone.

Owner Finance

Note: A qualified real estate attorney should be consulted to answer any questions as well as write the sales contract and promissory note.

What is owner finance?

Owner financing is also known as seller financing. This can be an option for people that can not qualify for a conventional bank loan.

In an owner finance agreement, the owner or seller will act like the bank. They will list the finance terms they are willing to offer. Owner financed deals are recorded with the County. The buyer’s interests is protected.  An additional protection is that a trustee has the deed instead of the seller. The Deed of Trust in an owner financed deal will show that the buyer is the rightful owner.

Just like a traditional bank loan, there is usually a down payment, amortization period, a possibly balloon payment and a set or adjustable interest rate. The terms can be customized to fit the needs of the seller and buyer.

Most owner-financing deals are normally short term and a typical arrangement might involve amortizing the loan over 30 years but with a final balloon payment due after five. The idea is that after 5 years the buyer may be in a better financial position and can now get a traditional loan.

How does it work?

A contract is negotiated. The contract should include a Seller Finance Addendum that will disclose the terms of the agreement. It should cover the balance to be financed, the down payment, interest rate, balloon payments, pre-payment penalty, etc.

Part of the closing documents will include a promissory note. This is a very important document; it will include all the loan terms, the loan amount, the amount of your monthly installments, interest rate, payment schedule, late fee terms, balloon payment (if applicable) and when and how you need to pay.

Most promissory notes will have a due-on-sale clause that will make the entire balance due if the buyer decides to sell the property before the balance is paid off.

A deed of trust will also be signed and it’s usually recorded at the county’s clerks office. This legal document protects the seller in case the buyer defaults on the loan. It will allow the seller to foreclosure of the property if payments are not made.

Like any option, there are pros and cons. Let’s explore these below.

PROS

  • Buyers that can not traditionally qualify through a bank might qualify through a seller directly. Banks sometimes have a very black and white way of looking at things. A seller might evaluate the buyer’s entire potential and make a decision based many other factors.
  • The loan terms can be customized to fix the parties needs.
  • Flexible down payments.
  • The closing may be faster. With a traditional loan the closing can take 30-45 days.
  • The closing costs could potentially be less. They might not include some of the normal lending fees

CONS

  • The loans terms can be less desirable.
  • The sales price and down payment requested could be higher.
  • Interest rates can also be much higher than market rates.
  • The amortization period might be too short or too long for comfort.
  • The seller might include a balloon payment after 5-10 years.
  • There usually is no appraisal involved so you might pay more that market value (Do your research).
  • There might be pre-payment penalties
  • The interest rates might not be fixed.

Ultimately owner financing can be a good option for both buyers and sellers but there are risks.

Buyers be warned

As a buyer thinking about owner financing, do your due diligence. Research the property, the community, the seller, etc.

  • Beware of homes that are exclusively being offered as owner finance. Why? Are they selling the home for much more that market value? Is the home in poor condition? Are they trying to avoid home inspections or appraisals? Ask the questions.
  • Did the seller ask your for a credit report, financial statements, proof of income, etc? If the seller is not looking into your finances, walk away. They should care if you can afford the home. Ideally you want your monthly payment to be less than 30% of your monthly income.
  • Is the home paid off? If the seller owes a balance on the home, there is a higher risk for the buyer. You may be punctual in your payments but what happens if the seller doesn’t apply your payment to his mortgage? His mortgage company can foreclose of the home. You can end up losing all the funds you have paid towards the home plus the home itself!
  • If the seller still owes a balance make sure that their mortgage does not have a due on sale clause. If they do have a due on sale clause, the bank can his bank demand immediate payment of the debt in full if the house is sold to you. If the lender isn’t paid, the bank can foreclose. To avoid this risk, make sure the seller owns the house free and clear or that the seller’s lender agrees to owner financing.
  • Balloon payments – with many owner financing arrangements, a large balloon payment becomes due after a set number of years. If you can’t secure financing by then, you could lose all the money you’ve paid so far, plus the house.
  • Consider having the home inspected. A home inspection is always an option for a buyer. These inspections are typically completed by a third party inspection company and will typically cost $350-550. If the seller does not allow you to have the home inspected, let this be a warning sign. What is he/she hiding?
  • The seller should provide you with seller’s disclosures. All seller should disclosure issues that they know to be wrong with the property.
  • Since a bank is not involved, there might not be an appraiser. In a traditional bank loan process, the bank will send an appraiser to evaluate the property’s worth. The appraiser will issue his opinion on value and condition. An appraiser is not an inspector, but if they see something that might effect the property’s value, they will note it and possibly force the parties to make repairs before the bank approves the loan. You as a buyer can order an appraisal of the property. If you are not sure of the market value of the property, speak to an REALTOR® or hire an appraiser.
  • Research the community and schools. Even if you don’t have school aged kids, schools can make or break a property’s resale worth. Properties zoned to poor preforming schools might not resale as well as those zoned to excellent schools.
  • Traditional owner-financed transactions often close in a lawyer’s office without title insurance, although it might be wise for the buyer in such transactions to at least obtain a title report indicating what liens, lawsuits, and judgments may affect the property. There has been fraud in this area. People that are not the true owners of a property might try to sell or rent a home they know to be vacant.
  • This is one of the largest purchases you will probably make. You might want to consider hiring a real estate attorney to review the terms of the contract prior to signing an agreement.
  • The owner will normally keep title to the house until the buyer pays off the loan. If the buyer defaults, the seller keeps the down payment, any money that was paid, plus the house.

Sellers be warned

As a seller you too run risks when owner financing a home. Do your due diligence before signing a agreement.

  • SAFE Act – Sellers who engage in more than five (5) owner-finance transactions in a 12 month period must now have a Residential Mortgage Loan Originator License according to the Secure and Fair Enforcement for Mortgage Licensing Act, also known as the SAFE Act.
  • If you owe a mortgage on the property, speak to your lender to see if you have a due on sale clause. If you do, then owner finance may not be possible. Once you sell the home your mortgage balance will come due entirely. Speak to your lender and see if they will agree to owner financing.
  • Make sure to review the buyer’s income. Their financial strengths, their credit or lack of credit, their available funds, etc. Speak to the buyer’s employer if they are not self employed. If they are self employed, considering looking at a few years of tax returns. You will decide what you find acceptable or not.
  • Think about hiring a servicing company to receive the payments and establish an escrow account. This way the payment can be applied to the balance owed directly.
  • The seller must determine that the buyer has the ability to repay the loan (and this must be supported by verifications and documentation).
  • Although you won’t have to worry about insuring the property or making repairs as needed, you do run the risk of having to foreclose if the buyer stops making payments.
  • Repair cost – if you do take back the property for whatever reason, you might end up having to pay for repairs and maintenance, depending on how well the buyer took care of the property.

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Annual review of your escrow account

What is escrow?

Your mortgage payment is made up of the following:

  • Part goes toward your mortgage to pay your principal and interest.
  • The other part goes into your escrow account for property taxes and insurance premiums (like homeowners insurance, mortgage insurance, or flood insurance).

When you purchase a home and put down less than 20%, the lender will requiere that you escrow your taxes and insurance. An account is opened at the time your home is purchased. The funds within the account are used to pay your property taxes and insurance premiums. These are paid by the lender directly using these funds. This typically helps the home owner because you don’t have to save for these funds separately.

In Texas we pay property taxes in arrears. In Jan of the current year, you are paying the past year’s property taxes. By “property taxes” I’m referring to property, School, MUD, LID and/or Drainage Taxes (not all applicable for all).  It might look something like the image below.

