It Pays to Understand Your Real Estate Contracts

While every home buyer should have a real estate attorney working with them during their purchase transaction, they should also have a basic understanding themselves of what a real estate contract does and how it works.

Contract protects both parties

A real estate contract details such information as the price, the date of closing, and other factors involved in the transaction.

It should allow you sufficient time for your attorney to review it and to have a home inspection conducted if you so choose.

Be aware that you have a right to negotiate anything that arises from a home inspection or an attorney review.

Insist on an attorney review

If you haven’t yet selected a real estate attorney (and remember you’re looking for one with special expertise in real estate), don’t ever sign a contract without an option for an attorney review.

You could be setting yourself up to be taken as far as price, or other terms are concerned, or you could find yourself saddled with issues that arise after closing.

The contract will include what is called a commitment date; this is the date by which you can prove to the seller that you able to obtain financing.

A prequalification letter given to the lender at the beginning of the process is based on basic information, including credit, but full approval comes only after the appraisal, title and other such factors are reviewed by the lender.

It pays to ask about seller credits

Always ask about seller credits.

If the seller is willing, he or she may be able to assist with some of your closing costs; this needs to be in the contract as well.

Depending on the financing, you may be able to get 3-6 percent of the purchase price refunded to you.

For more information on contracts talk to your mortgage professional.

Plan Ahead for Added Costs in the Mortgage Process

There are several different fees that buyers incur in financing their new homes; some of these go directly to the lender, others go to third parties involved in the transaction.

First-time buyers, in particular, may not be aware of these additional costs. Be prepared: Here are some fees you should know about before beginning your home search.

Origination Fees: These are fees paid directly to the lender and include mortgage origination fees, processing fees, and admin fees, among others.

Third Party Fees: This is where a lot of additional costs arise. They include fees to appraisers, attorneys, home inspectors, and title companies.

In dealing with title companies, it’s customary for the seller side of the purchase transaction to decide which title company to use. This means the seller effectively decides what those fees will be. When you as a buyer are given a “Good Faith Estimate” at the beginning of the loan process, it may not include title costs. Often your lender will overestimate these; it’s better to overestimate initially than risk suffering sticker shock at closing.

In addition to title insurance, title costs may include the costs of the closing, document delivery from the lender, and other fees.

Recording Fees: Depending on where you live, there may be state, county, and sometimes municipal recording and transfer taxes to pay. These fees allow the title company to forward the proper documents to the appropriate recording body.

Be aware of these costs and consult your mortgage professional to help navigate the financing process successfully.

Issues to be Aware of When Purchasing Vacant Land

Whether you are planning on purchasing land to build a home now, or whether you want to hold it to build on later, there are a few things that you should know.

You can purchase two types of land – improved and unimproved.

Improved land has utilities such as water, electricity and sewers already on the property, so that they’re ready for you to hook up.

In unimproved land, these utilities are not available. Depending on what you want to build, this may make a difference. Lenders are more hesitant to lend money for unimproved land, as they see it as a more risky venture than improved land.

This is why down payments on unimproved land are so much higher; improved land, on the other hand, will have a lower down payment, as it can be resold more easily should a borrower decide to walk away from it after receiving financing.

There are fewer financing options if you purchase vacant land than if you were going to purchase a pre-built home.

As mentioned previously, down payments are more: typically, you may be putting down 20 percent or more, which is higher than the typical 3.5-10 percent you likely would put down on an existing home.

Lenders will offer both fixed- and variable-rate mortgages, including home equity loans, but usually with terms of 10 to 15 years as opposed to 30-year loans for a mortgage on an existing home.

For more information on mortgages for vacant properties, contact your mortgage professional.

Trust Your Common Sense in Buying a Home

Purchasing a home is likely to be one of the most significant investments you make in your entire lifetime, especially if you’re doing it for the first time.

Although there are many safeguards in place to protect you as you go through the process, your own common sense will serve you better than anything else.

Here are a few common sense things to watch for to help you become an informed home buyer:

Know what’s right for you.

If, for example, you plan on calling your new property home for at least 20 years, a fixed rate mortgage could make sense. However, everyone is recommending you get an adjustable rate mortgage because of its current low rate. What to do? Use common sense: Step back and think about whether this the right way for you (not others) to go.

Ask questions and expect answers.

If you don’t understand something that has been said, ask for clarification until you do. It’s your right to ask questions and you should expect a quick, polite and informative response.

Manage your expectations.

Just because you may be able to afford a larger home or a higher mortgage amount, doesn’t mean a big home or high mortgage is in your best interest.

Sit down with your mortgage professional before you begin your home search, so you know what to expect in terms of monthly payments. Use your common sense and your mortgage professional’s advice.

Use a real estate attorney.

Don’t consider purchasing your home without a real estate attorney.

While you may be tempted to save on legal fees, a good real estate lawyer is worth his or her weight in gold.

And note that your lawyer charges the same amount, regardless of the sale price of your new home or the mortgage amount.

Don’t Forget Your Mortgage in Future Plans

Beyond the immediate benefits of home ownership (such as tax advantages), if you’re considering entering the housing market, you will also want to look at the longer-term benefits of owning your own property.

