Step by Step Process of Buying a House

Interested in buying your first home? The process can be difficult to navigate, but we’re here to help with a simple step-by-step walkthrough of the home buying process.

Step 1 – Understand if you’re ready

Start by asking yourself “Are you ready to buy a home?” Here we list out a simple list of 6 things to check before jumping into the home buying process. This basic look at your personal finances will help you understand if you’re in good shape to get pre-approved for a loan.

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What is the PITI payment?

When it comes to buying a home everything revolves around your mortgage payment. Whether you’re buying a new home or refinancing an existing loan, mortgage lenders are going to calculate the monthly payment for your new loan and try to understand if you can afford it based on your debt-to-income ratio. When going through the underwriting process mortgage lenders look at the PITI payment for your loan. This is the total monthly payment which includes the principal and interest payment for the loan, the monthly cost of property taxes and homeowners insurance, as well any mortgage insurance premiums and HOA fees.

 

What does PITI stand for?

The payment for your mortgage debt is called your principal and interest payment, or “P & I payment.” This is the bulk of your monthly payment, but it’s not all that’s required.

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What credit score do I need to buy a house?

Mortgage companies take a lot of things into account when you apply for a home loan. A major factor in qualifying is your credit score. But what credit score is needed to buy a house?

This question actually breaks down into two parts:

  • What is the minimum credit score to buy a house?
  • How does your credit score affect your mortgage?

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How does a reverse mortgage work?

Reverse mortgages, also called Home Equity Conversion Mortgages (HECM), solve a large problem for seniors. They convert a portion of their home’s equity to cash – allowing the home owner to access their equity without creating a new monthly payment or forcing the sale of the home. That all sounds great – but how does a reverse mortgage work? And more importantly what are the risks of taking out a reverse mortgage?

Let’s cover the basics of a reverse mortgage. We’ll dive into how they work using a fictitious couple as an example and explore a few scenarios that may occur after the close of the loan.

If you haven’t had a chance to read up on what a reverse mortgage is or why it’s useful, you can read our article here. Otherwise, let’s jump into the nuts and bolts of how these loans work.

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What is a reverse mortgage?

A reverse mortgage, also called a home equity conversion mortgage (HECM), is a tool that helps retired seniors borrower money against the value of their home. Reverse mortgages are designed to secure a comfortable living situation for retirees, help cover major expenses (like health care costs) and potentially generate monthly cash for the borrower.

Retiring is hard work

People aren’t great at seeing into the future. It’s actually a skill – its called affective forecasting. For whatever reason, we have a hard time considering our future self.

Daniel Gilbert studies this for a living. When it comes to estimating how much we’ll change in the future, or how happy something would make us, we are usually way off. He set up a really basic experiment with Prudential that shows how this inability to see into the future can affect retirement.

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Reverse mortgage pros and cons

A reverse mortgage can be a great tool for retirees – they can also cause a number of issues. There are a number of pros and cons with reverse mortgages, also called home equity conversion mortgages (HECM loans), all of which you should consider before applying for the loan. It’s important to know exactly what you are signing up for – educating yourself now can help you avoid the pitfalls of a reverse mortgage.

This is part of our series on reverse mortgages. If you are interested in learning more, we’ve written a few great articles that can help

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17 reverse mortgage facts you should know

Baby Boomers are not prepared for retirement. Business Insider does a good job of describing the problem: few seniors have enough savings for retirement, and that’s consistent across generational groups, race, and political affiliation.

However, when looking at data from the 2013 American Housing Survey, one thing is clear – America’s seniors own homes. According to the survey, over 65% of senior homeowners own their house outright. On average, they carry a significant amount of home equity – nearly $130,000.

Is a reverse mortgage a good idea?

Considering these two facts together, I foresee a boom in reverse mortgages on the horizon. A home equity conversion mortgage (HECM), often called a reverse mortgage, allows retirees to cover large expense using home equity, increase their monthly income, or both. Some seniors may not have a choice in the matter.

If the use of reverse mortgages becomes widespread, it’s important to learn a little bit about how they work. This isn’t just the work of seniors. I fall into the millennial demographic and I consider this everyone’s problem.

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Where is the best place to put a carbon monoxide detector?