At the beginning of the year I’d suggest you do two things:

  1. Make sure that your taxes have been paid. Lenders make mistake and sometimes overlook a payment. Taxes are due by Jan 31st so make sure that the payment is applied before that date.
  2. Review your escrow account for errors, shortages and overages.

#1 Confirm Payment

Go into the jurisdiction’s website and make sure your balance is zero. If there is a balance owed make sure to follow up with your lender.

#2 Yearly escrow review

Property taxes and insurance premiums change over time. Most lenders will review your escrow account each year to make sure you’ll have enough to cover your expenses. To help with any unexpected increases, you need to keep a minimum balance in your account at all times. It’s normally calculated to not be more than 2 months of escrow payments (but this will vary by bank).

The lender will add your taxes and insurance and divide this amount by 12. This is the minimum amount you need in your escrow account. Normally the lender will want at least 2 month cushion to cover any potential increases in taxes or insurance. Most lender will send you an analyzes by mail or online.

Shortage

If you have an escrow shortage due to an increase in your taxes or insurance premiums, you are responsible for the difference. The bank will send you a notice stating the amount outstanding. It’ll be your choice how you handle it. You can either pay the entire shortage in one lump sum or you can choose to have the amount spread out over the coming year. This means if your shortage is $500, expect to pay an additional $41.67 each month the following year to make up the shortage. Your payment might also increase more as the lender increases the amount going into escrow to pay the next year’s taxes and insurance. In this example you might see an overall increase of approximately $80-100

Please note that if you choose to pay the total shortage in one lump sum, your payment will still increase to cover next year’s potential shortage.

Surplus

If you have too much money in your escrow account, you might get a refund check from the lender. This usually occurs when taxes go down or payments are overestimated. The lender will pay the appropriate amount to each jurisdiction. Whatever is left goes to you, minus their desired cushion. You should receive notice that you have an escrow surplus and will receive a check not long after that. If this doesn’t happen, contact the lender for further details.

Going Forward

The lender should repeats this process every year but don’t relay on the lender to foresee issues. Be proactive! Before May of every year you will get your proposed assessed value from the tax jurisdiction. Review these statements. Has it increased? decreased? How will this effect your escrow balance?

To avoid unpleasant surprises, pay attention to correspondence from your insurance company or taxing jurisdictions. If you’re aware that your payments will increase, you can put additional money towards your escrow each month to avoid a shortage. If you see that your payments will go down, you can contact your bank to try to decrease your monthly escrow payments.

You can ask your lender to analysis your escrow account at any point. You do not have to wait for them to schedule the review. Increases or decreases in your annual tax or insurance bills may cause your monthly mortgage amount to change.

You can (and should) protest your taxes. The protest deadline is May 31st of each year. The final amount is established by the final quarter of each year.

For more info: Tax Protest

Homeowners Insurance and Home Warranties

Let’s talk Homeowners Insurance

While you never want to leave yourself without a safety net, you also don’t want to overpay for insurance you don’t need (and will hopefully rarely use). Aim to strike a balance that will provide you with adequate protection at an affordable price.

Homeowners Insurance Covers Things Like: 

• Structure
• Roof
• Windows
• Furniture/Personal Belongings
• Liability for Non-Residents Injured on Property
• Liability for Damage or Injury Caused by You or Your Pets

Most Standard Policies DON’T Cover Things Like:

• Malfunctioning Systems and Appliances
• Floods or Earthquakes
• Slow Leaks
• Power Failures
• Neglect or Aging
• Faulty Repairs

Home Warranties

Some homeowners choose to supplement their insurance coverage by purchasing a home warranty, which covers many of the systems and appliances in your home that are NOT covered by homeowners insurance. While policy terms and coverage vary, a home warranty will often cover the cost (after deductible) to repair or replace components of your HVAC, electrical, plumbing and some appliances that fail due to age or typical wear and tear.

Unlike homeowners insurance, home warranties aren’t required by mortgage companies. But many homeowners like the added financial protection and peace of mind that home warranties provide.

A Home Warranty Covers Things Like:

• Plumbing
• HVAC
• Electrical
• Major Appliances
Minimize Risk, Maximize Value

Now that you understand the basics of homeowners insurance, you should be ready to start shopping for a policy that best fits your needs and budget. Your goal should be to minimize your risk while maximizing the value your policy provides.

Once you’ve purchased your policy, avoid setting the annual renewal on autopilot. Instead, take some time to consider factors that have changed over the past year. Home improvements, a shift in market conditions, a new home-based business, or even growth in your overall net worth could mean it’s time to reassess your coverage.

Need Guidance? We Can Help!

If you have questions about purchasing homeowners insurance or a home warranty—or if you would like a referral to a reputable broker—give us a call! We’re here to help.

Don’t Get Burned – Get a Home Inspection to Save Money on Your Next Purchase

 

Okay, you made one of the most important decisions in your life: you’re buying a home! You found your ideal home. It’s in your desired neighborhood, close to everything you love, you dig its design and feel, and you’re ready to finalize the deal.

But, whoa … wait a minute! Buying a home isn’t like buying a toaster. If you discover something’s wrong with your new home, you can’t return it for a refund or an even exchange. You’re stuck with your buying decision. Purchasing a home is an important investment and should be treated as such. Therefore, before finalizing anything, your “ideal” home needs an inspection to protect you from throwing your hard-earned money into a money pit.

A home inspection is a professional visual examination of the home’s roof, plumbing, heating and cooling system, electrical systems, and foundation.

There are really two types of home of inspections. There is a general home inspection and a specialized inspection. Most general inspections cost between $267 and $370. The cost of the specialized inspection varies from type to type. If the inspector recommends a specialized inspection, take that advice because buying a home is the single most important investment you’ll make and you want extra assurance that you’re making a wise investment.

By having your prospective new home inspected, you can:

  • Negotiate with the home seller and get the home sale-ready at no cost to you
  • Prevent your insurance rates from rising
  • Opt-out of the purchase before you make a costly mistake
  • Save money in the short and long run

How Much Money Can a Home Inspection Save You?

A home inspection helps to find potential expenses beyond the sales price, which puts homebuyers in a powerful position for negotiation. If there are any issues discovered during the home inspection, buyers can stipulate that the sellers either repair them before closing or help cover the costs in some other way. If the sellers do not want to front the money to complete the repairs, buyers could negotiate a drop in the overall sales price of the home!

Perhaps even more importantly, a home inspection buys you peace of mind. Your first days and months in a new home will set the tone for your life there, and you don’t want to taint that time with worries about hidden problems and potential money pits.

To help you understand how much money a home inspection can save you, here are some numbers from HomeAdvisor to drive the point home … so to speak.

Roof – Roofing problems are one of the most common issues found by home inspections. Roof repair can range between $316 and $1046, but to replace a roof entirely can cost between $4,660 and $8,950.

Plumbing – Don’t underestimate the plumbing. Small leaks can cause damage that costs between $1,041 and $3,488 to repair. Your home inspector will look for visible problems with the plumbing such as leaky faucets, water stains around sinks and the shower, and noisy pipes. Stains on walls, ceilings, and warped floors show plumbing problems.

Heating and Cooling – Ensuring the home’s heating and cooling system is working properly is very important. Your home inspector will make you aware of any problems with the existing system and let know you whether the system is past its prime and needs replacing. You don’t want to throw down $3,919 to replace an aged furnace. Nor do you want to spend $5,238 replacing an ill-working air conditioner. Replacing and repairing a water heater gets pricey too. Wouldn’t you rather use your savings for a vacation?

Electrical Systems – When thinking of the electrical system, no problem is better than even a small problem. Electrical problems might seem small, but they can blossom into thousand-dollar catastrophes. Make sure your home inspector examines the electric meter, wires, circuit breaker, switches, and the GCFI outlets and electrical outlets.

