Buying · Financing · Real Estate

Keep the Horse Before the Cart

While many buyers are aware that a mortgage pre-approval letter increases their buying confidence and power, most may not understand exactly why pre-approval is so important.  Why should you jump through the application hoops before even beginning your home search?

First, you’ll know exactly how much loan you can afford, making your initial home search much easier.  Why waste your time looking at homes either out of your reach or well below your financial grasp?

Second, pre-approved buyers stand on solid negotiating ground with sellers.  Sellers working with well-qualified buyers are more likely to accept the offer and less likely to stall on terms and conditions.

Notice that the topic of this column is “pre-approval,” and not “pre-qualification.”  What’s the difference?  Pre-qualification is easy – you provide basic information to a lender, and in a few short minutes, you have an answer.  Pre-approval requires strict verification of documentation relating to your employment, credit history, sources of income, etc.  It takes more time, but is more accurate and carries more weight.

Understand that pre-approval is not binding, and is still subject to a satisfactory appraisal on the prospective purchase.  If your financial situation changes, interest rates rise or fall, or the deadline passes, a recalculation will be necessary; but a little legwork now will pay off handsomely as you approach the finish line on your contract.

Note: This article was originally published on this site on May 5, 2016. It has been updated reflect the current home market.

Credit · Financing · Real Estate · Selling

Saved By The Net

You’re ready to list, but are you ready to sell? Let’s say that on the first day your home is for sale, your agent shows it to prospective buyers. They love it, and sign a purchase offer on the spot. You were asking $750,000, and they offered $720,000. Because they are relocating, they need an answer right away, by 6:00 pm. What do you say?

You don’t say, “We just can’t give you an answer that soon.” These buyers are motivated and prepared to buy your home, with a written offer and earnest money deposit.

So how do you make up your mind so quickly? You must simply decide what your rock bottom price is before your home is even shown. Be prepared to negotiate on-the-spot by first asking your agent for a “Net” sheet based on your asking price.

The sheet will show what expenses must be paid out of the gross sales price, i.e. closing costs, brokerage fee, the payoff on your existing mortgage, etc.—resulting in the “net” proceeds that you will receive at closing.

Next, ask the agent to figure other net sheets based on receiving 95% or even 90% of the asking price. This helps you determine the absolute lowest offer you can accept. Once you know that figure, keep it to yourself and be prepared for all possibilities!

This article was originally published on this site on April 23, 2012. It has been updated reflect the current home market.

Buying · Financing · Real Estate

Make a Strong Offer

Here are two terms buyers should understand when making a home purchase: “down payment” and “earnest money deposit.” They both involve money, but represent two different aspects of a home purchase.

For simplicity, let’s say a home is priced at $750,000. By financing 80%, the down payment would be $150,000, payable at closing. When making such an offer, it is assumed that the buyer has funds on hand for at least the down payment.

The “earnest money deposit” is a different story. Earnest money is paid at the time a purchase contract is signed and is negotiable. The terms under which the buyer’s earnest money can be forfeited are specific to each individual contract.

If $150,000 is on hand for a down payment, the buyer could reinforce the purchase offer with a $15,000 deposit. Buyers who offer only $5,000 or $10,000 are unknowingly broadcasting a message that perhaps they are not totally committed to complete the transaction.

When buying your next home, let sellers know you mean business. The larger your earnest money deposit, the more credible your offer becomes to the property owners.

Buying · Financing · Real Estate

The Lingo of The Loan

Your real estate agent may not write your home loan, but that’s who will probably be there when you begin discussing mortgage options.  Knowing some of the nuts and bolts before you start your home search can help you find the right loan.

Factors affecting your terms are the amount, the length of the loan, and the loan-to-value ratio (how much of the home’s value you are financing).  Larger loans carry more risk to the lender, so the interest rate may be higher.

Similarly, a smaller down payment represents more risk, possibly warranting a higher interest rate.  Get the best rate by putting down as close to 20% as possible.

