When it comes to saving for a home most people focus on saving for a down payment. While your down payment is a big part of determining your home affordability, it’s not the only component. Between closing costs, fees & taxes you can expect to pay an additional 2-5% of your home price at the closing table. In many cases, some or all of these closing costs must be paid at the time of closing your loan. Your cash to close your loan includes BOTH your down payment and any closing costs.
So what’s included in the closing costs? And how do you calculate your cash to close? Read More
The type of property you choose can affect your home affordability, the interest rate you qualify for, and what loan products are available to you as a borrower. Underwriting the property is just as important and underwriting the borrower applying for a home loan. When trying to understand if a property is the right fit for a particular mortgage there are three major considerations: occupancy, property type, and homeowners association dues.
After you give the lender your intent to proceed they’ll order your home appraisal. This is a critical (and potentially frustrating) step in the home buying process. Let’s break down the entire home appraisal process, why it matters for the mortgage lender, and what it means for the home buyer and seller.
Maybe you fell in love with the first home you saw. Maybe it took you months, but your patience was rewarded with a beautiful house that hit all the sweet spots. However long it took, you’ve now reached the moment of truth – you’re ready to make an offer on a house.
You knew this time would come, but what does “make an offer on a house” really mean?
Before you start looking for a home in earnest, though, you should get pre-qualified for a loan. Ideally you’ll get pre-approved. To do that, you’re going to need to talk to a loan officer. What’s the difference between a pre-qualification letter and a pre-approval letter? And how can you find a good mortgage lender or loan officer to work with? Let’s break it down.
Each homebuyer is different, and the next wave of first time home buyers has the potential to throw the mortgage banks for a loop. With hoardes of freelancers & contractors marching towards self-employment, or companies like Uber, Udemy, and AirBnB offering new, unprecedented ways to make money, income streams are less consistent and more diversified. After the financial crisis in 2008, many people rejected the use of credit cards and worked to eliminate debt. Some are even rejecting banks outright
Please, pretty pretty please, don’t ever use a video game store as a bank. Seriously.
These shifts create awesome new opportunities, and you should totally take advantage of them. But the mortgage lenders aren’t known for dealing with change well, and they haven’t really adapted to the new economic realities. Being self-employed or lacking credit history can make getting a home loan complex. Here are some common scenarios & what you can do to address the issue. Read More
If you’re going to have a mortgage, it’s probably a good idea to understand what, exactly, that is. If you learn a little bit about the history of mortgages, not only will you come to appreciate the process, but you’ll look super smart in front of your friends at your housewarming party.
In plain english, a mortgage is a loan used to buy property. The amount of the loan is usually a fraction of the total property value. To make the loan less risky for the lender, the loan is tied to the property itself – if the loan goes unpaid, the lender takes ownership of the property, which they can sell to cover the debt.
Mortgage – n. – A debt instrument, secured by the collateral of specified real estate property, that the borrower is obliged to pay back with a predetermined set of payments.
Millennials could be missing out on a lot by choosing to rent as opposed to buying homes, according to financial author David Bach. His study found that homeowners are 38% wealthier than renters. Buying a home is more expensive than renting and requires more responsibility; however, unlike renting, when you buy you are making an investment.
Like any good investment, buying and selling homes requires patience. The median age for first time home buyers is 32. If first time homeowners are patient and live in each of the homes that they buy in their lifetime for a minimum of 5 years, by the time they are 50-60 they can sell their home and use the money they make to retire. The following is a list of things to consider when buying a home, and reasons to remain in your homes for at least 5 years.
Know Your Budget
The median income for first home buyers is 72,000. If this income seems high, consider a studio or smaller home to lower the cost. The bank will loan you the maximum that they think you can afford. Consider borrowing 10-15% less than the bank will lend you, this will make your monthly payments more affordable and your debt more manageable.
If you can save at least 10% as a down payment, you will considerably lower your mortgage payments. The more money you have as a down payment, the lower your loan rate will be. An appropriate down payment will allow you to secure an affordable monthly payment.
The Five-Year Rule
Many homeowners stick to the five-year rule, according to Scott Durkin, chief operating officer at Douglas Elliman Real Estate. The best you can hope for after one year is breaking even, but more often than not homeowners take a loss. Beyond two years, homeowners are no longer subject to capital gains tax; however, five years allows them to build more equity.
The general principle of the five-year rule is waiting for the market to appreciate to double digits, in the hopes that when it does, the buyer can recuperate some of the purchasing costs. If the market doesn’t appreciate after five years, at least you have built enough equity to sell your home and make some money.
After what feels like a lifetime of sticking to the five-year rule, you will be ready to sell for the last time and begin to plan your retirement. If you are living in your forever home and over the age of 62 you qualify for a reverse mortgage. A reverse mortgage is exactly as it sounds, the payments work in the opposite direction of a conventional, forward mortgage. Essentially, you sell your equity to keep your home, and receive payments from the lender instead of making mortgage payments. As you receive payments your equity declines, but you can keep your home for the rest of your life. The reverse mortgage will be paid when the house is eventually sold; however, the borrower (the person paying a reverse mortgage) can only gain or break even from the sale because the amount owed cannot exceed the value of the home.
Reverse mortgages aren’t for everyone. They can be great for some and very risky for others, so we recommend doing your research and talking with a financial planner before taking a reverse mortgage.
Whenever you buy a home, consider living in it for at least five years in order to build equity and avoid losing money when you choose to move. If you live in each home long enough, you will be able to qualify for a reverse mortgage or even sell your last home and make enough money to retire.
At some point, everyone has wanted to buy a fixer-upper, or at least considered it. There are tons of shows (Property Brothers, Flip or Flop, Flip This House, Flippa-dippa Ding Dong*) that sell the dream. Find it, rehab or remodel it, and then either live in it or flip it. Personally, I would love to find and old craftsman, buy it for cheap, put in some elbow grease and restore it to it’s former glory.
In practice though, buying a fixer-upper or remodeling a house can be difficult. A major issue is financing – construction loans are hard to get & have strict requirements.
So what can you do if you want to buy a fixer-upper but you don’t have a ton of cash sitting around? Or what if you already own a home, but you just want to remodel? There’s a loan for that – the FHA 203k loan.
A 203K loan is a specialty mortgage that is offered by the Federal Housing Administration (FHA). Often called a “rehab mortgage” or a “fixer-upper loan”, 203k construction loans were designed to help cover costs for rehabilitation, upgrades, home renovation or remodel.
203k loans are also an especially great choice for first time home buyers that want to buy a fixer-upper. It allows you to pay less for a house that needs a little love, and it provides you with extra money to renovate and remodel.
203k loans were created to solve a number of issues that come with traditional construction or home improvement loans. They make the process of getting a home remodel loan or buying a fixer upper much more simple. But why should you consider a 203k loan over a normal construction loan?
You are ready to find the right home: You have a budget. You know your affordability amount. You’re pre-approved for a loan. You’re working with a realtor, or you are comfortable working on your own. You know your timeline. You’re now a highly-qualified buyer, the only thing standing in your way is finding that perfect house. The great home search has begun!