|
Common First-Time Home Buyer Mistakes
1. They don’t ask
enough questions of their lender and end up missing out on the best deal.
2. They don’t act quickly enough to make a decision and someone else buys
the house.
3. They don’t find the right agent who’s willing to help them through the
homebuying process.
4. They don’t do enough to make their offer look appealing to a seller.
5. They don’t think about resale before they buy. The average
first-time buyer only stays in a home for four years.
Source: Real Estate Checklists and Systems,
www.realestatechecklists.com.
Reprinted from REALTOR®
magazine (REALTOR.org/realtormag) with permission of the NATIONAL
ASSOCIATION OF REALTORS®.
Copyright 2008. All
rights reserved.
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Lender Checklist: What You Need for a Mortgage
-
W-2 forms — or business
tax return forms if you're self-employed — for the last two or three years
for every person signing the loan.
-
Copies of at least one
pay stub for each person signing the loan.
Account numbers
of all your credit cards and the amounts for any outstanding
balances.
-
Copies of two to four
months of bank or credit union statements for both checking and savings
accounts.
-
Lender, loan number,
and amount owed on other installment loans, such as student loans and car
loans.
-
Addresses where
you’ve lived for the last five to seven years, with names of landlords if
appropriate.
-
Copies of brokerage
account statements for two to four months, as well as a list of any other
major assets of value, such as a boat, RV, or stocks or bonds not held in
a brokerage account.
-
Copies of your most
recent 401(k) or other retirement account statement.
-
Documentation
to verify additional income, such as child support or a pension.
-
Copies of personal tax
forms for the last two to three years.
Reprinted from REALTOR®
magazine (REALTOR.org/realtormag) with
permission of the NATIONAL ASSOCIATION OF REALTORS®.
Copyright 2008. All
rights reserved.
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Specialty Mortgages: Risks and Rewards
In high-priced housing
markets, it can be difficult to afford a home. That’s why a growing number
of home buyers are forgoing traditional fixed-rate mortgages and standard
adjustable-rate mortgages and instead opting for a specialty mortgage that
lets them “stretch” their income so they can qualify for a larger loan.
But before you choose one
of these mortgages, make sure you understand the risks and how they work.
Specialty mortgages often
begin with a low introductory interest rate or payment plan — a “teaser”—
but the monthly mortgage payments are likely to increase a lot in the
future. Some are “low documentation” mortgages that come with easier
standards for qualifying, but also higher interest rates or higher fees.
Some lenders will loan you 100 percent or more of the home’s value, but
these mortgages can present a big financial risk if the value of the house
drops.
Specialty Mortgages
Can:
·
Pose a
greater risk that you won’t be able to afford the mortgage payment in the
future, compared to fixed rate mortgages and traditional adjustable rate
mortgages.
·
Have
monthly payments that increase by as much as 50 percent or more when
the introductory period ends.
·
Cause your
loan balance (the amount you still owe) to get larger each month instead of
smaller.
Common Types of
Specialty Mortgages:
·
Interest-Only Mortgages:
Your monthly mortgage
payment only covers the interest you owe on the loan for the first 5 to 10
years of the loan, and you pay nothing to reduce the total amount you
borrowed (this is called the “principal”). After the interest-only period,
you start paying higher monthly payments that cover both the interest and
principal that must be repaid over the remaining term of the loan.
·
Negative
Amortization Mortgages:
Your monthly payment is
less than the amount of interest you owe on the loan. The unpaid interest
gets added to the loan’s principal amount, causing the total amount you owe
to increase each month instead of getting smaller.
·
Option
Payment ARM Mortgages:
You have the option to
make different types of monthly payments with this mortgage. For example,
you may make a minimum payment that is less than the amount needed to cover
the interest and increases the total amount of your loan; an interest-only
payment, or payments calculated to pay off the loan over either 30 years or
15 years.