The difference between a 15- and 30-year loan is also critical.  Payments for a shorter term will be larger, but you’ll build equity much faster, and enjoy a slightly lower interest rate.

Also understand the workings of an adjustable rate mortgage (ARM).  You need to be fully prepared for what may happen to your payments after the first adjustment.  However, something like a 5/1 ARM (a fixed rate for five years and an adjustment each year thereafter), could be a good idea if you’re buying your first home and don’t plan to stay longer than five years.

Discuss your hopes and objectives with an agent, who can help guide you down the road to homeownership.

Buying · Credit · Financing · Real Estate

Don't Pay for Their Mistake

An important early step in purchasing a home is to get a lender’s “pre-approval” for financing. Then you’ll know how much home you can afford before you start your search. You’ll also make a strong impression on sellers, because they’ll know that your offer is solid.

Another step to take before you talk to the lender about pre-approval is to get copies of your credit report and review them thoroughly. Smart consumers shop around for the best prices, and you want the best interest rate possible. If your credit report contains errors, you jeopardize your chances for the best rate.

Lenders review reports from The Big Three – Equifax, TransUnion and Experian – and you should, too. Interest rate tiers are based on your credit score – the higher your score, the lower the rate. The lower the rate, the more home you can afford!

Get a copy of your credit report a couple months before you start looking at homes. Creditors usually have thirty days to correct errors, but give yourself some wiggle room. Verify that the debts are correct and belong to YOU (not someone else at the same address or with the same name). Your realtor will work closely with the lender to take this important step to prepare you for the home buying process.

You’ll be amazed how many doors open for you with a clean credit report and low interest rates. Now you’re ready for some happy house hunting!

Don’t Pay for Their Mistake

Note:This article was originally published on this site on June 9, 2016. It has been updated reflect the current home market.

Buying · Financing · Real Estate · Selling

Bridging The Gap

Like the question of the chicken and the egg, homeowners planning to buy a new home must ask, “Which comes first?”  Do you sell first, and then look frantically for the new home, or buy first and risk maintaining and financing two properties?

There’s more risk than just two mortgages.  If you’re rushed to sell your home to purchase a new one, you might be forced to list at, or accept, a lower price than expected.  If you’re pressed to buy a new home after selling your existing home, you may be forced into paying an unexpectedly higher price.

What is one to do?  Build a bridge!  Yes, there is a financing option called a “bridge loan,” so named because it “spans the gap” between your sale and your purchase.

One type of “bridge” lets you simultaneously pay off your existing mortgage and make a down payment on the new one.  You make payments only on the new loan, and pay off the bridge loan when your old home sells.

Another kind of “bridge” allows you to borrow against the equity in your old home to make the down payment on the new home.  Both “bridges” still mean two loans, but the costs may be offset as a result of having more time to get top dollar for the sale of your existing home.  See you on the other side!

Buying · Financing · Real Estate

It Takes Money to Save Money

Okay, you’ve found the home of your dreams. You’ve determined how much you can afford because you’ve already been pre-approved by your lender, and your offer has been accepted. But wait. If you’re financing the purchase, like almost everyone does, you’ll actually be paying more than the final sale price of the home.

Many buyers don’t stop to think about how much they’ll really be paying for their home by the time they’ve reached the final payment. It’s worth considering, and it makes it evident that you should shop around and get the best loan terms possible.

Be sure to discuss your options with a trusted local real estate agent, who can provide mortgage information, illustrate different financing options, and even recommend lenders suited to your needs. With literally hundreds, if not thousands, of options available, it’s helpful to begin with the basic facts to help you whittle down your choices.

Determine how much is available for a down payment. If you’re putting up less than 20%, you’ll need a guarantee that often comes in the form of PMI (private mortgage insurance). This will add to the overall cost of your loan, at least until you’ve paid off a significant percentage.

Again, discuss your loan options with your real estate agent before you make any offers, in order to avoid unpleasant delays and unexpected expenses.