Category: Home Purchase
What To Expect When You Take on a Mortgage?
| September 28, 2011 | Posted by Tammy under Home Purchase |
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The mortgage application process can be daunting for first-time home buyers. Knowing what to expect can help them to prepare for it. The mortgage process should begin as soon as you start looking for a home and it does not end until you take possession of your new home.
Step One: Applying and Getting Pre-Approved for a Mortgage
In order to shop for a home, you need to know how much you can afford to spend. The mortgage pre-approval process gives you that estimate, but it also gets a lot of the legwork out of the way. You will need to bring proof of income, and other appropriate documentation when you get pre-approved for a mortgage. This is only needed once, so when you actually need to finalize your mortgage, your lender does not need to go through that part of the process again.
Step Two: Finding and Assessing the Home
Once you find the right home, there is a step in the mortgage process that must take place. Your lender must approve the mortgage and they want to ensure that the value of the home is worth their loan. This means that a property appraisal will be done. Depending on the lender, arranging it may be up to the home buyer or they may take care of it. In either case, the home buyer often has to assume the cost. Provided the home is valued as high as the bank is being asked to lend based on your offer price as a buyer, the loan should be issued.
Step Three: Closing On Your Home
If anything changes between the time you have put an offer on your home and closing, a lender can choose not to honor a loan. Substantial changes in income, major purchases and more can all be problematic if it may impact a buyer’s ability to afford the home according to lender’s requirements. Home buyers should be aware of this so they proceed cautiously with their finances before closing as nothing is final until that pen has been put to paper.
Is a Home Warranty Worthwhile?
| September 14, 2011 | Posted by Tammy under Home Purchase |
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The addition of a home warranty in a home buying contract can be a very attractive thing. To buyers it means they’re protected if something happens to their appliances within the time frame of the warranty. For sellers, this investment might save thousands of dollars. However, tricky fine print and the age and functionality of the appliances in the home often leave people questioning if a home warranty is worth the price.
Home Warranties: If It’s Not Broken…
For new houses or homes with new appliances, heating and air conditioning systems, or with other recent repairs, the probability of a catastrophic failure occurring is very low. In these cases if something does need repair or replacing, it’s usually covered by a manufacturer or installer’s warranty. If this is the case, a secondary home warranty might not be necessary.
On the other hand, if there is less than a year on any particular warranty when you purchase the house, it might be a good investment. At the very lease it would be something to consider asking the seller to pay for as part of the purchase price. Should you decide to take the home warranty though, understand the process of making claims and what exactly the policy covers.
Read the Fine Print of a Home Warranty
Like all insurance policies, there are stipulations as to how you can use a home warranty. Some policies will only cover repairs versus full replacements, and some policies will only pay for replacements that fall in a certain price point. Find out if your policy allows you to choose the repair service, or requires you to go through the warranty company.
A home warranty can have its benefits for both buyer and seller, as long as you’ve done the research and know what to expect.
Making a Smart Home Purchase
| September 2, 2011 | Posted by Tammy under Home Purchase |
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Many dream of owning their own home. With the proper preparation, you’ll be able to start your home search and find your perfect place with as little stress as possible. This is by no means a comprehensive list of ways to prepare for home buying, but it can be a step in the right direction.
Get Your Finances in Order
As gung-ho as you may be to start the home search, if you don’t know your budget, you’ll likely waste time looking in the wrong price point. A good first step in home buying is to talk to a lender about financing, and decide if it’s the right time for you to buy. Getting pre-approved for a home loan isn’t mandatory, but it allows you to not only know your budget, but can also help show you’re a serious buyer when the time comes to purchase. In other words, getting pre-approved is highly recommended.
Identify the Extra Costs Affecting Your Possible Home Purchase
Extra costs are a major part of the home buying process. It’s important to factor the possible costs of insurance, closing fees, and taxes into your budget. If you choose a house in a neighborhood that’s governed by a homeowners association, there will likely be extra HOA fees each month. Even extra costs for repairs should be factored into your budget, especially if you choose a home that needs a lot of work. Ask questions to be sure you are fully understanding the costs involved with a possibly transaction.
Home Inspections Are Mandatory!
Even if your seller makes it clear that they will not foot the cost of repairs, getting a home inspection is vital. You’ll be able to see if there are health and safety issues with the house, and you’ll know what needs to be fixed immediately instead of leaving it to chance. A home inspection is one of the smartest choices you can make in the home buying process.