Foundation – If your home inspector sees that the house is sinking, that means water is seeping into the foundation; cracks in walls, sticking windows, and sagging floor also indicate foundational problems. The foundation is so important that if the general inspection report shows foundation problems, lenders will not lend money on the home until those issues are solved. Foundation repairs can reach as high as $5,880 to repair.

As you can see, a small investment of a few hundred dollars for a general home inspection can save you tons of money and future headaches. To save even more money, you might consider investing in a specialized home inspection as well. A specialized inspection gets down to the nitty-gritty of all the trouble spots the general home inspection might have located.

How Much Money Can a Specialized Inspection Save You?

A general home inspection can trigger a need for a specialized inspection because the general home inspector spotted something off about the roof, sewer system, the heating and cooling system, and the foundation. If humidity is high where you’re buying your home, a pest inspection is recommended. Usually, a pest inspection will check for mold as well as pests. Most homebuyers have a Radon test done to ensure air quality.

Roof – Roof specialists examine the chimney and the flashing surrounding it. They also look at the level of wear and tear of the roof. They can tell you how long the roof will last before a new one is needed. They’ll inspect the downspouts and gutters. The average cost of a roof inspection is about $223. Most roof inspections will cost between $121 and $324.

Sewer System – Making sure your sewer system has no problems should happen before the closing because what might look like a small problem can turn into a large problem in the future. If any issues pop up, you can negotiate with the seller about needed repairs or replacements before closing. Cost of inspection will vary; on the low side, it might cost you around $95, and on the high side, it might cost you $790. Compare these numbers to repairing a septic tank, which can cost, on average, $1,435 (though it could reach as high as $4,459), and you can see that the cost of an inspection is worth it when you catch the problem before you buy.

Heating and Cooling System – A HVAC specialist will check the ducts for blockage and for consistent maintenance of the unit. The repairs needed might be small or they might be big, but this small investment will save you headaches and lots of money down the road.

Foundation – A foundation specialist will pinpoint the exact problem with the foundation. The specialist will look at the grade or slope of the home. The ground should slope away from the home in all directions a half inch per foot. Most homeowners have spent between $1,763 and $5,880 to repair their foundation. And the average cost to re-slope a lawn is at $1,705. Most homeowners paid between $933 and $2,558 to re-slope their lawn.

Pest Inspection – Termites eat a home’s wood structure from inside out and can cause thousands of dollars worth of damage to your home. Other pests can turn your dream home into a nightmare. Depending on the humidity of where you live, you should a pest/termite inspection every two years or so. You can start with your potential new home. Most inspections are extensive and cost between $109 and $281. The good news is that most pest management company will guarantee the past inspection if bugs show up.

Radon Test – Radon is a naturally occurring invisible odorless gas that is the second leading cause of cancer. A radon test is a good test to have done as a good habit. The cost of radon test is low and its cost varies from state to state. Here’smore information about Radon.

Steps You Can Take to Save Money Using a Home Inspection

To help yourself save with a home inspection, you will need to:

Attend the inspection – Attending the inspection is important because it’s an opportunity for you to ask questions.

Check utilities – Checking utilities let’s know the energy efficiency of your potential home.

Hire a Qualified Home Inspector – We can recommend bona-fide home inspectors to you. You can compare our recommendation with all inspectors who belong to the American Society of Home Inspectors. While the decision of who you work with is always yours, we can educate you so that you make a wise homebuying decision.

 

Should You Buy a New or Existing Home?

Should You Buy a New or Existing Home?

Maybe your dream home has the intricate details that you usually find only in older construction – wainscoting and crown molding in the interior, the front porch with a swing, an older tree shading the back yard, and the white picket fence.

Or maybe your dream home has all the conveniences of modern living – open floor plan in the living and dining spaces, large windows, connected, “smart” appliances and security systems, and minimalist design elements.

Whether you go for a brand new construction or an existing home, both types of properties have their pros and cons when it comes to purchasing. What type of home is right for you will depend on which factors are most important for your lifestyle.

Build your dream home with new construction

If you’re making a home purchase that’s still in the pre-construction phase, you may be able to customize many of the details. Many home builders will give you the option to add design elements that will give you the exact dream home you desire. If it’s a new subdivision, you may even be able to pick which lot you like best.

Very early in the building process, you may have more room to customize. For example, if the walls aren’t complete, you may be able to add extra outlets in each of the rooms or custom wiring for surround sound in the media room. Perhaps you could move the laundry room to the top floor instead of the basement. You might be able to get a separate mudroom entrance.

Later in the building process, you may be able to add marble countertops, an island, and custom cabinets in the kitchen. Your master bathroom could be upgraded with a steam shower, spa tub, and European fixtures. You will want to check with the builder to understand which features are included, and which ones are extra.

New homes save money with fewer repairs and more efficiency

Once your home is complete, all you’ll need to do is move in. New appliances will be under warranty for a few years if they need repairs, and will likely work well for several years without needing fixes. Often, new construction is under a builder’s warranty, so any repairs needed in the first year should be covered.

New homes often contain energy efficient and green appliances, like high-efficiency stoves, refrigerators, washing machines, heaters, or air conditioning units. These energy-saving appliances, along with good insulation and energy-efficient windows, will help you save money on monthly utility bills.

New homes also often use new building materials that require less maintenance — for example, using composite siding instead of wood, which doesn’t need annual repainting. You won’t need to spend as much to maintain your new home.

If you customized it during pre-construction, you won’t need to spend any money on renovations or upgrades for several more years. You can just enjoy it and not worry about saving for major home repairs.

What you need to do to make a good new home purchase

Before you put in your offer, do some research on the builder. Do they have a good reputation? What else have they built? Did their other new properties have issues such as poor construction or unfinished details?

You like the model home, but will you like where it’s situated? After you look at the home itself, come back to the neighborhood to see what it’s like at different times of the day. Walk around during the day and in the evening, and see how you like the area.

Brand new communities usually attract similar types of buyers—urban professionals, couples, or young families, for example. These will be your neighbors, so you’ll want to make sure that you want to be part of this new, homogeneous community.

You may also need to be flexible with your move-in date. Builders will only be able to let you move in if they can meet their construction schedule. If the wiring is delayed, the walls can’t be finished. And because there are so many construction tasks that are dependent on the completion of prior tasks, schedules tend to slip.

Get more variety and established neighborhoods with an existing home

Existing homes are those that have generally been built and lived in between the 1920’s and 1970’s. With existing homes, you will get more variety in home styles, as different types of construction have gone in and out of style throughout the decades. Within one neighborhood, you may be able to find a mix of different styles like Victorian, modern Tudor cottages, tract style, ranch or split-ranch, or contemporary homes.

Existing homes are situated in established neighborhoods, which may have more amenities nearby that a new home in a brand new subdivision may not have. Your new neighborhood may have restaurants, cafes, and boutiques within walking distance.

You might also have access to more supermarkets, dry cleaners, discount stores, and gas stations nearby. An established neighborhood might have a nice park, running path, or playground for the kids to enjoy. You might also be closer to a library or the post office.

Resale homes can be a less expensive purchase

If you’re considering a resale home, you may be able to get into a beautiful, unique property at a lower purchase price than a new home.

There are many more resale homes available than there are new homes — according to theNational Association of Homebuilders, about 10 times as many. With such a large pool to buy from, the market for resales can be more competitive. You may have more room to negotiate the  selling price of the home. With a brand-new construction, you won’t likely be able to have the same kind of negotiating power.

Before putting a home on the market, sellers often make home renovations or remodel parts of their homes to make them more attractive to buyers and to be able to potentially increase the list price. If the resale home has a brand new, modern kitchen, an updated bathroom, or even a new roof or upgraded windows, you could end up getting a home that’s comparable to new construction without having to pay the potential more expensive new-home list price.