·
40-Year
Mortgages: You
pay off your loan over 40 years, instead of the usual 30 years. While this
reduces your monthly payment and helps you qualify to buy a home, you pay
off the balance of your loan much more slowly and end up paying much more
interest.
Questions to Consider
Before Choosing a Specialty Mortgage:
·
How much
can my monthly payments increase and how soon can these increases happen?
·
Do I expect
my income to increase or do I expect to move before my payments go up?
·
Will I be
able to afford the mortgage when the payments increase?
·
Am I paying
down my loan balance each month, or is it staying the same or even
increasing?
·
Will I have
to pay a penalty if I refinance my mortgage or sell my house?
·
What is my
goal in buying this property? Am I considering a riskier mortgage to buy a
more expensive house than I can realistically afford?
Be sure you work with a
REALTOR® and
lender who can discuss different options and address your questions and
concerns!
Learn about the
NATIONAL ASSOCIATION OF REALTORS® Housing Opportunity Program at
www.REALTOR.org/housingopportunity.
For more information on predatory mortgage lending practices, visit the
Center for Responsible Lending at www.responsiblelending.org.
Reprinted from REALTOR®
magazine (REALTOR.org/realtormag) with
permission of the NATIONAL ASSOCIATION OF REALTORS®.
Copyright 2008. All rights
reserved.
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5
Factors That Decide Your Credit Score
Credit scores
range between 200 and 800, with scores above 620 considered desirable for
obtaining a mortgage. The following factors affect your score:
1. Your payment history. Did you pay your credit card obligations on
time? If they were late, then how late? Bankruptcy filing, liens, and
collection activity also impact your history.
2. How much you owe. If you owe a great deal of money on
numerous accounts, it can indicate that you are overextended. However, it’s
a good thing if you have a good proportion of balances to total credit
limits.
3. The length of your credit history. In general, the longer you have
had accounts opened, the better. The average consumer's oldest obligation is
14 years old, indicating that he or she has been managing credit for some
time, according to Fair Isaac Corp., and only one in 20 consumers have
credit histories shorter than 2 years.
4. How much new credit you have. New credit, either installment
payments or new credit cards, are considered more risky, even if you pay
them promptly.
5. The types of credit you use. Generally, it’s desirable to have
more than one type of credit — installment loans, credit cards, and a
mortgage, for example.
For more on evaluating and understanding your credit score, visit
www.myfico.com.
Reprinted from REALTOR®
magazine (REALTOR.org/realtormag) with
permission of the NATIONAL ASSOCIATION OF REALTORS®.
Copyright 2008. All rights
reserved.
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6
Creative Ways to Afford a Home
1. Investigate local, state, and national down payment assistance
programs. These programs give qualified applicants loans or grants to
cover all or part of your required down payment. National programs include
the Nehemiah program,
www.getdownpayment.com,
and the American Dream Down Payment Fund from the Department of Housing and
Urban Development,
www.hud.gov.
2. Explore seller financing. In some cases, sellers may be willing to
finance all or part of the purchase price of the home and let you repay them
gradually, just as you would do with a mortgage.
3. Consider a shared-appreciation or shared-equity arrangement. Under
this arrangement, your family, friends, or even a third-party may buy a
portion of the home and share in any appreciation when the home is sold. The
owner/occupant usually pays the mortgage, property taxes, and maintenance
costs, but all the investors' names are usually on the mortgage. Companies
are available that can help you find such an investor, if your family can’t
participate.
4. Ask your family for help. Perhaps a family member will loan you
money for the down payment or act as a co-signer for the mortgage. Lenders
often like to have a co-signer if you have little credit history.
5. Lease with the option to buy. Renting the home for a year or more
will give you the chance to save more toward your down payment. And in many
cases, owners will apply some of the rental amount toward the purchase
price. You usually have to pay a small, nonrefundable option fee to the
owner.
