Important Questions To Ask Your Mortgage Lender Before You Sign Any Of Their Documents

Do you have a variety of loan programs to fit my cash flow and expected length of ownership needs?

If you’re going to live in your new home for less than five years, you may want to consider an adjustable rate mortgage or “ARM.”

With an ARM your payments will be lower, but they will go up according to the terms of the loan.

If you’re going to live in your new home for over five years, a traditional fixed-rate mortgage may be a better plan.

Do you offer written mortgage pre-approvals, not just pre-qualifications?

A pre-qualification is usually a Lender’s opinion of your eligibility for a loan. If you ask to be pre-approved,
the Lender will actually submit your job and credit history to an underwriter and get a conditional approval for a loan and a loan commitment.

The advantage of having a
pre-approval is that it will make your offer to buy a home stronger and it will usually allow you to close on the home faster.

Do you have the ability to handle difficult credit history?

Many Lenders will only work with you if you have perfect credit, and if a problem comes up, they won’t help you.

Make sure your Lender has reviewed and received approval for you and your specific credit history.

Is the rate you quoted me the rate I’ll get at closing?

Many Lenders advertise their rates in the paper and in homes magazines. These are called “teaser rates” in the industry. The name says it all.

After they’ve got you committed to using them, many Lenders then tell you what the “real” rate will be. By this time, it’s too late for you to do anything about it

Quick Tips That Could Save You Thousands (Cont.)

You can use this list as a scorecard to rate each property you see. The one with the biggest score wins! This helps avoid confusion and keeps things in perspective when you’re comparing dozens of homes.

When house hunting, keep in mind the difference between skin and bones. The bones are things that cannot be changed such as the location, view, size of lot, noise in the area, school district, and floor plan. The skin represents easily changed surface finishes like carpet, wallpaper, color, and window coverings. Buy the house with good bones, because the skin can always be changed to match your tastes. I always recommend that you imagine each house as if it were vacant. Consider each house on its underlying merits, not the seller’s decorating skills.

4. Don’t Be Pushed Into Any House.

Your agent should show you everything available that meets your requirements. Don’t make a decision on a house until you feel that you’ve seen enough to pick the best one. Review the Multiple Listing printout with your agent to make sure that you are getting a COMPLETE list.

In the late 1980s, homes were selling quickly, usually a few days after listing. In that kind of market, agents advised their clients to make an offer ON THE SPOT if they liked the house. That was good advice at the time. Today there isn’t always this urgency, unless a home is drastically under-priced, and you’ll know if it is.

Quick Tips That Could Save You Thousands…

1. Don’t Get Pre-Qualified.

Get pre-approved.

Do you want to get the best house you can for the least amount of money? Then make sure you’re in the strongest negotiating position possible. Price is only one bargaining chip in the negotiations, and not necessarily the most important one.

Often other terms, such as the strength of the buyer or the length of escrow, are critical to a seller. This process takes anywhere from a few days to a few weeks depending on your situation. It’s VERY POWERFUL and a weapon we recommend all of our clients have in their negotiating arsenal.

2. Sell First, Then Buy.

If you have a house to sell, sell it before selecting a house to buy!

Let’s pretend that we go out looking for the perfect house for you. We find it and you love it! Now you have to make an offer to the seller. You want the seller to reduce the price and wait until you sell your house.

The seller figures that’s a risky deal, since he might pass up a buyer who DOESN’T have to sell a house while he’s waiting for you.

So he says OK, he’ll do the contingency but it has to be a full-price offer. So you see, you paid more for the house than you could have because of the contingency. Now you have to sell your existing house, and in a hurry, otherwise you lose the dream house. So, to sell quickly you might take an offer that’s lower than if you had more time.

3. Play the Game of Nines.

Before house hunting, make a list of nine things you want in the new place. Then make a list of the nine things you don’t want. We call this Nine of This and None of That.

How To Avoid Five Of The Most Expensive Mistakes Homebuyers Make...

Mistake #1: Not knowing how much they can afford before they make an offer.

The easiest way to avoid this mistake is to get pre-approved for a mortgage by a Lender so you know in advance exactly how much you can afford.

Most pre-approvals are free and it will give you a basis to make a more informed purchasing decision when you find the house you like.

Mistake #2: Not realizing that the wrong mortgage can cost thousands of dollars in needless interest and taxes.

Check with your accountant before you make your final decision on which mortgage you’re going to choose. Your CPA can tell you what the long-term effects will be on your income, your taxes, and the equity you build in your home over time.

Most people aren't aware that with a standard 30-year mortgage they’ll be paying two-and-a-half times the amount of the mortgage in payments.

With some advance planning and a simple strategy, they can cut the amount of interest they pay dramatically and own their homes sooner.

Mistake #3: Not realizing in advance whom the real estate consultant represents.

Most people think that the agent they’re working with is working for them. But unless they’re working as your buyer representative, they represent the seller. There are different types of agency relationships you can have with a Realtor, so make sure you’re clear on your options.

Mistake #4: Not discovering hidden defects before they buy a home.

One of the most expensive mistakes is also one of the easiest to avoid, by having a professional pre-purchase home inspection. Don't get stuck with a money pit.

The cost of a professional home inspection is usually a few hundred dollars, but the peace of mind it can give you and the expense you can avoid are worth thousands of dollars.

Mistake #5: Not knowing how much their credit can affect their ability to buy or refinance a home.

Before you buy a home, many of the clouds on your credit history can be cleared up or even eliminated. Your mortgage professional can help you review and prepare your credit file in advance.

Get The Home YOU Want!

When building or buying a home, it helps to decide just exactly what you NEED and what you WANT. Once you have a price in mind, THEN start looking. If you do it the other way around, you’ll fall in love with a home that you can’t afford and none in your price range will ever measure up to it.

Location, location, location! Don’t you wonder why people always ask about location first? Well, it’s the hardest thing to change about a home once you buy it. However, there are things besides the neighborhood that you need to consider. Things like size of the lot – do you really want to mow those five acres or is it worth it to be that far from those nosy neighbors?

Dinner Anyone?

Think about your lifestyle in relationship to the kitchen and dining room.
Do you actually cook? Do you need that full gourmet kitchen with stainless steel appliances and lots of cabinet space? Do you need room in the kitchen for eating in – or will you always use the dining room?

What’s on TV Tonight?