Existing homes have already been inspected at least once on the last sale, so you will know about any potential structural problems or repairs that have been made on the home. Knowing the track record on your potential home will help you avoid purchase mistakes—you’re much less likely to end up with a property that has a rotting roof, dangerous electrical wiring, or a crumbling foundation. With a new home, you could end up with incomplete construction or major issues that you didn’t know about because they weren’t yet documented.

What you need to do to make a good resale purchase

Before you go too far down the road to a purchase, you can protect your purchase by first having the home inspected. A good home inspector will document all flaws, no matter how small they appear. If the inspector finds any major problems, like foundation cracks or leaky roofs, you may be able to counter offer and get the seller to either fix it or reduce the selling price.

Even if the inspection doesn’t uncover any major issues, you will need to expect the unexpected. Older homes will eventually need replacement appliances, a new air conditioning unit, or a plumbing repair. As long as you know that before you buy a resale home, you can plan for surprise repairs.

With an older home, you may want to eventually remodel parts of it. Will you be happy living in your house while you’re doing major work on the living room or the kitchen? If you know that it would disrupt your lifestyle too much, you may want to consider whether you really want to buy an older property.

Whether you choose to buy a new home or an existing home, the best way to get started is to speak with your trusted real estate professional. We will have access to both new properties and resale homes that may fit your goals, and will know which neighborhoods will serve your needs.

 

Get Your Credit Score in Shape Before Buying a Home

Get Your Credit Score in Shape Before Buying a Home

How strong is your credit? Cleaning up your credit is essential before you make any major financial moves. Having a bad score can hurt your chances of being able to open a credit card, apply for a loan, purchase a car, or rent an apartment.

It is especially important to have clean credit before you try to buy a home. With a less-than-great score, you may not get preapproved for a mortgage. If you can’t get a mortgage, you may only be able to buy a home if you can make an all-cash offer.

Or if you do get preapproval, you might get a higher mortgage rate, which can be a huge added expense. For example, if you have a 30-year fixed rate mortgage of $100,000 and you get a 3.92% interest rate, the total cost of your mortgage will be $170,213. However, if your interest rate is 5.92%, you’ll have to spend $213,990 for the same mortgage  – that’s an extra $43,777 over the life of the loan! If you had secured the lower mortgage rate, you could use that additional money to fund a four-year college degree at a public university.

So now that you know how important it is to maintain a good credit score, how do you start cleaning up your credit? Here, we’ve collected our best tips for improving your score.

Talk to a loan professional

You can protect your score from more damage by getting a loan professional to check your credit score for you. A professional will be able to guide you to whether your score is in the ‘good’ range for home buying. Plus, every time that you request your own credit score, the credit companies record the inquiry, which can lower your score. Having a professional ask instead ensures that you only record one inquiry. Once you know your score, you can start taking action on cleaning up your credit.

Change your financial habits to boost your score

What if your score has been damaged by late payments or delinquent accounts? You can start repairing the damage quickly by taking charge of your debts. For example, your payment history makes up 35% of your score according to myFICO. If you begin to pay your bills in full before they are due, and make regular payments to owed debts, your score can improve within a few months.

Amounts owed are 30% of your FICO score. What matters in this instance is the percentage of credit that you’re currently using. For example, if you have a $5000 limit on one credit card, and you’re carrying a balance of $4500, that means 90% of your available credit is used up by that balance. You can improve your score by reducing that balance to free up some of your available credit.

Length of credit history counts for 15% of your FICO score. If you’re trying to reduce debt by eliminating your credit cards, shred the card but DO NOT close the account. Keep the old accounts open without using them to maintain your credit history and available credit.

Find and correct mistakes on your credit report

How common are credit report mistakes? Inaccuracies are rampant. In a 2012 study by the Federal Trade Commission, one in five people identified at least one error on their credit report. In their 2015 follow-up study, almost 70% thought that at least one piece of previously disputed information was still inaccurate.

Go through each section of your report systematically, and take notes about anything that needs to be corrected.

Your personal information

Start with the basics: often overlooked, one small incorrect personal detail like an incorrect address can accidently lower your score. So, before you look at any other part of your report, check all of these personal details:

  • Make sure your name, address, social security number and birthdate are current and correct.
  • Are your prior addresses correct? You’ll need to make sure that they’re right if you haven’t lived at your current address for very long.
  • Is your employment information up to date? Are the details of your past employers also right?
  • Is your marital status correct? Sometimes a former spouse will come up listed as your current spouse.

Your public records

This section will list things like lawsuits, tax liens, judgments, and bankruptcies. If you have any of these in your report, make sure that they are listed correctly and actually belong to you.

A bankruptcy filed by a spouse or ex-spouse should not be on your report if you didn’t file it. There shouldn’t be any lawsuits or judgments older than seven years, or that were entered after the statute of limitations, on your report.  Are there tax liens that you paid off that are still listed as unpaid, or that are more than seven years old? Those all need to go.

Your credit accounts

This section will list any records about your commingled accounts, credit cards, loans, and debts. As you read through this section, make sure that any debts are actually yours.

For example, if you find an outstanding balance for which your spouse is solely responsible, that should be removed from your report. Any debts due to identity theft should also be resolved. If there are accounts that you closed on your report, make sure they’re labeled as ‘closed by consumer’ so that it doesn’t look like the bank closed them.

Your inquiries

Are there any unusual inquiries into your credit listed in this section? An example might be a credit inquiry when you went for a test drive or were comparison shopping at a car dealer. These need to be scrubbed off your report.

Report the dispute to the credit agency

If there are major mistakes, you can take your dispute to the credit agencies. While you could send a letter, it can be much faster to get the ball rolling on resolving a mistake by submitting your report through the credit agency’s website. Experian,Transunionand Equifaxall have step-by-step forms to submit reports online.

If you have old information on your report that should have been purged from your records already, such as a debt that has already been paid off or information that is more than 7 years old, you may need to go directly to the lender to resolve the dispute.

Follow up

You must follow up to make sure that any mistakes are scrubbed from your reports. Keep notes about who you speak to and on which dates you contacted them. Check back with all of the credit reporting companies to make sure that your information has been updated. Since all three companies share data with each other, any mistakes should be corrected on all three reports.

If your disputes are still not corrected, you may have to also follow up with the institution that reported the incident in the first place, or a third-party collections agency that is handling it. Then check again with the credit reporting companies to see if your reports have been updated.

If you can keep on top of your credit reports on a regular basis, you won’t have to deal with the headaches of fixing reporting mistakes. You are entitled to a free annual credit report review to make sure all is well with your score. If you make your annual credit review part of your financial fitness routine, you’ll be able to better protect your buying power and potentially save thousands of dollars each year.

How to clean up your credit now

Does your credit score need a boost so you can buy a home? Get in touch with me. I can connect you with the right lending professionals to help you get the guidance you need.

La guía para el comprador – prepararse para la hipoteca

La guía para el comprador – prepararse para la hipoteca

No espere hasta que esté listo para mudarse para comenzar a prepararse financieramente para comprar una casa.

Si usted es como la gran mayoría de los compradores de vivienda, elegirá financiar su compra con un préstamo hipotecario. Al prepararse de antemano, puede evitar los retrasos comunes y los obstáculos que muchos compradores enfrentan al solicitar una hipoteca.

Los requisitos para asegurar una hipoteca pueden parecer abrumadores, especialmente si es la primera vez que compra. Sin embargo, hemos descrito tres pasos simples para comenzar su camino hacia la propiedad de vivienda.