6. Consider a short-term second mortgage. If you can qualify for a
short-term second mortgage, this would give you money to make a larger down
payment. This may be possible if you’re in good financial standing, with a
strong income and little other debt.
Reprinted from REALTOR®
magazine (REALTOR.org/realtormag) with
permission of the NATIONAL ASSOCIATION OF REALTORS®.
Copyright 2008. All rights
reserved.
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8 Tips to Guide for Your Home Search
1. Research before you
look. Decide
what features you most want to have in a home, what neighborhoods you
prefer, and how much you’d be willing to spend each month for housing.
2. Be realistic.
It’s OK to be picky,
but don’t be unrealistic with your expectations. There’s no such thing as a
perfect home. Use your list of priorities as a guide to evaluate each
property.
3. Get your finances in order. Review your credit report and be sure
you have enough money to cover your down payment and closing costs. Then,
talk to a lender and get prequalified for a mortgage. This will save you the
heartache later of falling in love with a house you can’t afford.
4. Don’t ask too many people for opinions. It will drive you crazy.
Select one or two people to turn to if you feel you need a second opinion,
but be ready to make the final decision on your own.
5. Decide your moving timeline. When is your lease up? Are you
allowed to sublet? How tight is the rental market in your area? All of these
factors will help you determine when you should move.
6. Think long term. Are you looking for a starter house with plans to
move up in a few years, or do you hope to stay in this home for a longer
period? This decision may dictate what type of home you’ll buy as well as
the type of mortgage terms that will best suit you.
7. Insist on a home inspection. If possible, get a warranty from the
seller to cover defects for one year.
8. Get help from a REALTOR®. Hire a real estate professional who
specializes in buyer representation. Unlike a listing agent, whose first
duty is to the seller, a buyer’s representative is working only for you.
Buyer’s reps are usually paid out of the seller’s commission payment.
Reprinted from REALTOR®
magazine (REALTOR.org/realtormag) with
permission of the NATIONAL ASSOCIATION OF REALTORS®.
Copyright 2008. All rights
reserved.
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10 Questions to Ask Your Lender
1.
What are the most popular mortgages you offer? Why are they so popular?
2. Which type of mortgage plan do you think would be best for me?
Why?
3. Are your rates, terms, fees, and closing costs negotiable?
4. Will I have to buy private mortgage insurance? If so, how much
will it cost, and how long will it be required? (NOTE: Private mortgage
insurance is usually required if your down payment is less than 20 percent.
However, most lenders will let you discontinue PMI when you’ve acquired a
certain amount of equity by paying down the loan.)
5. Who will service the loan — your bank or another company?
6. What escrow requirements do you have?
7. How long will this loan be in a lock-in period (in other words,
the time that the quoted interest rate will be honored)? Will I be able to
obtain a lower rate if it drops during this period?
8. How long will the loan approval process take?
9. How long will it take to close the loan?
10. Are there any charges or penalties for prepaying the loan?
Used with permission from Real Estate Checklists & Systems,
www.realestatechecklists.com.
Reprinted from REALTOR®
magazine (REALTOR.org/realtormag) with
permission of the NATIONAL ASSOCIATION OF REALTORS®.
Copyright 2008. All rights
reserved.
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Budget Basics Worksheet
The first step in getting
yourself in financial shape to buy a home is to know exactly how much money
comes in and how much goes out. Use this worksheet to list your income and
expenses below.