Do you need separate living and family rooms? In some states, like Florida and California, lifestyles are pretty relaxed all around and rarely do we find that we need a formal living room. Many family rooms need to be large enough to accommodate computer stations as well as the entertainment center, complete with video games and surround sound.

Nite Nite, Sleep Tight…

The thing that really draws the attention of a home buyer is the master suite. Think about the size of your furniture; do you need extra room for a crib? Do you need a sitting area or study? Separate walk-in closets for you and your spouse?

Where’s MY Room?

Do you need more bedrooms? One for each kid or guest? Do they each need their own bathroom or can they share? Where are these rooms in relation to the master suite? Is there a room dedicated as an office or a gym?

Having gone through this list – you’re well on your way to finding your new dream home

The Three Things That Scare You Most About Buying a Home

Buying a home must up there with public speaking and the remake of The Exorcist for frightful experiences, but many of us will buy a home, speak publicly and watch that movie again and again in our lifetimes.

By giving you a few of the “behind-the-scenes” secrets, we hope to help you deal with the three things that scare you most about buying a home.

The Cost

The greatest fear that people have about buying a home is being able to afford it. This is what keeps us awake at night – calculating and recalculating how many lunches we have to pack instead of going out with the gang, to be able to make the mortgage payment.

The behind-the-scenes secret to dealing with this fear is working with a great Lender and getting pre-approved BEFORE you start looking at homes, and being realistic about what you’re willing and able to spend.

The Lender will give you a range of loan options available and if asked, will give you a realistic projection of what you can REALLY afford, considering your budget and lifestyle.

The Commitment

Women like to stereotype men as having a fear of commitment – but when it comes to buying a home, we’re all susceptible. Buying a home usually means committing money and time (at least a year – usually more like five years) to being in one spot.

If you’re just finishing a degree or training, or you’re not sure that you’ll be in the same position for awhile, you may consider waiting until your life is a little more stable.

The behind-the-scenes secret to dealing with the fear of commitment is in buying a home that will resell easily – that has features that other people will want. In addition, you can get a two-step mortgage that allows you to pay a fixed rate for a certain period of time, and a flexible rate later on – so you can get out of the loan easily after the first step.

The People

Who can you trust in this home-buying process? This is a big investment we’re talking about. And it seems that everyone is out to make as much money as possible OFF of you! There are sellers, real estate consultants, lenders, builders, movers, and attorneys, all of whom may be

strangers, and have a vested interest when you buy a home. It’s easy to be afraid they’ll take you to the cleaners.

The behind-the-scenes secret is to check their references. Really. Many lenders and real estate consultants operate on a “By Referral Only” basis – in which they ask clients to refer them to others they know are buying a home. Those who offer “lifetime relationships” and other services (like free reports and seminars on buying or selling homes) are already striving to meet your needs.

In reality, they are NOT all out to get you – because in the long run, the BEST business strategy is to make sure that you get what you need and want in a home.

Here’s A Way You Can Save Thousands of Dollars In Interest and Pay Your Mortgage Off Years Sooner!

Most people think when you get a mortgage you’re stuck with it for 30 years. What they don’t realize is that using a couple of easy and painless ways to make some extra principal payments can cut years off the life of your mortgage and save thousands of dollars in needless interest costs.

Here are a few easy strategies you can use:

Round Up To the Nearest Hundred.

This is an easy strategy to take advantage of, and the results are dramatic!

Let’s say you have a mortgage of $100,000 over 30 years at 8% interest. The monthly payments would be about $734 a month.

Now, let’s see what would happen if you rounded that payment to the next $100 by increasing your payment by $66 extra each month.

By paying $800 a month you’ll shorten the length of your mortgage by 7½ years. Just this one simple strategy will save you over $48,000 in interest payments over the life of your mortgage!

Use Your Income Tax Refund to Make a One-Time Pre-Payment.

Let’s say you have that same $100,000 mortgage, and you have a $1,000 tax refund this year. (Very possible with your new homeowner deductions.)
If you take that $1,000 and apply it to your mortgage, you’ll save over $8,600 and shorten your mortgage by one year and one month! Not bad for a simple one-time pre-payment.

Start Out With a 15-Year Mortgage.

One of the best things you can do – if you can afford it – is to start out with a 15-year mortgage instead of 30. It’s actually not that much more expensive, and the interest you save is incredible.
With the same $100,000 mortgage at 8% over 15 years, your payment would be about $200 more ($955) and you’d be paying $72,017 in interest over the life of your mortgage instead of $164,160!

By rounding up, using your tax refund, and taking a shorter mortgage, you can save thousands and be free of your mortgage years sooner.

That’s worth considering.

I’m The One Buying A Home - Just Who Are All These Other People?

Many people are involved in the home buying process. These professionals have based their careers on helping you find and purchase the home of your dreams. But do you really know just what they do for you?

Real Estate Consultant

The first person you’ll probably become involved with when you begin your search for a home is the real estate consultant. This term includes real estate agents, salespersons, brokers, Realtors, listing agents, and buyer’s agents, all of whom must be licensed to serve you. The agents and salespersons work for a broker.

Those licensed to sell may represent either buyers or sellers. However, listing agents typically represent only sellers, and buyer’s agents represent only the buyers – so as to avoid potential conflicts of interest.

Only those who are members of the National Association of Realtors may use the designation “Realtor.”

Lender

The person you work with to get your loan is generically called a Lender. This person may also be a mortgage loan officer, banker, or broker. The job of the Lender is to take your application for a loan, and verify your income, employment and credit history.

Title Company

The title company can act as the escrow agent (and hold your deposit), examine the title, insure the title, and issue a title report – verifying that you can become the rightful owner of the property.

Appraiser

The appraiser, who is usually state certified, is frequently involved in the pricing of the home before you even begin your search. They examine the appearance, condition, size, and quality of the home – then estimate the home’s value based on other sales in the neighborhood or area.

Surveyor

The surveyor checks the boundaries of the property to ensure that the home is on ONLY its property – and the ONLY home on its property.

Home Inspector

The home inspector checks the working condition of electrical, mechanical, structural, and plumbing systems in the home.

Pest Control Operator

Lenders require that you have the home checked for wood-destroying pests – termites and ants are the typical villains. These professionals poke around the attic, basement, walls, and grounds to ensure that these pests aren’t squatters in your dream home.