Incluso si eres un propietario actual, es una buena idea prepararte con anticipación para que no te encuentres con sorpresas en el camino. Los requisitos de préstamos se han vuelto más rigurosos en los últimos años, y los cambios en su historial crediticio, niveles de deuda, tipo de trabajo y otros factores podrían afectar sus posibilidades de aprobación.

Nunca es demasiado temprano para comenzar a prepararse para comprar una casa. ¡Siga estos tres pasos para comenzar a sentar las bases para su futura compra de vivienda hoy!

PASO 1: REVISE SU PUNTUACIÓN DE CRÉDITO

Su puntaje de crédito es una de las primeras cosas que un prestamista verificará para ver si califica para un préstamo. Es una buena idea revisar su informe de crédito y calificarlo usted mismo antes de estar listo para solicitar una hipoteca. Si tiene un puntaje bajo, necesitará tiempo para elevarlo. Y, a veces, en su informe aparecerá actividad fraudulenta o información errónea, que puede tardar meses en corregirse.

La calificación crediticia que utilizan la mayoría de los prestamistas es su calificación FICO, una calificación ponderada desarrollada por Fair Isaac Corporation que toma en cuenta su historial de pagos (35%), los montos adeudados (30%), la duración del historial crediticio (15%), el nuevo crédito (10%), y mix de crédito (10%). 1

 

Fuente: myFico.com

Los puntajes FICO base varían de 300 a 850. Un puntaje FICO más alto lo ayudará a calificar para una tasa de interés hipotecario más baja, lo que le ahorrará dinero.2

Por ley federal, usted tiene derecho a una copia gratuita de su informe de crédito cada 12 meses de cada una de las tres agencias de crédito principales (Equifax, Experian y Transunion). Solicite su informe de crédito gratuito en https://www.annualcreditreport.com.

Requisitos de puntaje mínimo

Para calificar para las tasas de interés más bajas disponibles, generalmente necesitará un puntaje FICO de 760 o superior. La mayoría de los prestamistas requieren una puntuación de al menos 620 para calificar para una hipoteca convencional.

Si su puntaje FICO es menor a 620, es posible que pueda calificar para una hipoteca no convencional. Sin embargo, debe esperar pagar tasas de interés y tarifas más altas. Por ejemplo, puede obtener un préstamo FHA (uno emitido por un prestamista privado pero asegurado por la Administración Federal de Vivienda) con una calificación crediticia tan baja como 580 si puede hacer un pago inicial del 3.5 por ciento. Y los préstamos FHA están disponibles para los solicitantes con puntajes de crédito tan bajos como 500 con un pago inicial del 10 por ciento.

Aumente su puntaje de crédito

No hay una solución rápida para un puntaje de crédito bajo, pero los siguientes pasos lo ayudarán a aumentarla con el tiempo.5

  • Hacer pagos a tiempo

Con un 35 por ciento, su historial de pagos representa la mayor parte de su puntaje de crédito. Por lo tanto, es crucial ponerse al día con cualquier pago atrasado y hacer todos sus pagos futuros a tiempo.

Si tiene problemas para recordar pagar sus facturas a tiempo, configure recordatorios de pago a través de su plataforma de banca en línea, una herramienta gratuita de administración de dinero como Mint o una aplicación como BillMinder.

  • Evite solicitar un nuevo crédito que no necesita

Las nuevas cuentas reducirán su antigüedad promedio, lo que podría impactar negativamente en la duración de su historial de crédito. Además, cada vez que solicite un crédito, puede resultar en una pequeña disminución en su puntaje de crédito.

¿La excepción a esta regla? Si no tiene ninguna tarjeta de crédito, o ninguna cuenta de crédito, debe abrir una cuenta para establecer un historial de crédito. Solo asegúrese de usarlo responsablemente y pague en su totalidad cada mes.

Si necesita comprar una nueva cuenta de crédito, por ejemplo, un préstamo para automóvil, asegúrese de completar sus solicitudes de préstamo dentro de un corto período de tiempo. FICO intenta distinguir entre la búsqueda de un solo préstamo y las solicitudes para abrir varias líneas de crédito nuevas por la ventana de tiempo durante la cual se realizan las consultas.

  • Pagar tarjetas de crédito

Cuando cancela sus tarjetas de crédito y otro crédito renovable, reduce sus montos adeudados o el índice de utilización del crédito (proporción de saldos de cuenta a límites de crédito). Algunos expertos recomiendan comenzar con su deuda de mayor interés y pagarla primero. Otros sugieren pagar primero su saldo más bajo y luego transferir ese pago a su siguiente saldo más bajo para crear un impulso.

Sea cual sea el método que elija, el primer paso es hacer una lista de todos los saldos de sus tarjetas de crédito y luego comenzar a abordarlos uno por uno. Haga los pagos mínimos en todas sus tarjetas, excepto una. Pague todo lo que pueda en esa tarjeta hasta que se pague por completo, luego táchela de la lista y continúe con la siguiente tarjeta.

Pago de la deuda Tipo de interés Pago total Pago mínimo
Tarjeta de crédito 1 12.5% $ 460 $ 18.40
Tarjeta de crédito 2 18.9% $ 1,012 $ 40.48
Tarjeta de crédito 3 3.11% $ 6,300 $ 252

  • Evite cerrar cuentas antiguas

Cerrar una cuenta antigua no la eliminará de su informe de crédito. De hecho, puede afectar su puntaje, ya que puede aumentar su tasa de utilización de crédito, ya que tendrá menos crédito disponible, y disminuir su longitud promedio de historial de crédito.

Del mismo modo, el pago de una cuenta de cobro no lo eliminará de su informe. Permanece en su informe de crédito durante siete años, sin embargo, el impacto negativo en su puntaje disminuirá con el tiempo.

  • Corregir errores en su informe

Los errores o la actividad fraudulenta pueden afectar negativamente su puntaje de crédito. Por eso es una buena idea revisar su informe de crédito al menos una vez al año. La Comisión Federal de Comercio tiene instrucciones en su sitio web para disputar errores en su informe.

Si bien puede parecer mucho esfuerzo elevar su puntaje de crédito, su trabajo arduo se verá recompensado a largo plazo. No solo lo ayudará a calificar para una hipoteca, sino que también le ayudará a obtener una tasa de interés más baja en préstamos para automóviles y tarjetas de crédito. Incluso puede calificar para tarifas más bajas en primas de seguros.

PASO 2: AHORRE PARA UN PAGO INICIAL Y COSTOS DE CIERRE

El siguiente paso para prepararse para la compra de su casa es ahorrar para el pago inicial y los costos de cierre.

Enganche

Cuando compra una casa, normalmente paga una parte de ella en efectivo (pago inicial) y obtiene un préstamo para cubrir el saldo restante (hipoteca).

Muchos compradores primerizos se preguntan: ¿Cuánto necesito ahorrar para un pago inicial? La respuesta es … depende.

En términos generales, cuanto mayor sea el pago inicial, más dinero ahorrará en intereses y comisiones. Por ejemplo, usted calificará para una tasa de interés más baja y evitará pagar el seguro hipotecario si su pago inicial es al menos el 20 por ciento del precio de compra de la propiedad. Pero, ¿qué pasa si no puede darse el lujo de pagar un 20 por ciento?

En un préstamo convencional, se le solicitará que compre un seguro hipotecario privado (PMI) si su pago inicial es inferior al 20 por ciento. PMI es un seguro que compensa a su prestamista si no cumple con su préstamo.

