Home Buying 7-Step Plan, Step 5
Prior to 2007, at least for the first several years of this decade, qualifying for a mortgage wasn’t nearly as difficult as it is today. Mortgage qualification standards were lowered for a time, meaning tens of thousands of homeowners purchased homes who should have never been qualified in the first place.
As a result of the lowered standards, many of these same homeowners have defaulted on their loans, unable to keep up with payments. Creditors have finally raised the bar, making it tougher for consumers to qualify for a home loan.
If shopping for a home mortgage, there are four criteria you must keep in mind when applying. Where you stand in each area can determine if you are approved or not and what your loan terms will be.
Home appraisal – You purchased a 4 bedroom, 3 bath colonial, paying $385,000 for the home, be putting $85,000 down. With $300,000 to finance, your mortgage broker will make sure that the home is worth the amount you are paying for it. In this current market of declining home values, that isn’t a sure thing.
Your credit rating — Your credit reports will be accessed and your credit score will be obtained. Depending on how high your score is, the mortgage terms (interest rate) will be set accordingly. Expect a lower rate if your credit is excellent.
Your capacity to repay the loan — Can you afford to repay the loan? Do you have sufficient assets and income to meet monthly payments? These questions must be answered before a loan offer is given.
Your employment — How long have you been employed? Where do you work? Are you paid a salary, salary plus commission, or are you paid hourly? These questions are the final determining factor on whether you will be offered a loan or not.
The tougher standards may seem unfair to some consumers, but they are in place for your protection and to protect the lender’s assets. If your credit is good or excellent and all of the other criteria have been met, then receiving approval for a home loan will likely happen.
03-/08 home buying
Home Buying Tip
for the weeks of: Jan 29
3 Steps in Financing Your Home ...
1) submit your application request through our network of top mortgage lenders; 2) be prepared to negotiate best rate and terms with the lenders who received your request; and 3) be prepared to shop for a better rate.
Weekly Tip:
view our quick guide on home financing
Home Buying 7-Step Plan, Step 4
Congratulations, you found the home of your dreams and are ready to put some money down and finance the rest. Getting approved for a mortgage (assuming you still need to take this step) involves understanding several matters, items we’ll take a look at right now.
Your Monthly Payments — What a PITI!
PITI is a term you may hear about when you buy your home, an acronym that stands for the following:
Principle: The amount you will be borrowing, to be paid back over the life of the mortgage loan.
Interest: This represents the cost of the money lenders will charge for your using their money to buy your home.
Taxes: The government will tax you to pay for schools, road improvements, and other local services. Property taxes is the chief way that these funds are raised.
Insurance: If you have a loan on your home, then homeowners insurance is required and strongly recommended even if you don’t. Offers protection against fire, theft, earthquake (sometimes) with flood insurance something you can purchase separately through a federal program.
Principal + Interest + Taxes + Insurance (PITI)
= Total Cost of Your Mortgage Loan
Prospective homeowners can forget that beyond principle and interest payments, property taxes and homeowners insurance can impact affordability. PITI is part of the formula that lenders use when calculating your affordability ratios.
Your Escrow
Oftentimes, your property taxes and homeowners insurance will be paid out of an escrow fund and sent directly to the local taxing authority and to your insurance provider. This insures that everyone gets paid (including the mortgage company).
Likely, at the time you make your down payment you’ll have to come up with additional funds which will be deposited into your escrow account and tapped as needed — something to consider when determining if you can afford a home or not.
Ultimately, your mortgage lender will decide whether you can afford to make payments when PITI is taken into consideration.
02-/08 home buying
Home Buying 7-Step Plan, Step 3
You’re ready to start shopping for a home, understanding that mortgage rates are low and the housing market has cooled. As a buyer, this could be a great time for you to snag a deal, especially if you have done your homework.
The Market: Hot or Not?
If you listen to the news, you may be under the impression that the housing market is in bad shape. True, overall sales have eased on a national level, but there are some markets which are very weak while there are also some that are quite strong.
In the northeast USA, home sales are down and housing prices are flat or dropping. In my area, Raleigh, NC, the market isn’t as hot as it was one year ago, but it is still favors the seller — lots of people want to move to Wake County. Therefore, if you are planning to negotiate the price of a home, you need to understand what the local market conditions are before you proceed.
Buyer v. Seller
Concerning real estate, it is truly a buyer v. seller market. The seller wants top dollar for her home and you, as a buyer, want to find a home that you can afford and is a decent buy.
In a strong selling market, you’ll likely be up against other buyers who can bid against you, driving the price of a home up and beyond the seller’s asking price. In a weak selling market, you may be the only buyer or at least the only one qualified to buy. You may not be able to shave ten or twenty percent off of the price of the home, but you could possibly save several thousands of dollars.
Making An Offer
When you are ready to present an offer, your real estate agent will provide you with the standard documents that list the terms of the contract. The agent should review the contract with you and understand what your purchase price is, the terms of the sale (e.g., is the refrigerator included or not?), your earnest money, financing, down payment, etc.
Before You Make Your Offer
Before making an offer, you’ll want to be clear what you are buying. You’re getting the house and the property, but does that include all fixtures, window treatments, appliances, etc. What if some work still needs to be done on the home? Who will pay for these repairs? Your contract should have a provision outlining what must be done before you close on the house.
Presentation and Counter Offer
If the seller accepts your offer, then you are done and the contract will be signed by both parties. If rejected, you’ll likely get a counter-offer which you can either accept or reject. Until you come to an agreement on the price, then the deal hasn’t been finalized.
Keep in mind that if a deal isn’t quickly reached, the seller has the right to entertain other offers. It is in your best interest to move quickly and craft a deal acceptable to both parties. Once the contract has been signed, then a binding contract is in place.
If you back out of the contract, you could lose your earnest money and even be subject to litigation. Conversely, if the seller backs out after the contract has been signed then the earnest money must be returned to you. Moreover, you can sue the seller for financial damages.
Work With An Agent
A qualified and experienced real estate agent can help you through the home buying process. The seller pays your realtor’s fees, but you get the wisdom and experience of an agent who can help your home close smoothly.
Happy house hunting!
02-/08 home buying
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