No-Fail Guide To Finding A Mover That Won’t Take You To The Cleaners

We’ve all heard the horror stories about movers who didn’t deliver (literally) what they’d promised, or the priceless vase from Great Aunt Edna that got broken in a move. Here are seven things to help you find the best mover that you can.

Identify only licensed, insured, and bonded moving companies.

Think about what you’re moving. What is it worth to you to know that it will get to your new home safe and sound? Licensed, insured, and bonded companies take the extra step to ensure that your things get to your new home, because they’re held responsible if they don’t.

Ask for estimates from two to three companies.

Shop and compare prices. Invite a mover’s representative to inspect the contents of your home.

They should be able to tell you how long the move will take, what it’ll cost, and the size of the truck you’ll need. Long-distance moves can cost anywhere between $3,000 and $10,000. This is a large investment, so treat it like you would any other – and shop around.

Be sure of what you’re buying. Typically, movers charge by weight and mileage. If you can get a flat rate, you’ll probably be better off. Get definite dates (in writing) of when the contents of your home will be picked up AND delivered.

Get extra liability protection.

Declare the value of the contents of your home with the mover before you move. Otherwise, your furnishings will be valued at $1.25 per pound as a lump sum. This means that a truckload containing the contents of your home that weight 3,000 pounds is only worth $3,750. Heaven forbid that it should happen – but could you replace the things you need for that amount? This is why declaring the value and adding extra protection are so important in ensuring your sanity during your move.

Stick around.

Stay with them as they inspect, pack, fill out the inventory, and weigh the contents of your home. The weight is particularly important because this is used to figure the final cost in most long-distance moves.

(Part 2) How To Avoid Being Beaten Out By Other Buyers Who May Be Competing For Your Dream Home...

Timing is everything.

In an active market, timing is everything.

In the good old days, you might have the luxury of viewing a home several times – even dragging your relatives to see it... before you actually made an offer.

“He/she who hesitates is lost” aptly explains buyers who dally to make a buying decision today. And don’t forget that being pre-approved for a loan has leveled the playing field for a majority of buyers. If they’re all equally qualified financially, the best offer (as interpreted by the seller) gets the property.

So, what can you do to arm yourself to the teeth with added value to capture a seller and counteract offers from other buyers?

Get Pre-Approval.

First, make sure you’re financially pre-approved by a Lender for the loan you’ll need and be prepared to document this fact to a seller if requested.

Be Honest.

Be honest with the seller about your interest in purchasing the property. This doesn’t necessarily mean that you won’t negotiate a fair purchase; but it also doesn’t mean that you’ll act nonchalant and noncommittal either. Sellers often choose one buyer’s offer over another based on the level of personal interest and commitment the buyer appears to have to the seller’s home.

Communicate.

Lastly, make sure you fully communicate the desired outcome to the real estate consultant you’re working with. The consultant will then evaluate the best tack to take in terms of price, purchase terms, and negotiating tactics to help you realize that goal.

The next time you’re inclined to wonder what evil trick the seller might be up to, better look behind you first...to see if other buyers are trying to pull the rug out from under your dream home!

How To Avoid Being Beaten Out By Other Buyers Who May Be Competing For Your Dream Home...

You’ve found your dream home, so you’ll make an acceptable offer and live happily ever after...unless another buyer beats you to the punch!

In a competitive marketplace, this can not only happen, but can potentially have a far greater impact than any negotiating gambit the seller would hurl your way. Yet, more buyers erroneously fear the seller more than they do other competing buyers!

That’s why it’s important to make sure your offer strategy includes a strong stance against other potential buyers and their offers. There are several factors that make buyer competition a threat in today’s real estate market.

It’s a sellers’ market.

First, in a competitive market with relatively few quality properties available, “dream home” category houses will become hot properties – often as soon as the for sale is planted in the yard.

Most buyers want to purchase a home that requires very little fix-up. They comment, “I want to bring in my toothbrush and immediately set up housekeeping.” And to obtain these turnkey benefits, buyers are willing to pay a premium. That can translate into not only a full-price offer, but one that exceeds the seller’s listed price.

Here’s What It Helps To Know About Interest Rates, Points, And The “Mysterious” APR

When you get a mortgage, there are three important terms for you to remember.

• Interest Rates


• Points


• APR
  

I’ve combined these three terms here because they’re related, and you’ll understand them better if I explain them together.

Interest Rate: “Interest Rates” are the price that Lenders charge for the use of their money. So, when interest rates are high, it’s because Lenders are charging you more to use their money right now.

Again, it’s a trade-off between now and later. Lenders are only going to give you so much money to use over the next 15 to 30 years (the life of your mortgage). They work backwards from that figure using interest rates. If you have a higher interest rate, you have less money to spend now. If you have a lower interest rate, you have more money to spend now.

Points: I want to tell you about a funny word – it’s one of those words that doesn’t mean what you might think it means when you hear it. (Like when the waiter at the restaurant asks you if you would like your “check,” and somehow you know that what they really mean is your bill, but you say, “Oh yes, thank you.”)

When you hear the word “points,” what do you think of? Maybe points in a football game? Maybe a test score? Well, some smart person in the mortgage industry started using the word “points” to mean 1% of your entire loan amount, that you get to pay up front, as a fee for certain things.

So let’s say your mortgage is for $200,000. One “point” would mean $2,000.

Now I’ll tell you about the third term and how it relates to the first two.

APR: “APR” stands for “Annual Percentage Rate.” That sounds friendly, too, doesn’t it?
The APR is what you get when you add the interest rate, the points, and all of the other fees together and then calculate what the loan will cost you each year, based on all of the fees added together.

Inside Secrets Of How To Get A “Yes” When You Borrow

Lenders approve loans based on their impression of your ability and INTENT to pay it back. To figure this out, they look at five things: creditworthiness, income, job longevity, job stability, and future income prospects. We’ll tell you how to make sure you look good in each of these things, so that you’ll get a “YES” when you want to borrow money for your new home.

1. Creditworthiness

Creditworthiness is your history of borrowing and repaying against things like loans, credit cards, rent, and whether you’ve ever filed for bankruptcy. Find out what credit bureau the Lender uses, then call or visit that same bureau for a copy of your credit report. Some are even available online.

This is to make sure that there are no errors or surprises that you’ll have to explain to the Lender. If there are mistakes, it can take a few months to resolve, so it’s good to have a compelling explanation ready when the Lender sees it! The best way to demonstrate that you are “creditworthy” is to pay your bills in full and on time, particularly for the year or two before you want to get a loan.