El PMI le costará entre el 0,3 y el 1,5 por ciento del monto total de la hipoteca cada año. 8 Entonces, en un préstamo de $ 100,000, puede esperar pagar entre $ 300 y $ 1500 por año para el PMI hasta que el saldo de su hipoteca caiga por debajo del 80 por ciento del valor de tasación. 9Para una hipoteca convencional con PMI, la mayoría de los prestamistas aceptarán un pago inicial mínimo del cinco por ciento del precio de compra.7

Si un pago inicial del cinco por ciento sigue siendo demasiado alto, un préstamo asegurado por la FHA puede ser una opción para usted. Debido a que están garantizados por la Administración Federal de Vivienda, los préstamos de la FHA solo requieren un pago inicial del 3.5 por ciento si su puntaje de crédito es 580 o más.7

¿El inconveniente de obtener un préstamo FHA? Se le pedirá que pague una prima de seguro hipotecario por adelantado (MIP) de 1.75 por ciento del monto total del préstamo, así como un MIP anual de entre 0.80 y 1.05 por ciento del saldo de su préstamo en una nota de 30 años. También hay ciertas limitaciones en los tipos de préstamos y propiedades que califican10.

También hay una variedad de otros programas patrocinados por el gobierno creados para ayudar a los compradores de vivienda. Por ejemplo, los veteranos y los miembros actuales de las Fuerzas Armadas pueden calificar para un préstamo respaldado por el VA que requiere un pago inicial de $ 0. 7 Consulte a un prestamista hipotecario sobre las opciones disponibles para usted.

TIPO MÍNIMO ABAJO CUOTAS ADICIONALES

  • Préstamo convencional 20% Califique para obtener las mejores tarifas y no se requiere seguro hipotecario
  • Préstamo convencional 5% Debe comprar un seguro hipotecario privado con un costo de 0.3 a 1.5% de la hipoteca anual
  • Préstamo FHA 3.5% de la prima del seguro hipotecario por adelantado del 1.75% del monto del préstamo y una tarifa anual de 0.8 – 1.05%

Propietarios actuales

Si usted es un propietario actual, puede tener capital en su hogar que puede usar para el pago inicial de una nueva casa. Podemos ayudarlo a calcular el rendimiento esperado después de vender su casa actual y pagar su hipoteca actual. Póngase en contacto con nosotros para una evaluación gratuita!

Costos de cierre

Los costos de cierre también deben tenerse en cuenta en su plan de ahorro. Estos pueden incluir tarifas de originación de préstamos, puntos de descuento, tarifas de tasación, búsquedas de títulos, seguros de títulos, encuestas y otras tarifas asociadas con la compra de su casa. Los costos de cierre varían, pero generalmente oscilan entre el dos y el cinco por ciento del precio de compra.

Si no tiene los fondos para pagarlos en el momento del cierre, a menudo puede agregarlos al saldo de su hipoteca y pagarlos en el tiempo. Sin embargo, esto significa que tendrá un pago mensual más alto y pagará más a largo plazo porque pagará intereses sobre las tarifas.

PASO 3: ESTIMAR SU PODER DE COMPRA DE LA CASA

Una vez que tenga el puntaje de crédito requerido, los ahorros para un pago inicial y una lista de todas sus obligaciones de deuda pendientes a través de su informe de crédito, puede evaluar si está listo y puede comprar una casa.

Es importante tener una idea de cuánto puede pagar razonablemente, y cuánto podrá pedir prestado, para ver si la propiedad de una vivienda está al alcance.

Su relación deuda-ingreso (DTI) es uno de los principales factores que utilizan las compañías hipotecarias para determinar cuánto están dispuestos a prestarle, y puede ayudarlo a determinar si sus objetivos de compra de vivienda son realistas dada su situación financiera actual .

Su relación DTI es esencialmente una comparación de sus gastos de vivienda y otras deudas en comparación con sus ingresos. Hay dos relaciones DTI diferentes que los prestamistas consideran:

Proporción frontal

También llamado el índice de vivienda, este es el porcentaje de sus ingresos que se destinaría a los gastos de vivienda cada mes, incluido el pago de su hipoteca, el seguro hipotecario privado, los impuestos a la propiedad, el seguro del propietario y las cuotas de asociación.12

Para calcular su proporción de DTI al inicio, un prestamista sumará sus gastos de vivienda esperados y los dividirá por sus ingresos mensuales brutos (ingresos antes de impuestos). La proporción máxima de DTI al inicio para la mayoría de las hipotecas es del 28 por ciento. Para un préstamo respaldado por la FHA, esta proporción no debe exceder el 31 por ciento.13

Proporción de back-end

La proporción de servicios de fondo tiene en cuenta todas sus obligaciones de deuda mensuales: sus gastos de vivienda esperados MÁS las facturas de tarjetas de crédito, pagos de automóviles, pensión alimenticia o pensión alimenticia, préstamos estudiantiles y cualquier otra deuda que aparezca en su informe de crédito.12

Para calcular su relación de respaldo, un prestamista tabulará sus gastos de vivienda esperados y otros pagos mensuales de la deuda y los dividirá por sus ingresos mensuales brutos (ingresos antes de impuestos). La proporción máxima de DTI de back-end para la mayoría de las hipotecas es del 36 por ciento. Para un préstamo respaldado por la FHA, esta proporción no debe exceder el 41 por ciento.13

Calculadora de asequibilidad para el hogar

Para tener una idea de cuánto puede pagar por su hogar, visite la Calculadora de Asequibilidad del Hogar gratuita de la Asociación Nacional de Agentes de Bienes Raíces en https://www.realtor.com/mortgage/tools/affordability-calculator.

Esta práctica herramienta lo ayudará a determinar el poder de compra de su casa según su ubicación, sus ingresos anuales, sus deudas mensuales y el pago inicial. También ofrece un desglose mensual de la hipoteca que proyecta lo que pagaría cada mes en capital e intereses, impuestos a la propiedad y seguros de hogar.

La Calculadora de Asequibilidad del Hogar tiene como valor predeterminado una proporción DTI de back-end del 36 por ciento. Si la estimación del costo mensual en esa proporción es significativamente más alta que la que actualmente paga por la vivienda, debe considerar si puede compensar o no la diferencia cada mes en su presupuesto.

De lo contrario, es posible que desee reducir su precio de compra objetivo a un índice DTI más conservador. La herramienta le permite desplazarse a través de puntos de precio más altos y más bajos para ver el impacto en sus pagos mensuales para que pueda identificar su punto de precio ideal.

(Nota: esta herramienta solo proporciona una estimación de su poder de compra. Deberá obtener la aprobación previa de un prestamista hipotecario para saber el monto real de su aprobación de la hipoteca y las proyecciones de pagos mensuales).

¿Puedo permitirme comprar la casa de mis sueños?

Una vez que tenga una idea de su poder adquisitivo, es hora de averiguar qué vecindarios y qué tipo de casas puede pagar. La mejor manera de determinar esto es ponerse en contacto con un agente de bienes raíces con licencia. Ayudamos a los propietarios de viviendas como usted todos los días y podemos enviarle una lista completa de viviendas dentro de su presupuesto que satisfagan sus necesidades específicas.

Si hay hogares dentro de su rango de precios y vecindarios específicos que cumplen con sus criterios, ¡felicitaciones! Es hora de comenzar su búsqueda de casa.

De lo contrario, es posible que deba continuar ahorrando para un pago inicial más grande … o ajustar sus parámetros de búsqueda para encontrar hogares que se ajusten a su presupuesto. Podemos ayudarlo a determinar el curso correcto para usted.

COMIENCE A COLOCAR SU FUNDACIÓN HOY

Nunca es demasiado temprano para comenzar a prepararse financieramente para comprar una casa. Estos tres pasos lo pondrán en el camino hacia la propiedad de vivienda … ¡y un futuro financiero seguro!