|
INCOME |
 |
|
Take Home Pay (all
family members) |
|
|
Child Support/Alimony
|
|
|
Pension/Social
Security |
|
|
Disability/Other
Insurance |
|
|
Interest/Dividends
|
|
|
Other |
|
|
Total Income
|
|
|
EXPENSES |
|
|
Rent/Mortgage
(include taxes, principal, and insurance) |
|
|
Life Insurance |
|
|
Health/Disability
Insurance |
|
|
Vehicle Insurance |
|
|
Homeowner’s or Other
Insurance |
|
|
Car Payments |
|
|
Other Loan Payments |
|
|
Savings/Pension
Contribution |
|
|
Utilities (gas,
water, electric, phone) |
|
|
Credit Card Payments |
|
|
Car Upkeep (gas,
maintenance, etc.) |
|
|
Clothing |
|
|
Personal Care
Products (shampoo, cologne, etc.) |
|
|
Groceries |
|
|
Food Outside the Home
(restaurant meals and carryout) |
|
|
Medical/Dental/Prescriptions |
|
|
Household Goods
(hardware, lawn, and garden) |
 |
|
Recreation/Entertainment |
|
|
Child Care |
|
|
Education (continuing
education, classes, etc.) |
|
|
Charitable Donations |
|
|
Miscellaneous |
|
|
Total Expenses
|
|
|
Remaining Income
After Expenses
(Subtract Total
Income from Total Expenses) |
|
Reprinted from REALTOR®
magazine (REALTOR.org/realtormag) with
permission of the NATIONAL ASSOCIATION OF REALTORS®.
Copyright 2008. All rights
reserved.
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How Big of a Mortgage Can I Afford?
Not only does owning a
home give you a haven for yourself and your family, it also makes great
financial sense because of the tax benefits — which you can’t take advantage
of when paying rent.
The following calculation assumes a 28 percent income tax bracket. If your
bracket is higher, your savings will be, too. Based on your current rent,
use this calculation to figure out how much mortgage you can afford.
Rent: _________________________
Multiplier: x 1.32
Mortgage payment: _________________________
Because of tax deductions, you can make a mortgage payment — including taxes
and insurance — that is approximately one-third larger than your current
rent payment and end up with the same amount of income.
For more help, use Fannie Mae’s
online mortgage calculators.
Reprinted from REALTOR®
magazine (REALTOR.org/realtormag) with
permission of the NATIONAL ASSOCIATION OF REALTORS®.
Copyright 2008. All rights
reserved.
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Loan Types to Consider
Brush up on these
mortgage basics to help you determine the loan that will best suit your
needs.
·
Mortgage
terms.
Mortgages are generally available at 15-, 20-, or 30-year terms. In general,
the longer the term, the lower the monthly payment. However, you pay more
interest overall if you borrow for a longer term.
·
Fixed or
adjustable interest rates.
A fixed rate allows you to lock in a low rate as long as you hold the
mortgage and, in general, is usually a good choice if interest rates are
low. An adjustable-rate mortgage is designed so that your loan’s interest
rate will rise as market interest rates increase. ARMs usually offer a lower
rate in the first years of the mortgage. ARMs also usually have a limit as
to how much the interest rate can be increased and how frequently they can
be raised. These types of mortgages are a good choice when fixed interest
rates are high or when you expect your income to grow significantly in the
coming years.
·
Balloon
mortgages.
These mortgages offer very low interest rates for a short period of time —
often three to seven years. Payments usually cover only the interest so the
principal owed is not reduced. However, this type of loan may be a good
choice if you think you will sell your home in a few years.
·
Government-backed loans.
These loans are sponsored
by agencies such as the Federal Housing Administration (www.fha.gov)
or the Department of Veterans Affairs (www.va.gov)
and offer special terms, including lower down payments or reduced interest
rates to qualified buyers.
Slight variations in
interest rates, loan amounts, and terms can significantly affect your
monthly payment. For help in determining how much your monthly payment will
be for various loan amounts, use Fannie Mae’s
online mortgage calculators.
Reprinted from REALTOR®
magazine (REALTOR.org/realtormag) with
permission of the NATIONAL ASSOCIATION OF REALTORS®.
Copyright 2008. All rights
reserved.
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Get Your Finances in Order: To-Do List
1. Develop a household
budget.
Instead of creating a budget of what you’d like to spend, use receipts to
create a budget that reflects your actual spending habits over the last
several months. This approach will factor in unexpected expenses, such as
car repairs, as well as predictable costs such as rent, utility bills, and
groceries.