2. Income

Lenders want to know that you have a history of sufficient and consistent income – so that you’ll be able to repay the loan. So, when you submit your paperwork to a Lender, make sure to take a letter verifying your employment (how long and what your salary is), your last couple of paychecks, and your last couple of W-2 forms.

3. Job Longevity

Lenders are looking for borrowers who have a stable source of income. If you can show that you’ve been employed at least a year in the same company, you should be fine.

4. Job Stability

Again, lenders like stability – they tend to think that your loan payment behavior will reflect your employment behavior. So, don’t make lateral moves between companies just for the sake of change. If you make moves, do it for promotion, or to earn more money.

5. Future Income Prospects

Because most loans are paid back in 15 to 30 years, Lenders are interested in people who will have income for that amount of time. Young professionals, or those with high-demand skills, are the most appealing to Lenders because their income will only increase over time. If you can demonstrate that you have a career plan that only gets better over time, you’ll be in a strong position to borrow.

So essentially, pay your bills on time, stay with an employer, have a career path that shows potential, and you’ll be sure to get a “YES” when you borrow.

Lenders are required to tell you what the APR is on any loan that they’re offering to you so you’ll know what the real interest rate is, including all of the additional costs.

So, when you’re calling around looking for the best rates, make sure and ask what the APR is on each loan you’re being told about!

Things To Ask Yourself When Looking At A Home (Cont)

6. Is it in the right school district?

Will your children walk to school, take a bus, or will you have to drive them? Many school districts have a reporting system that indicate the qualifications of teachers and administrators, and demonstrates the performance of students. You can contact the school district office for more details. If the home meets these basic requirements, then start to look for how many things from your wish list it has.

For example, does it have a garden or deck, does it have an oversized tub in the master suite, does it have a separate laundry room, is there a fireplace? What’s the condition of the house?
Remember, you can paint, decorate, gut the interior, replace shingles with slate, add a deck, add a pool, pave the driveway, and even plant flowers. But, it’s rare that you want to move a home. There is some truth in that adage, “You can change everything about a home except its location.”

Money-Saving Secrets You Can Use When You Buy A Home...

1. Choose a low down payment loan.

There is no law that says you MUST put 20% or even 10% down. There are some loans that require as little as 3% or even zero down. This is attractive for three reasons: It’s hard to save for a large down payment, you could earn more interest on that money than you’re paying in interest on the loan, and it’s nice (and sometimes necessary) to have cash on hand after buying a home.

2. Have someone give you money to pay closing costs.

A relative, church or nonprofit organization can give you money for closing costs.

3. Ask the seller to pay some of your closing costs as part of your offer.

Sellers are usually allowed to contribute to a buyer's closing costs.

4. Do not pay too much insurance at closing!

Most Lenders require 14 months hazard insurance paid at closing, so be ready. What happens to that extra money? It sits in your escrow account until you sell the house. It’s safe there, but it often earns no interest.

5. Remember, the homes that you’re looking at don’t belong to your agent.

You must be straightforward about your likes and dislikes in order for the agent to do the best job for you. Your agent should show you everything available that meets your requirements. Don’t make a decision on a house until you feel that you’ve seen enough to pick the best one. Review the Multiple Listing printout with your agent to make sure that you are getting a COMPLETE list.

6. Shop around for your home insurance.

A little shopping might help save you money.

7. You can deduct money paid for discount points from your gross income before computing your tax.

See a CPA for more information.

Things To Ask Yourself When Looking At A Home!

When you’re looking for a home, ask yourself these six questions to ensure that it meets your basic needs.

1. Is it within the right distance to work, church, family, and friends?

One of the first things a real estate consultant will ask you is about location. Think about where you like to shop, where you work, where you worship, and where your friends and family live. Some people are willing to commute a little further to work in order to live closer to family and friends. Others, particularly those who like to sleep in, prefer to live closer to the office.

2. Does it have enough bedrooms and bathrooms?

How many children do you have, or do you plan to have others while you’re living in this home?

Do you have three teenaged daughters? If so, you probably don’t want to be sharing a bathroom with them! Do you have frequent visitors in your home? Do you need a separate guest room? A separate bath?

3. Is there enough storage space?

Do you need a basement or attic? Do you change your floral arrangements and décor with the passing of the seasons? If so, you will probably need storage space for the items currently out of season.

4. Is there parking?

Is a garage absolutely necessary? For how many cars? Could you live with a covered outdoor space or will dedicated parking space suffice?

5. Is it safe?

Are you willing to live near a toxic waste site or municipal garbage dump? Would your children be safe playing near a busy intersection? Is it in a high-crime area? Local papers and police departments can provide the crime statistics for a neighborhood.

Loan Options - Conventional Loan

What is a Conventional Loan?

A conventional loan is basically any kind of lender agreement that's not backed in full by the Veterans Administration or protected by the FHA (the Federal Housing Administration). All told, there are several broad categories of conventional loans. Fixed rate mortgages are simpler in some cases. A home borrower “locks in” at an interest rate, and he or she pays down the principal and interest on the mortgage every month at that rate.

Other so-called conventional loans include conforming loans. Basically, these are arrangements that meet stipulations set forth by Fannie Mae and or Freddie Mac, two very large mortgage trading companies.

While Fannie Mea and Freddie Mac don't actually approve or disapprove of loans, they buy and sell mortgages. Lenders enjoy signing borrowers up with conforming loan, since they can later sell these loans to Fannie Mea or Freddie Mac to get funds for other investments.

Nonconforming loans -- instruments which don't meet Fannie Mae or Freddie Mac qualifications -- are also considered conventional. Another category of loans, jumbo loans, falls outside of Fannie Mae eligibility but is also considered conventional. A jumbo loan is a loan that's too large to be eligible to be traded by the two main loan purchasers.

Current Fannie Mae guidelines for conventional homes put the maximum price for a conventional, conforming loan at just over $415,000 for a single-family arrangement. If you live outside of the 48 contiguous United States (in Guam, Hawaii, or Alaska), you may qualify for a larger loan limit.

What determines the rate for your conforming loan? First and foremost, the kind of loan you want will impact pricing both in the short-term and in the long-term. Lenders will also look at how much funds you have to close, your credit history, and your employment history. Finally, the financial details of your final arrangement will be intimately tied up with the location of your property and the kind of home you purchase or build.

Loan Options - FHA Loans

What is an FHA Loan?