Y si está listo para comprar ahora pero no tiene un puntaje de crédito perfecto o un gran pago inicial, no se desanime. Hay recursos y opciones disponibles que podrían permitirle comprar una casa antes de lo que cree. Podemos ayudar.

¿Quieres saber si estás listo para comprar una casa? ¡Llamanos! Lo ayudaremos a revisar sus opciones, lo conectaremos con uno de nuestros prestamistas hipotecarios de confianza y lo ayudaremos a determinar el momento ideal para comenzar su nueva búsqueda de vivienda.

Lo anterior hace referencia a una opinión y es sólo para fines informativos. No pretende ser un asesoramiento financiero. Consulte a un profesional financiero para obtener asesoramiento sobre sus necesidades individuales.

Sources:
  1. Quicken Loans Blog – 
    
    https://www.quickenloans.com/blog/how-does-your-credit-score-affect-your-mortgage-eligibility
  2. myFICO – 
    
    https://www.myfico.com/credit-education/credit-report-credit-score-articles/
  3. Bankrate – 
    
    https://www.bankrate.com/mortgages/what-is-a-good-credit-score-to-buy-a-house/
  4. Bankrate – 
    
    https://www.bankrate.com/finance/mortgages/7-crucial-facts-about-fha-loans-1.aspx
  5. myFICO – 
    
    https://www.myfico.com/credit-education/improve-your-credit-score/
  6. The Balance – 
    
    https://www.thebalance.com/having-good-credit-score-960528
  7. Bankrate – 
    
    https://www.bankrate.com/mortgages/how-much-is-a-down-payment-on-a-house/
  8. Bankrate – 
    
    https://www.bankrate.com/finance/mortgages/the-basics-of-private-mortgage-insurance-pmi.aspx
  9. Bankrate – 
    
    https://www.bankrate.com/finance/mortgages/removing-private-mortgage-insurance.aspx
  10. The Balance – 
    
    https://www.thebalance.com/fha-home-loan-pitfalls-315673
  11. Investopedia – 
    
    https://www.investopedia.com/terms/c/closingcosts.asp
  12. Bankrate – 
    
    https://www.bankrate.com/finance/mortgages/why-debt-to-income-matters-in-mortgages-1.aspx
  13. The Lenders Network – 
    
    https://thelendersnetwork.com/fha-debt-to-income-ratio/

The Home Buyer’s Guide to Getting Mortgage Ready

The Home Buyer’s Guide to Getting Mortgage Ready

Don’t wait until you’re ready to move to start preparing financially to buy a home.

If you’re like the vast majority of home buyers, you will choose to finance your purchase with a mortgage loan. By preparing in advance, you can avoid the common delays and roadblocks many buyers face when applying for a mortgage.

The requirements to secure a mortgage may seem overwhelming, especially if you’re a first-time buyer. But we’ve outlined three simple steps to get you started on your path to homeownership.

Even if you’re a current homeowner, it’s a good idea to prepare in advance so you don’t encounter any surprises along the way. Lending requirements have become more rigorous in recent years, and changes to your credit history, debt levels, job type and other factors could impact your chances of approval.

It’s never too early to start preparing to buy a home. Follow these three steps to begin laying the foundation for your future home purchase today!

 

STEP 1: CHECK YOUR CREDIT SCORE

Your credit score is one of the first things a lender will check to see if you qualify for a loan. It’s a good idea to review your credit report and score yourself before you’re ready to apply for a mortgage. If you have a low score, you will need time to raise it. And sometimes fraudulent activity or erroneous information will appear on your report, which can take months to correct.

The credit score most lenders use is your FICO score, a weighted score developed by the Fair Isaac Corporation that takes into account your payment history (35%), amounts owed (30%), length of credit history (15%), new credit (10%), and credit mix (10%).1

Source: myFico.com

Base FICO scores range from 300 to 850. A higher FICO score will help you qualify for a lower mortgage interest rate, which will save you money.2

By federal law, you are entitled to one free copy of your credit report every 12 months from each of the three major credit bureaus (Equifax, Experian and Transunion). Request your free credit report at https://www.annualcreditreport.com.

 

Minimum Score Requirements

To qualify for the lowest interest rates available, you will usually need a FICO score of 760 or higher. Most lenders require a score of at least 620 to qualify for a conventional mortgage.3

If your FICO score is less than 620, you may be able to qualify for a non-conventional mortgage. However, you should expect to pay higher interest rates and fees. For example, you may be able to secure an FHA loan (one issued by a private lender but insured by the Federal Housing Administration) with a credit score as low as 580 if you can make a 3.5 percent down payment. And FHA loans are available to applicants with credit scores as low as 500 with a 10 percent down payment.4

 

Increase Your Credit Score

There’s no quick fix for a low credit score, but the following steps will help you increase it over time.5

 

  1. Make Payments on Time

At 35 percent, your payment history accounts for the largest portion of your credit score. Therefore, it’s crucial to get caught up on any late payments and make all of your future payments on time.

If you have trouble remembering to pay your bills on time, set up payment reminders through your online banking platform, a free money management tool like Mint, or an app like BillMinder.

 

  1. Avoid Applying for New Credit You Don’t Need

New accounts will lower your average account age, which could negatively impact your length of credit history. Also, each time you apply for credit, it can result in a small decrease in your credit score.

The exception to this rule? If you don’t have any credit cards—or any credit accounts at all—you should open an account to establish a credit history. Just be sure to use it responsibly and pay it off in full each month.

If you need to shop for a new credit account, for example, a car loan, be sure to complete your loan applications within a short period of time. FICO attempts to distinguish between a search for a single loan and applications to open several new lines of credit by the window of time during which inquiries occur.

 

  1. Pay Down Credit Cards

When you pay off your credit cards and other revolving credit, you lower your amounts owed, or credit utilization ratio (ratio of account balances to credit limits). Some experts recommend starting with your highest-interest debt and paying it off first. Others suggest paying off your lowest balance first and then rolling that payment into your next-lowest balance to create momentum.

Whichever method you choose, the first step is to make a list of all of your credit card balances and then start tackling them one by one. Make the minimum payments on all of your cards except one. Pay as much as possible on that card until it’s paid in full, then cross it off your list and move on to the next card.

 

Debt Interest Rate Total Payoff Minimum Payment
Credit Card 1 12.5% $460 $18.40
Credit Card 2 18.9% $1,012 $40.48
Credit Card 3 3.11% $6,300 $252

 

  1. Avoid Closing Old Accounts

Closing an old account will not remove it from your credit report. In fact, it can hurt your score, as it can raise your credit utilization ratio—since you’ll have less available credit—and decrease your average length of credit history.

Similarly, paying off a collection account will not remove it from your report. It remains on your credit report for seven years, however, the negative impact on your score will decrease over time.

 

  1. Correct Errors on Your Report

Mistakes or fraudulent activity can negatively impact your credit score. That’s why it’s a good idea to check your credit report at least once per year. The Federal Trade Commission has instructions on their websitefor disputing errors on your report.

While it may seem like a lot of effort to raise your credit score, your hard work will pay off in the long run. Not only will it help you qualify for a mortgage, a high credit score can help you secure a lower interest rate on car loans and credit cards, as well. You may even qualify for lower rates on insurance premiums.6

 

STEP 2: SAVE UP FOR A DOWN PAYMENT AND CLOSING COSTS

The next step in preparing for your home purchase is to save up for a down payment and closing costs.

 

Down Payment

When you purchase a home, you typically pay for a portion of it in cash (down payment) and take out a loan to cover the remaining balance (mortgage).

Many first-time buyers wonder: How much do I need to save for a down payment?The answer is … it depends.

Generally speaking, the higher your down payment, the more money you will save on interest and fees. For example, you will qualify for a lower interest rate and avoid paying for mortgage insurance if your down payment is at least 20 percent of the property’s purchase price. But what if you can’t afford to put down 20 percent?