Applying for a Mortgage: How Much Can You Afford?
| July 20, 2011 | Posted by Tammy under Home Purchase |
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Whether you’re applying for a mortgage for the first time or are looking at purchasing a new home and will be increasing your mortgage amount, it’s essential to understand how much you can afford. You may think that any number that fits within your monthly budget is comfortable and sustainable, but your mortgage lender may say otherwise. In order to determine what you can truly afford, there are some guidelines that mortgage lenders insist you abide by and they can ensure that you don’t get in over your head with your home purchase.
How Mortgage Debt Ratios Determine Affordability
You might think that if you make $4,000 per month that $2,000 per month to carry your mortgage is quite affordable but it’s not quite as simple as that to a mortgage lender. What they look at is a few essential debt ratios that ensure you’re taking on a mortgage well within your means with consideration to your other debts and expenses.
Gross Debt Service Ratio (GDS)
The gross debt service ratio looks specifically at the affordability of your housing costs, and it requires that they are not higher than a fixed percentage of your household income, which can vary by program and lender.
The way the GDS is determined is by calculating the monthly mortgage amount + property taxes + condo fees, and then that sum is divided by monthly income. In the case of the $4,000 income and the $2,000 mortgage payment, with this equation, that is not an amount that a mortgage lender would provide a borrower as the ratio is far too high without even considering the other housing costs.
Total Debt Service Ratio (TDS)
Your total debt service ratio is also considered to ensure that you get a mortgage amount that is easily affordable. The same calculation for the TDS applies, but with this debt ratio, all debt obligations are considered whether it’s a car loan, student loan or minimum credit card payments for outstanding balances as well as your housing expenses. This debt ratio can be no higher than 40%-42% on some programs, but this number can vary by program and lender.
Ensuring Your Mortgage is Always Affordable
While it may seem as though the mortgage amount that you’re approved for based on the debt ratios is much lower than what you believe fits into your budget, this is a realistic amount for a number of reasons:
- As a general rule, having your total debt expenses total no more than 40% ensures you have enough cashflow for savings, investments, household repairs, day-to-day living expenses and more.
- When you take on a fixed rate mortgage for 2 or more years, there’s potential that in that time period your situation or income could change. With a GDS of 32% or under, it’s more realistic to expect that if that happens, it’s more likely you’ll be able to continue to pay your bills.
- You never want to become house poor or you’ll begin to resent your investment. When you don’t over-spend on your home, you’ll still have opportunity to live your life.
- When you first buy your home, you may have fewer expenses than you would if your life changes. For example, when you make your purchase you may only be a couple and if later you have children, your variable expenses may change greatly.
What to Expect When You Apply for a Mortgage
| July 6, 2011 | Posted by Tammy under Home Purchase |
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You’re ready t
o make that big step into home ownership, which can be exciting, but if you’ve never gone through the process? It’s easy to get overwhelmed but when you have a better understanding of what to expect from the process of obtaining a mortgage, you will feel much more confident about every decision you make no matter what comes your way. While we can’t cover everything that you may experience when you apply for a mortgage, here are a few things you can surely expect!
The Mortgage Application Process
1. Discuss your needs and your finances with your mortgage professional - While this is not a step that you are required to take, even before you begin shopping for a house or a mortgage, it’s a good idea to go over your finances with a mortgage representative that can provide further advice on saving for your down payment or which debts you may want to pay off in order to qualify for the mortgage amount you’re hoping for.
2. Get Pre-Approved - Before you begin shopping for a house, you want to get pre-approved so you know what your lender will allow you to spend. In order to do this, you will need to need to complete a basic mortgage application and provide information about your income, debts and expenses. Your mortgage professional will look at all of this information and will advise you on the best mortgages for your needs, and provide a guideline as to how much you can spend on your home.
3. Commit To a Mortgage - The specific process depends upon your lender, but typically once you’ve made an offer on your home, you will have to provide a few further details about you that way your mortgage application can be formally processed. You will receive a mortgage commitment, but there may be some conditions attached.
4. Fulfilling Your Mortgage Conditions - It depends upon your state and lender, but often you will be asked to prove that you have your down payment and even some of your closing costs in place 30 days before you’re set to close on your home. If some of your down payment will be coming from a family member as a gift, you may also be asked to provide a gift letter. Your lender wants to ensure that you aren’t borrowing your cash assets that you’re using for your home purchase.
5. Sign Your Closing Papers - This may happen before your closing date or on your closing date depending upon your lender and where you live. You will then confirm the frequency of your mortgage payments and arrange a payment method for your mortgage premiums.
The above outlines some of the main components of the mortgage application process, though some of the finer details will depend upon your lender and the state you live in!
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