Home ownership rates in America continue to increase at a steady rate due in a large part to the implementation of FHA home loans more than seventy years ago. Over the years, FHA has helped Americans gain the financial independence that comes with owning a home. By creating jobs and reasonable mortgage rates for the middle class, financing military housing, and producing housing for the low income and the elderly, FHA has helped Americans become some of the best housed people in the world with over 73 million Americans currently owning their own homes. Statistics show that by 2005, home ownership rates in the US have climbed to 69 percent.

HOW IT WORKS

By serving as an umbrella under which lenders have the confidence to extend loans to those who may not meet conventional loan requirements, FHA's mortgage insurance allows individuals to qualify who may have been previously denied for a home loan by conventional underwriting guidelines.

FHA loans benefit those who would like to purchase a home but haven't been able to put money away for the purchase, like recent college graduates, newlyweds, or people who are still trying to complete their education. It also allows individuals to qualify for a FHA loan whose credit has been marred by bankruptcy or foreclosure.

NUTS AND BOLTS

The most popular FHA home loan is the 203(b). This fixed-rate loan often works well for first time home buyers because it allows individuals to finance up to 97 percent of their home loan which helps to keep down payments and closing costs at a minimum. The 203(b) home loan is also the only loan in which 100 percent of the closing costs can be a gift from a relative, non-profit, or government agency.

Insurance on FHA mortgages are often rolled into the total monthly payment at 0.5 percent of the total loan amount which is roughly half of the price of mortgage insurance on a conventional loan. After five years or when the loan balance reaches 78 percent, the additional mortgage insurance is typically met and therefore drops off the total monthly payment.

GUIDELINES

It is not necessary to meet a minimum income requirement in order to qualify for a FHA loan but debt ratios specific to the state in which the home will be purchased have been put into place to prevent borrowers from getting into a home they cannot afford. This is done through a close analysis of income and monthly expenses.

Loan Options - Interest Only Loans

Lower Payments ... Greater Purchasing Power ... It is Possible ...

Before we explain interest only financing its important to clarify these loans are not for everyone and with rising interest rates more people have these loans than probably should. The success of benefiting from this type of financing often falls into whether or not the homeowner has enough self discipline to exercise the interest only payment option only when they need to. For homeowners who believe the only way to own a home is by securing an interest only loan than you should probably look at lowering your price range. These loans were originally created for wealthy consumers - not for the average income maker.

Fact: it wasn't until 2002 that interest only loans become readily available in the mortgage industry - even though they have been around for decades.

What is an Interest Only Loan?

Unlike traditional principal and interest home loans these programs provide consumers with an option to enjoy lower "interest only" payments for defined period of the note. These programs have several advantages including Greater Purchasing Power, Payment Flexibility and Reduced Qualifying Income however they also include such disadvantages as Possible Payment Shock, Short Term Security and Larger Down Payment Requirements.

Benefits of Interest Only Financing

Fact: Interest Only Loans are not everybody however these programs do have a place in today's market, offering a number of benefits to the right homeowner

1.) Greater Purchasing Power
Interest only mortgage programs allow a consumer to use a lower qualifying payment on the mortgage application which in turn increases the maximum loan amount a lender is willing to lend.

2.) Payment Flexibility
Even with a prepayment penalty (many of these programs do not have them) it's common for mortgage lenders to allow a homeowner to prepay up to 20% of the loan's principal balance any calendar year. Of course, without a prepayment penalty you can pay more. Many consumers choose interest only loan financing because they are provided the opportunity to pay down the principal on their own time. Self employed, commission-based salespeople and consumers who receive paychecks at irregular times often appreciate this program benefit.

3.) Reduced Qualifying Income
Most lenders state that if a consumer is applying for an adjustable rate mortgage where the initial interest rate is fixed for a period of three (3) or more years than the borrower can qualify on the initial payment. If you choose an interest only loan with such terms then your lender qualifies your application on the lower payment. This varies from lender to lender so check before you apply.

4.) Choice between Fixed & Adjustable Rates
Interest only loans now make up a very large portion of mortgage loans so lenders continue to roll out new programs. With the increased popularity has also come many options including fixed rates for the entire term of the loan.

Loan Options - Adjustable Rate Loans

An adjustable rate mortgage (ARM) is a home loan program with an interest rate that adjusts periodically to reflect changes in a specified financial index. Such an index could be the one-year Treasury, the Cost of Funds Index (COFI), the LIBOR (London Interbank Offered Rate) or other popular indexes. ARMs may adjust every six months or once a year and most ARM programs include caps that protect your monthly payment from increasing too much, as well as a lifetime cap, a rate that your ARM will never exceed over the life of the loan.

Advantages

Adjustable rate mortgages (ARMs) generally have the lowest initial interest rates meaning a lower monthly payment. This initial rate is fixed for a defined period of time and usually corresponds to the name of the product. For example, a "5 Year ARM" would mean the initial rate is fixed for the first five years.
The most popular advantage behind ARM loans is the borrower tends to qualify for a larger loan amount than they would applying for a traditional 30 year fixed rate. ARMs are generally recommended for homeowners who plan to keep the loan for a short time and are confident their income will remain the same or grow during the life of the loan.

Dis-Advantages

The traditional ARM mortgage (one that does not include minimum payments or negative amortization) carries very little unknown risk at the time of origination.
The biggest risk for any homeowner is simply assessing the amount of savings over a fixed rate and understanding your comfort level with possibly being exposed to much higher interest rates should you be forced to keep the property longer than expected. Remember, it's not just a matter of where rates are in 5 or 10 years - it's also a question of whether you not will still be eligible for the same type of mortgage.

Loan Options - Fixed Rate Loans

Is a Fixed Rate Mortgage Always Your Best Choice?
It's well known that the Fixed Rate mortgage is still the the most popular home loan originated in today’s market and with very good reason. This type of mortgage loan provides a consumer with a guarantee of a fixed rate and a consistent monthly payment for the entire term of the loan. (common terms are 15 and 30 years with many lenders also offering terms up to 40 years). However, should you consider other loan options? Scroll below to read more about fixed rate home loans.