On a conventional loan, you will be required to purchase private mortgage insurance (PMI) if your down payment is less than 20 percent. PMI is insurance that compensates your lender if you default on your loan.7

PMI will cost you between 0.3 to 1.5 percent of the overall mortgage amount each year.8So, on a $100,000 loan, you can expect to pay between $300 and $1500 per year for PMI until your mortgage balance falls below 80 percent of the appraised value.9For a conventional mortgage withPMI, most lenders will accept a minimum down payment of five percent of the purchase price.7

If a five-percent down payment is still too high, an FHA-insured loan may be an option for you. Because they are guaranteed by the Federal Housing Administration, FHA loans only require a 3.5 percent down payment if your credit score is 580 or higher.7

The downside of getting an FHA loan? You’ll be required to pay an upfront mortgage insurance premium (MIP) of 1.75 percent of the total loan amount, as well as an annual MIP of between 0.80 and 1.05 percent of your loan balance on a 30-year note. There are also certain limitations on the types of loans and properties that qualify.10

There are a variety of other government-sponsored programs created to assist home buyers, as well. For example, veterans and current members of the Armed Forces may qualify for a VA-backed loan requiring a $0 down payment.7Consult a mortgage lender about what options are available to you.

 

TYPE MINIMUM DOWN ADDITIONAL FEES
Conventional Loan 20% Qualify for the best rates and no mortgage insurance required
Conventional Loan 5% Must purchase private mortgage insurance costing 0.3 – 1.5% of mortgage annually
FHA Loan 3.5% Upfront mortgage insurance premium of 1.75% of loan amount and annual fee of 0.8 – 1.05%

 

Current Homeowners

If you’re a current homeowner, you may have equity in your home that you can use toward your down payment on a new home. We can help you estimate your expected return after you sell your current home and pay back your existing mortgage. Contact us for a free evaluation!

 

Closing Costs

Closing costs should also be factored into your savings plan. These may include loan origination fees, discount points, appraisal fees, title searches, title insurance, surveys and other fees associated with the purchase of your home. Closing costs vary but typically range between two to five percent of the purchase price.11

If you don’t have the funds to pay these outright at closing, you can often add them to your mortgage balance and pay them over time. However, this means you’ll have a higher monthly payment and pay more over the long term because you’ll pay interest on the fees.

 

STEP 3: ESTIMATE YOUR HOME PURCHASING POWER

Once you have the required credit score, savings for a down payment and a list of all your outstanding debt obligations via your credit report, you can assess whether you are ready and able to purchase a home.

It’s important to have a sense of how much you can reasonably afford—and how much you’ll be able to borrow—to see if homeownership is within reach.

Your debt-to-income (DTI) ratio is one of the main factors mortgage companies use to determine how much they are willing to lend you, and it can help you gauge whether or not your home purchasing goals are realistic given your current financial situation.

Your DTI ratio is essentially a comparison of your housing expenses and other debt versus your income. There are two different DTI ratios that lenders consider:

 

Front-End Ratio

Also called the housing ratio, this is the percentage of your income that would go toward housing expenses each month, including your mortgage payment, private mortgage insurance, property taxes, homeowner’s insurance and association dues.12

To calculate your front-end DTI ratio, a lender will add up your expected housing expenses and divide it by your gross monthly income (income before taxes). The maximum front-end DTI ratio for most mortgages is 28 percent. For an FHA-backed loan, this ratio must not exceed 31 percent.13

 

Back-End Ratio

The back-end ratio takes into account all of your monthly debt obligations: your expected housing expenses PLUS credit card bills, car payments, child support or alimony, student loans and any other debt that shows up on your credit report.12

To calculate your back-end ratio, a lender will tabulate your expected housing expenses and other monthly debt payments and divide it by your gross monthly income (income before taxes). The maximum back-end DTI ratio for most mortgages is 36 percent. For an FHA-backed loan, this ratio must not exceed 41 percent.13

 

Home Affordability Calculator

To get a sense of how much home you can afford, visit the National Association of Realtors’ free Home Affordability Calculator at https://www.realtor.com/mortgage/tools/affordability-calculator.

This handy tool will help you determine your home purchasing power depending on your location, annual income, monthly debt and down payment. It also offers a monthly mortgage breakdown that projects what you would pay each month in principal and interest, property taxes, and home insurance.

The Home Affordability Calculator defaults to a back-end DTI ratio of 36 percent. If the monthly cost estimate at that ratio is significantly higher than what you’re currently paying for housing, you need to consider whether or not you can make up the difference each month in your budget.

If not, you may want to lower your target purchase price to a more conservative DTI ratio. The tool enables you to scroll through higher and lower price points to see the impact on your monthly payments so you can identify your ideal price point.

(Note: This tool only provides an estimate of your purchasing power. You will need to secure pre-approval from a mortgage lender to know your true mortgage approval amount and monthly payment projections.)

 

Can I Afford to Buy My Dream Home?

Once you have a sense of your purchasing power, it’s time to find out which neighborhoods and types of homes you can afford. The best way to determine this is to contact a licensed real estate agent. We help homeowners like you every day and can send you a comprehensive list of homes within your budget that meet your specific needs.

If there are homes within your price range and target neighborhoods that meet your criteria—congratulations! It’s time to begin your home search.

If not, you may need to continue saving up for a larger down payment … or adjust your search parameters to find homes that do fit within your budget. We can help you determine the right course for you.

 

START LAYING YOUR FOUNDATION TODAY

It’s never too early to start preparing financially for a home purchase. These three steps will set you on the path toward homeownership … and a secure financial future!

And if you are ready to buy now but don’t have a perfect credit score or a big down payment, don’t get discouraged. There are resources and options available that might make it possible for you to buy a home sooner than you think. We can help.

Want to find out if you’re ready to buy a house? Give us a call! We’ll help you review your options, connect you with one of our trusted mortgage lenders, and help you determine the ideal time to begin your new home search.

The above references an opinion and is for informational purposes only.  It is not intended to be financial advice. Consult a financial professional for advice regarding your individual needs.

 

 

Sources:
  1. Quicken Loans Blog – 
    
    https://www.quickenloans.com/blog/how-does-your-credit-score-affect-your-mortgage-eligibility
  2. myFICO – 
    
    https://www.myfico.com/credit-education/credit-report-credit-score-articles/
  3. Bankrate – 
    
    https://www.bankrate.com/mortgages/what-is-a-good-credit-score-to-buy-a-house/
  4. Bankrate – 
    
    https://www.bankrate.com/finance/mortgages/7-crucial-facts-about-fha-loans-1.aspx
  5. myFICO – 
    
    https://www.myfico.com/credit-education/improve-your-credit-score/
  6. The Balance – 
    
    https://www.thebalance.com/having-good-credit-score-960528
  7. Bankrate – 
    
    https://www.bankrate.com/mortgages/how-much-is-a-down-payment-on-a-house/
  8. Bankrate – 
    
    https://www.bankrate.com/finance/mortgages/the-basics-of-private-mortgage-insurance-pmi.aspx
  9. Bankrate – 
    
    https://www.bankrate.com/finance/mortgages/removing-private-mortgage-insurance.aspx
  10. The Balance – 
    
    https://www.thebalance.com/fha-home-loan-pitfalls-315673
  11. Investopedia – 
    
    https://www.investopedia.com/terms/c/closingcosts.asp
  12. Bankrate – 
    
    https://www.bankrate.com/finance/mortgages/why-debt-to-income-matters-in-mortgages-1.aspx
  13. The Lenders Network – 
    
    https://thelendersnetwork.com/fha-debt-to-income-ratio/