2. Reduce your debt. Lenders generally look for a total debt load of
no more than 36 percent of income. This figure includes your mortgage, which
typically ranges between 25 and 28 percent of your net household income. So
you need to get monthly payments on the rest of your installment debt — car
loans, student loans, and revolving balances on credit cards — down to
between 8 and 10 percent of your net monthly income.
3. Look for ways to save. You probably know how much you spend on
rent and utilities, but little expenses add up, too. Try writing down
everything you spend for one month. You’ll probably spot some great ways
to save, whether it’s cutting out that morning trip to Starbucks or eating
dinner at home more often.
4. Increase your income. Now’s the time to ask for a raise! If that’s
not an option, you may want to consider taking on a second job to get your
income at a level high enough to qualify for the home you want.
5. Save for a down payment. Designate a certain amount of money each
month to put away in your savings account. Although it’s possible to get a
mortgage with only 5 percent down, or even less, you can usually get a
better rate if you put down a larger percentage of the total purchase. Aim
for a 20 percent down payment.
6. Keep your job. While you don’t need to be in the same job forever
to qualify for a home loan, having a job for less than two years may mean
you have to pay a higher interest rate.
7. Establish a good credit history. Get a credit card and make
payments by the due date. Do the same for all your other bills, too. Pay off
the entire balance promptly.
Reprinted from REALTOR®
magazine (REALTOR.org/realtormag) with
permission of the NATIONAL ASSOCIATION OF REALTORS®.
Copyright 2008. All rights
reserved.
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Tax Benefits of Homeownership
The tax deductions
you’re eligible to take for mortgage interest and property taxes greatly
increase the financial benefits of homeownership. Here’s how it works.
Assume:
$9,877 = Mortgage
interest paid (a loan of $150,000 for 30 years, at 7 percent, using
year-five interest)
$2,700 = Property taxes (at 1.5 percent on $180,000 assessed value)
______
$12,577 = Total deduction
Then, multiply your total
deduction by your tax rate.
For example, at a 28
percent tax rate: 12,577 x 0.28 = $3,521.56
$3,521.56 = Amount you
have lowered your federal income tax (at 28 percent tax rate)
Note: Mortgage interest may not be deductible on loans over $1.1 million.
In addition, deductions are decreased when total income reaches a certain
level.
Reprinted from REALTOR®
magazine (REALTOR.org/realtormag) with
permission of the NATIONAL ASSOCIATION OF REALTORS®.
Copyright 2008. All rights
reserved.
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Tips for Lowering Homeowner’s Insurance
Costs
1. Review the Comprehensive Loss Underwriting Exchange (CLUE) report
on the property you’re interested in buying. CLUE reports detail the
property’s claims history for the most recent five years, which insurers may
use to deny coverage. Make the sale contingent on a home inspection to
ensure that problems identified in the CLUE report have been repaired.
2.
Seek insurance coverage as soon as your offer is approved. You must obtain
insurance to buy. And you don’t want to be told at closing that the insurer
has denied your coverage.
3.
Maintain good credit. Insurers often use credit-based insurance scores to
determine premiums.
4.
Buy your home owners and auto policies from the same company and you’ll
usually qualify for savings. But make sure the discount really yields the
lowest price.
5.
Raise your deductible. If you can afford to pay more toward a loss that
occurs, your premiums will be lower. Avoid making claims under $1,000.
6.
Ask about other discounts. For example, retirees who tend to be home more
than full-time workers may qualify for a discount on theft insurance. You
also may be able to obtain discounts for having smoke detectors, a burglar
alarm, or dead-bolt locks.
7.
Seek group discounts. If you belong to any groups, such as associations or
alumni organizations, they may have deals on insurance coverage.
8.
Review your policy limits and the value of your home and possessions
annually. Some items depreciate and may not need as much coverage.
9.