Advantages

Fixed rate mortgages provide a number of tangible benefits over adjustable rate and hybrid home loan options. These advantages include:
Long Term Interest Rate Security
Consistent Monthly Payments
Automatic Principal Reduction
Flexible Down Payment Requirements

Disadvantages

Many home loan professionals believe there are no disadvantages with a fixed rate mortgage however by simply comparing programs to programs one extremely important variable is not factored in - the Homeowner.
Because of this variable it can also be argued that fixed rates do not provide the greatest advantage for some homeowners. Remember, this is a false statement for the majority of homeowners however there are still a quite a few people who have:

Great Self Discipline
Opportunity and Affordability to Assume Risk
A Stable Income Environment
Short Term Homeowners with Realistic Timeframes

(Part 2) Six Signs That Could Mean Expensive Trouble…

All of these things can indicate moisture – any sort of water leak. Depending on how big and how long the leak has been there, the damage can be as little as discoloration or as much as rotten framing timber.

The sixth sign is in the bathroom.
Take the time to flush each toilet and run water in each sink. If the water pressure is overly high or overly low, there’s rusting, or poor drainage, there could be a problem with aging pipes or sewerage.

These six things are easy to spot, but a professional home inspector can tell you the real underlying problems and estimate the cost of repairs.

Four Things You Can Do To Qualify For a Bigger Mortgage

Say you started the home buying process backwards and started LOOKING at homes before you pre-qualified yourself for a loan. Now you’ve found that none of the homes in your price range will measure up. What do you do? Short of robbing a bank, there are four things you can do to qualify for a bigger mortgage.

1. Reduce long-term debt.

The first thing that Lenders look at is your income-to-expense ratio. They compare how much money you have coming in against how much money you have going out every month. We all know that a dollar will only go so far – and Lenders know this particularly well. So, if you can pay off car loans, credit cards, or any other obligations against your income, you’ll have more money to spend on a loan – and a Lender will let you borrow more money.

2. Wait until you get more income.

Another way to look at the income-expense ratio is from the income side. If you have more money coming in, you can borrow more money. If you’re expecting a raise within the next year, maybe you should wait until that comes through, before asking to borrow money for a new home.

3. Add someone else to the loan.

Another way to demonstrate to a Lender that he will be repaid is by having someone (with a good income and stable job) co-sign on the loan.

This way, the Lender is looking at MORE income available to repay the loan. Family members Bank of Dad) are the typical source of someone willing to co-sign.

4. Use financing that requires lower down payments.

The basic idea is this…the more money you have available to spend, the more money that a Lender will let you borrow. You’re trading off having the money available NOW or later. If you put a large down payment on a home now, that means you may have less income available to repay a loan later.

By the same token, if you make a smaller down payment, then you’ll have more money available to repay a loan – and the Lender is likely to let you borrow more.

Six Signs That Could Mean Expensive (Hidden) Trouble…

Cracks, bulges, stains, odors, squeaks, and tilting are easy to spot and can mean a little or a lot of trouble in any home.

The first sign of trouble that you should look for is in the foundation. You can do this by looking around the outside of the home. If you can see cracks, bulges, mold, wood rot, or listing there may be severe problems with the foundation. Bearing in mind that all concrete and asphalt will crack as it settles, hairline cracks will be acceptable; anything larger is not. These things could mean a large foundation settlement because of soil instability, or that the builder didn’t use steel reinforcements, indicating potentially slipshod work throughout the home.

You’ll have to look high to see the second sign. Are shingles rough, broken, curled, bubbled, warped, or split? Are there rotted eaves, fascia, soffits?Make sure to look for old, faulty gutters that can hide these problems. These things could indicate a leaky roof, or one that will need to be replaced in short order.

The third sign of trouble hits you when you walk in the door. How does it smell? If it smells like Fluffy or last night’s dinner – that can be fixed by carpet cleaning, and a little time and fresh air. A moldy smell could suggest mold in the ductwork, which would require a complete replacement to remove.

You’ll feel the fourth sign of trouble as you walk around inside the house.
Are you walking on a slant? Do the floors squeak when you step down? Can you feel or see lumps, breaks, or cracks? As you look at the joining of the floors and walls, is there a separation?

These things can indicate a problem with the sub-flooring or an underlying moisture condition – either a leak or a moisture problem beneath the floors.

Look to the walls and ceilings for the fifth sign of trouble. Walls that are cracked can indicate a problem with the foundation – particularly around doors, windows, and ceilings. The cracking, peeling, and bubbling of paint can indicate mold or moisture in the walls or above the ceiling. Is there a round-shaped discoloration? Is there any bubbling, cracking, or bowing in the sheetrock or paint?

(Part 2) Eight Steps To Follow When Buying A Home!

6. Open an escrow account.

Once you and the seller have agreed on a price through your consultant, you’ll open an escrow account. What this does is put a “good faith deposit” in a third party’s hands, to demonstrate that you’re serious about buying this home. Many buyers offer five to 10% of the selling price of the home.

7. Have an inspection.

The home inspection is to protect you from buying a home that may have serious hidden structural problems or defects.

8. Sign the final documents, get the key and move into your new home.

Finally! The home has been inspected, you’ve cleared the title to the property, and you’ve “closed” on the deal. All you have to do now is move in. Don’t forget to put out the welcome mat!

Here’s Why You Shouldn’t Buy A Car Right Before You Buy A House...

When an individual’s income starts growing and they manage to set aside some savings, they commonly experience what may be considered an innate instinct of modern civilized mankind.

The desire to spend money.

Since North Americans have a special love affair with the automobile, this becomes a high-priority item on the shopping list. Later, other things will be added and one of those will probably be a house. However, by the time home ownership has become more than a distant and hopeful dream, you may have already bought the car.

It happens all the time, sometimes just before you contact a Lender to get pre-qualified for a mortgage.

As part of the interview, you may tell the loan officer your price target. He will ask about your income, your savings and your debts, then give you his opinion. “If only you didn’t have this car payment,” he might begin, “you would certainly qualify for a home loan to buy that house.”
You see, when determining your ability to qualify for a mortgage, a Lender looks at what’s called your “debt-to-income” ratio.

What are debt-to-income ratios?

A debt-to-income ratio is the percentage of your gross monthly income (before taxes) that you spend on debt. This will include your monthly housing costs – including principal, interest, taxes, insurance, and homeowner’s association fees, if any. It will also include your monthly consumer debt, including credit cards, student loans, installment debt, and….
CAR PAYMENTS!

How a New Car Payment Reduces Your Purchase Price

Suppose you earn $5,000 a month and you have a car payment of $400. At current interest rates (approximately 8% on a 30-year fixed-rate loan), you would qualify for approximately $55,000 less than if you did not have the car payment. Even if you feel you can afford the car payment, mortgage companies approve your mortgage based on their guidelines, not yours.