Carbon monoxide poisoning kills thousands of people and is easily preventable! Maybe you’re moving into a new home, or you’ve gone through our review of the best carbon monoxide detectors and bought yourself a new unit. The next logical question is where is the best place to put a carbon monoxide detector? You want to find a place that will make sure the carbon monoxide detector is most effective, will keep you and your family safe, and won’t add an eyesore to your room.

Install carbon monoxide detectors in locations where you spend the most time

Ideally, you must have CO detectors placed in your home just like the number of smoke alarms you have installed. You must place a carbon monoxide detector in every major area of your house including the kitchen, dining/living room, office, and bedrooms. If you are living in a multi-story home, see to it that you place at least a carbon monoxide detector on every level.

Since people are most vulnerable to carbon monoxide poisoning effects while sleeping, it is crucial to place alarms near the bedrooms of your family. If you have one carbon monoxide alarm, place this as close to the sleeping area of everybody if possible. If you have elderly family members or children living with you, give extra protection near their rooms since they’re the most at risk of carbon monoxide poisoning.

Install alarms in the highest risk areas

You’ll want to place carbon monoxide alarms near any sort of appliance that can leak or generate carbon monoxide. If your furnace is at the basement, see to it that you place a carbon monoxide detector there. If you have gas clothes dryers you should consider putting alarms in your laundry room. You should also place one in the garage if you always park your cars there. Wherever you have solid fuel-fired appliance, anything that might produce carbon monoxide must have a carbon monoxide detector

Avoid installing carbon monoxide detectors on the ceiling

Smoke and heat rise. This is the reason why people should place importance on installing smoke alarms on the ceiling or wall. However, carbon monoxide mixes with the air. Because it does not rise, it’s preferable to install carbon monoxide detectors or alarms at knee level, which is the right height of a sleeping person’s mouth and nose. For this reason, a carbon monoxide alarm with a single function is highly recommended. If you’re installing a dual smoke and carbon monoxide detector, place this on the ceiling so it may detect smoke. But we also recommend purchasing an additional single-function CO detector to place in your home and ensure you’re covered.

Find a place to avoid tampering

If you have pets or kids that could tamper with detectors, you can move these up to chest height. You may also place them in an area that is hard to reach where curious hands or overzealous tails would have a hard time reaching.

Keep the sensors unblocked

Keep in mind that a carbon monoxide detector must not be blocked by curtains, furniture or some objects because restricted airflow may affect its function.

Maintain your carbon monoxide alarms

Your carbon monoxide alarms are generally low maintenance, but they will need some attention. Thankfully when there’s an issue they’ll usually tell you! When they need attention they will chirp, when a carbon monoxide detector beeps it could mean a few things. First and foremost check the power supply. Your detector might be wired directly into the electrical system of your house, but most detectors have a battery that serves as a backup. These batteries will need to be replaced, in our home maintenance checklist we suggest checking the batteries quartly.

Another thing worth noting is your carbon monoxide detectors don’t last forever. The sensors used to detect carbon monoxide gas get less sensitive over time and can lose their effectiveness. Most detectors last 5 to 7 years, we recommend replacing anything older than 5 years old to ensure your family is protected in case of a carbon monoxide leak.

 

Mortgage Interest Rate vs APR – What is the difference?

If you’ve ever taken a loan or applied for a credit card, you’ve probably seen the term annual percentage rate or APR. When it comes to mortgages the APR is a percentage, it’s usually right next to the interest rate and looks awfully similar. You might find yourself thinking “what’s the difference between the mortgage interest rate and APR?” You’ve come to the right place, we’re here to help!

 

Are interest and APR the same thing?

Let’s get this out of the way at the start – annual percentage rate (also known as APR) and interest rate are not the same things. This can be confusing because they’re very related, and they’re often presented together. They are very different numbers, however, and they serve different purposes.

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Debt to Income Ratio | Mortgage Process Explained

When underwriting a mortgage, lenders try to understand whether or not you’ll be able to afford your new mortgage payment. They care more about your monthly debt payments than they do your total amount of debt. To understand your ability to repay your debt, lenders will check your debt-to-income ratio.

Debt-to-income ratio defined

Also known as a DTI ratio, this is a monthly analysis of how much of your income goes towards paying your debts. For a mortgage to be affordable, there needs to be enough room in your monthly budget to cover your living expenses and still satisfy the debt payments for your credit cards, mortgages, and any other debts you might have. Read More