Investigate a government-backed insurance plan. In some high-risk areas,
federal or state government may back plans to lower rates. Ask your agent.
10.
Be sure you insure your house for the correct amount. Remember, you’re
covering replacement cost, not market value.
Reprinted from REALTOR®
magazine (REALTOR.org/realtormag) with
permission of the NATIONAL ASSOCIATION OF REALTORS®.
Copyright 2008. All rights
reserved.
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What You Can Do to Improve Your Credit
Credit scores, along with
your overall income and debt, are big factors in determining whether you’ll
qualify for a loan and what your loan terms will be. So, keep your credit
score high by doing the following:
1. Check for and correct any errors in your credit report. Mistakes
happen, and you could be paying for someone else’s poor financial
management.
2. Pay down credit card bills. If possible, pay off the entire
balance every month. Transferring credit card debt from one card to another
could lower your score.
3. Don’t charge your credit cards to the maximum limit.
4. Wait 12 months after credit difficulties to apply for a mortgage.
You’re penalized less for problems after a year.
5. Don’t order items for your new home on credit — such as appliances
and furniture — until after the loan is approved. The amounts will add to
your debt.
6. Don’t open new credit card accounts before applying for a
mortgage. Too much available credit can lower your score.
7. Shop for mortgage rates all at once. Too many credit applications
can lower your score, but multiple inquiries from the same type of lender
are counted as one inquiry if submitted over a short period of time.
8. Avoid finance companies. Even if you pay the loan on time, the
interest is high and it will probably be considered a sign of poor credit
management.
This information is copyrighted by the Fannie Mae Foundation and is used
with permission of the Fannie Mae Foundation. To obtain a complete copy of
the publication, Knowing and Understanding Your Credit, visit
www.homebuyingguide.org.
Reprinted from REALTOR®
magazine (REALTOR.org/realtormag) with
permission of the NATIONAL ASSOCIATION OF REALTORS®.
Copyright 2008. All rights
reserved.
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Your Property Wish List
What does your future
home look like? Where is it located? As you hunt down your dream home,
consult this list to evaluate properties and keep your priorities top of
mind.
Neighborhoods
What neighborhoods do you
prefer?
Schools
What school systems do
you want to be near?
Transportation
How close must the home
be to these amenities:
·
Public
transportation
·
Airport
·
Expressway
·
Neighborhood shopping
·
Schools
·
Other
Home Style
·
What
architectural style(s) of homes do you prefer?
·
Do you
want to buy a home, condominium, or townhome?
·
Would
you like a one-story or two-story home?
·
How
many bedrooms must your new home have?
·
How
many bathrooms must your new home have?
Home
Condition
·
Do you
prefer a new home or an existing home?
·
If
you’re looking for an existing home, how old of a home would you consider?
·
How
much repair or renovation would you be willing to do?
·
Do you
have special needs that your home must meet?
Home
Features
Please circle one of the
choices: Must Have, Would Like, Willing to Compromise, Not Important
Front yard
Must Have Would Like
Willing to Compromise Not Important
Back yard
Must
Have Would Like Willing to Compromise Not
Important
Garage ( __ cars)
Must Have Would Like Willing to Compromise Not
Important
Patio/Deck
Must
Have Would Like Willing to Compromise Not
Important
Pool
Must Have Would Like Willing to Compromise Not
Important
Family room
Must
Have Would Like Willing to Compromise Not
Important
Formal living room
Must Have Would Like Willing to Compromise Not
Important
Formal dining room
Must
Have Would Like Willing to Compromise Not
Important
Eat-in kitchen
Must Have Would Like Willing to Compromise Not
Important
Laundry room
Must
Have Would Like Willing to Compromise Not
Important
Finished basement
Must Have Would Like Willing to Compromise Not
Important
Attic
Must
Have Would Like Willing to Compromise Not
Important
Fireplace
Must Have Would Like Willing to Compromise Not
Important
Spa
in bath | 