If you haven’t already bought a car, remember one thing: Think ahead. Think about buying a home first. Buying a home is a much more important purchase when considering your future financial well-being.

Eight Steps To Follow When Buying A Home

1. Decide to buy a home.

That sounds reasonable, doesn’t it? Yet, so many of us are really “just looking” rather than seriously considering changing the location of our home. Why is it that you want to find a new home? Has your lifestyle changed enough to warrant this type of investment? Until you identify your NEEDS and your WANTS, you’ll find it very hard to find just the right home for you.

2. Find a great real estate consultant.

Once you’ve decided to buy a home, find a great real estate consultant. What you’re looking for is a Buyer’s Agent. This means that the consultant represents YOU as the buyer, rather than the person selling the home. They will have YOUR best interests at heart.
Really good consultants know their markets, and will help you find the best match for your needs and wants. They can also recommend mortgage brokers with whom they’ve worked in the past. Check Out Our Web Page (http://www.reelestate.com/) For More Info About The Reel Team

3. Secure financing.

If possible, get “pre-approved” for a loan in the amount you’re willing to borrow. With this pre-approval, you’re in a stronger position to buy a home when you’re ready – rather than finding your dream home, only to lose it to another buyer, because you were waiting on the approval.

4. Find your dream home.

Now that you have your “wish list,” your consultant, and your “pre-approval” in hand, go forth and find yourself a home.

As you go through homes, make sure to keep the listing notes of your impressions of the house, and a photo (if possible) in a notebook, so you can remember all the homes you’ve seen.

5. Make a written offer and negotiate the price.

Once you find your home, work through your consultant to make an offer. Typically your first offer is going to be lower than the listing price. Listen to your consultant; they’re representing you and know what homes have sold for in that neighborhood. Rarely will the seller accept this first offer, so they’ll counter with another price. Back and forth you’ll go until you settle on a price. (This is where the consultant is really using their expertise).

(Part 2) How Do Sellers Price Their Homes And How Much Should I Offer?

4. Priced Below Fair Market Value…

These homes are priced below value. Perhaps the seller wants a fast sale.

Perhaps the real estate consultant recommended too low a price.

These homes usually sell within seven to 10 days, at or above the listed price.

There usually are competing offers in this situation, and you may need to make your first offer your best offer.

Here’s A Quick Way To Figure Out – How Much House Can You Afford?

The stock answer given to this question is – if you rent and have cash for a down payment, you can purchase a home. But what if you don’t rent? Then, here’s the simplified version of what a mortgage broker would do with you.

Step One: Annual salary ÷ 12

What is your gross monthly income from all sources? If your annual salary is $75,000, divide this by 12 and you’ll see that your monthly income is $6,250.

Step Two: Monthly salary x percent you want to spend

Brokers and financial planners will recommend that you spend anywhere between 25% and 36% of your monthly income on household expenses. We’re going to use 36%.

$6,250 x .36 = $2,250

Step Three: Calculate your debt

Add up your current monthly debt. This includes things like a car loan, insurance, school loans, credit cards, and any other personal debt you may have. All of this added together gives you your total debt. Just a guess, but let’s say that these add up to $750 a month.

Step Four: Amount you want to spend – total debt

Now, take that total debt and subtract it from the amount that you were willing to spend per month to get your maximum monthly payment: $2,250 – $750 = $1,500

Step Five: Monthly payment x12

Multiply that house payment by 12 months, and you have $18,000 to spend each year.

Step Six: Annual payment ÷ interest rate

Divide this annual amount by the current interest rate (I’m using 10%, because it’s a nice, round number, and a good average). So, $18,000 ÷ .10 leaves you with $180,000 available for a mortgage!

Step 7: Mortgage + down payment

Now, take the amount you’ve calculated that you can afford to pay for a mortgage, add the amount of cash you have on hand to make a down payment, and you get your purchase price!

So, using the current example: The mortgage was $180,000 plus you have $20,000 on hand for a down payment, then you can afford to purchase a home for $200,000.

How Do Sellers Price Their Homes And How Much Should I Offer?

We're often asked by our clients, “How much under the listing price should we offer?” This is an excellent question. The answer is difficult. There are four basic ways that sellers price their homes.

1. Ridiculously Overpriced!
These sellers have listened to a real estate consultant over-inflate the value of their home in an effort to obtain the listing. There’s a natural tendency on the part of sellers to list with the real estate consultant who gives them the highest promise. Some real estate agents give the seller a high “value” in an effort to obtain the listing.

These homes can be 10 to 20% overpriced. These sellers may need a “dose of reality” for a few months before they begin to realize that their home is way overpriced as compared to others in the area.

The longer an overpriced home is for sale, the more likely we can get the seller to face reality and sell at a fair price.

2. A Little Overpriced…

Perhaps 75% of all homes for sale are priced in this range.
These sellers fall into two categories:

• Those who feel their home is worth every penny of their asking price.
• Those who want to leave a little “negotiating” room. These homes can be four to 10% overpriced.
  

3. Priced At Fair Market Value…

These sellers have carefully and realistically studied other homes for sale. They’ve priced their homes very competitively. These homes usually sell within four weeks at or very near the listed price.

In an active market, timing is everything.

In the good old days, you might have the luxury of viewing a home several times – even dragging your relatives to see it – before you actually made an offer.

“He/she who hesitates is lost” aptly explains buyers who dally when making a buying decision today.

Make The Home Buying Process Easier (Part 2)

4. Be prepared.

Make sure your contract has reasonable contingencies included to protect you as a buyer. Reasonable can be things like approval by a home inspector, and title clearance.

For the long-term investment, make sure that you buy homeowner’s insurance, and upgrade it as the value of your new home and its contents increase.

5. Be reasonable.

No home will be without flaws. Many times it’s these flaws that lend character to older homes, but nonetheless, it will take SOME work to personalize any home.

Preparing yourself with these five simple things – loan pre-approval, a great broker, getting to know the neighborhood, protecting yourself, and being reasonable – will help make the home buying process easier for you and your family.

Four Important Questions To Ask Your Mortgage Lender Before You Sign Any Of Their Documents...

1. Do you have a variety of loan programs to fit my cash flow and expected length of ownership needs?

If you’re going to live in your new home for less than five years, you may want to consider an adjustable rate mortgage or “ARM.”

With an ARM your payments will be lower, but they will go up according to the terms of the loan.
If you’re going to live in your new home for over five years, a traditional fixed-rate mortgage may be a better plan.

2. Do you offer written mortgage pre-approvals, not just pre-qualifications?

A “pre-qualification” is usually a Lender’s opinion of your eligibility for a loan. If you ask to be pre-approved, the Lender will actually submit your job and credit history to an underwriter and get a conditional approval for a loan and a loan commitment.

The advantage of having a pre-approval is that it will make your offer to buy a home stronger and it will usually allow you to close on the home faster.

3. Do you have the ability to handle difficult credit history?

Many Lenders will only work with you if you have perfect credit, and if a problem comes up, they won’t help you.

Make sure your Lender has reviewed and received approval for you and your specific credit history.

4. Is the rate that you quoted me the rate I will get at closing?

Many Lenders advertise their rates in the paper and in homes magazines. These are what are called “Teaser Rates” in the industry. The name says it all.

After they’ve got you committed to using them, many Lenders then tell you what the “real” rate will be. By this time, it’s too late for you to do anything about it.

Make The Home Buying Process Easier (Part1)

In reality, there are only five things you need to know and do to make your home buying experience as simple as possible.

1. Get pre-approved for your loan.

If possible, get “pre-approved” for a loan in the amount you’re willing to borrow.

With this pre-approval, you’re in a stronger position to buy a home when you’re ready – rather than finding your dream home, only to lose it to another buyer because you were waiting on the approval.

2. Find a great real estate consultant.

Once you’ve decided to buy a home, find a great real estate consultant. What you’re looking for is a Buyer’s Agent.

This means that the consultant represents YOU as the buyer, rather than the person selling the home.

They will have YOUR best interests at heart. Really good consultants know their markets, and will help you find the best match for your needs and wants.

They can also recommend mortgage brokers with whom they’ve worked in the past.

3. Look before you leap.

Drive around the neighborhood at different times of day. Get out and walk around and chat with neighbors. Some people like friendly neighbors, others think of them as nosy.

Drive to the local grocery store, laundry, anywhere that you frequent.Visit nearby schools and see for yourself how the kids behave and how the grounds look. The point is to see if this is really the type of neighborhood you want to live in BEFORE you make an offer. - Part 2 on Friday

More Than Money: Rent vs. Buy A Home

While being a homeowner is the quintessential American dream, finding the right time to buy can be a challenge. Owning a home is likely the largest investment a person makes in their lifetime. Performing a "Rent vs. Buy" analysis looks at not only the financial factors involved, but the overall value of home ownership versus renting.

With so many factors going into a home purchase: finances, lifestyle, employment and personal goals, it's critical to run the necessary due diligence. Every potential homeowner should run a buying versus renting analysis to determine if the time to buy is now, or if renting is a more prudent decision. Here are the factors to consider when running a buy versus rent analysis:

Can You Afford It? A Cost Comparison

This question is a bit more complex that it might seem. Often, potential buyers stack the mortgage payment alongside the monthly rent and consider the comparison complete. There are also some overlooked costs associated with home ownership. Financing, homeowner fees, property taxes, repairs and maintenance can add up quickly. On the other hand, mortgage interest on both first and second homes are tax-deductible which make homeownership one of the best ways to trim your tax bill.

In today's market, shopping around for a competitive interest rate is necessary for solid financing that works with your budget. What you can afford will be greatly impacted by how much money you can borrow, and at what rate you are borrowing. One thing to keep in mind is that like most markets, the mortgage market is very dynamic.

Good credit and a low debt to income ratio will help to secure a lower rate and make the cost of borrowing less in the long run. A good mortgage broker or loan officer can be a great help to a prospective borrower. If a borrower is financially savvy, they could also shop around for the best rates themselves. Anyone with a less than stellar FICO score (680-700 and above is generally considered excellent) could be lumped into what is known as the sub prime mortgage category. If they cannot provide full documentation of their income and/or assets, and have less than stellar credit, then they will almost certainly be categorized as sub prime. First time home buyers sometimes fall in because they haven't established credit. People with existing mortgages who have had late mortgage payments in the past or a bankruptcy might also be sub prime. The easiest way for someone to find out where they stand, in regards to credit, is to run a credit report. There are many different services on the web where this can be done for free, or consult a mortgage broker who can run a credit report and advise accordingly.

Not all types of property are created equal. Condominiums, townhomes and other complex-style dwellings often carry homeowner dues that ranges anywhere from under $100.00 to several hundred dollars a month. These fees are imposed by the homeowner's association for upkeep on common grounds, gym, pool and laundry facilities and other community maintenance. Knowing these fees and what they include is essential to the final assessment of your monthly payment.

Property taxes too are a factor in determining what your monthly payment as a homeowner will be. (Often, loans will have an automated escrow account within the loan which will raise the monthly mortgage, but make this bi-yearly bill automatically accounted for.) Taxes are determined by type of property, property value and location. in your area is the first step.
One of the least considered factors in homeownership is both financial and emotional: the cost of repairs and maintenance. Bad wiring, plumbing, termites, shifted foundation: these are all the bane of a new homeowner's existence. Having a reputable housing inspector go over a prospective property can assist in determining the quality of the structure and help assess the need for repairs. Other overlooked costs include closing costs, which are usually about 1% of the total property value.

Regardless of these costs, it may be advantageous to buy versus to rent, depending on the rate of increase on your rent annually. If rent increases at 5% per year the inflation might overrun a mortgage and its associated costs.

Homeownership

For many, buying a place to call your own is the ultimate financial goal. The non financial value and personal sense of community a homeowner wins is a certain type of satisfaction. There too, are tangible freedoms such as the ability to change the decor or the structure of your home without a landlord's prior approval.

The actual value of non-financial factors will vary greatly. Lifestyle and personal preference will weight heavy in deciding not only when the right time to buy is, but also what type of property. Family size, occupation, need for security: these are all tangible factors that weigh into the final decision of buying versus renting.

There are still, other considerations. As a homeowner, you are your own landlord. Repairs, maintenance and community issues are all the responsibility of the homeowner. If you are someone who prefers less responsibility and greater ease to move, buying investment property rather than a home to live in might be a better choice.

Regardless Of The Final Decision, It Is Important To Carefully Examine Your Options When Looking At Buying Or Renting A Home.