These include:

Rental potential

If, at some point in the future, you decide that you need more space and are able to afford a larger home, you may decide that renting out your existing one makes sense.

The monthly rental income will help offset some – if not all – of the expenses of maintaining the property and may actually put money in your pocket each month.

If there comes a point when the property is completely paid off, then the rent could be a great source of retirement income.

Source of equity

Over time, as the value of the property increases and your mortgage balance decreases, you’ll be able to tap some of the equity in your home with either a fixed-rate second mortgage, or some type of line of credit.

The equity may come in handy in the future for things such as home repairs and college tuition.

If you expect to be able to pay off your home at some time in the future, you may be considering downsizing to a smaller, less expensive home.

Your home equity may allow you use the proceeds of the sale of your older home to pay cash for a new, less expensive property, and you can deposit the remainder of the proceeds of the sale to provide retirement income, to purchase a vacation property, or for a host of other reasons.

For many decades, real estate has been one of the best places to invest your money, and despite the recent mortgage meltdown, it will continue to be so.

In many cases, it can even outperform the stock market.

Consider your mortgage as part of your long-term retirement plan.

What Happens to Your Mortgage After Closing?

The creation of your mortgage is just the first in a series of processes it goes through over its lifetime. Understanding the long-term nature of your mortgage will shed some light on the reasons why lenders are so scrupulous during the underwriting process.

Mortgages are created to be sold. Be aware that most mortgages are created with the intention of reselling them. Mortgages are bundled together after closing into what are called mortgage-backed securities, and these securities are then sold to investors.

Fannie Mae and Freddie Mac are the intermediaries between lenders and investors; effectively, investors forward money to lenders through Fannie and Freddie. In turn, lenders send back mortgages to Fannie and Freddie, who bundle them together (often thousands at a time) and send them to investors, who then send more money.

Fannie sets the guidelines under which the mortgages are underwritten, and the purchase of securities from Fannie/Freddie by investors is based on specific guidelines.

This process explains why lenders are careful. Before these securities are sent to them, however, sample files go through what is called a re-underwriting.

In this process, loans that (for many reasons) are outside what investors are seeking may need to be repurchased from Fannie by the lender. If most of the mortgages in the batch can’t be purchased, they may all be rejected, leaving lenders holding unsalable mortgages.

This goes a long way to explaining why lenders check files scrupulously and may make what seems like unreasonable requests for additional documentation.

Are You Mortgage Worthy? Look to Your Credit Report

There are few things more important to the process of financing a home than credit.
Better credit means more financing options and often better rates, which will save you money.
When you hear the term credit score, it actually means the middle of the three scores that lenders pull from three different credit bureaus.

The three credit bureaus are TransUnion, Experian and Equifax, and they are repositories of information sent to them by creditors, such as credit card and automobile financing companies.

A credit report is a representation of how much credit you have available to you and how well you manage it. Lenders want to know how you manage what you have now before they agree to lend you even more.

There are various components that make up your credit score. Two of the most important are:

Recent late payments

Lenders will look closely at this, thinking that if you are having challenges meeting your current payments, you perhaps should not be taking on any additional debt.

Balance-to-limit ratios

Even when you pay all your bills on time, if your credit cards are maxed out, lenders will see it as a sign that you need lots of credit to get through your daily life. Keep balances low – preferably below 25% of your credit limit.

Note that this doesn’t mean you should cut up all your credit cards. You need to have some open trade lines.

Many people believe that having no access to credit keeps them out of financial trouble. This is correct to a point, but you also need to be able to demonstrate to a lender your ability to manage credit, thus proving you are worthy of a mortgage.

Contact your mortgage professional, who can advise you on credit issues and your ability to get a mortgage.

How to Decide if an Adjustable Rate Mortgage is for You

When you shop for a mortgage, whether it’s for a new home or a refinance, you’ll soon hear about adjustable-rate mortgages (ARMs).

While ARMs definitely have their advantages, make sure you understand them before getting into one.

How ARMs work

All ARMs start out as fixed-rate mortgages. An ARM will appear like this, where the first number in the terms “3/1,” “5/1” or “7/1” denotes the number of years that the rate will be fixed. Usually the lower the number, the lower the initial rate.

The second number shows how many years before the rates can be adjusted once that fixed period has expired.

After this fixed period, the rate can fluctuate. The rate itself is made up of both fixed- and variable-rate components.

The variable component will be based on some index such as Treasury bonds. This is added to the fixed-rate component set by the lender when you determine your starting rate.

Your decision to obtain an ARM should be based on how long you plan to live in this home.

If you believe that you could be living there for a long time, you may want to consider opting for a fixed-rate mortgage.

The reason? If you have an ARM and have to refinance at some time in the future when rates are higher, you might find yourself in a fixed-rate mortgage with a much higher rate.

Talk to your advisor about whether an adjustable-rate mortgage is right for you.

New to Home Buying? These Tips May Make it Easier

If you are tackling the home buying process for the first time, there are a few things you should know about financing your purchase before you start to look. Your mortgage professional can help.

Get Prequalified

This may sound obvious, but you don’t want to fall for something beyond your means. You’ll want to know what your credit looks like and what you can afford before you start looking.

You can get free credit reports, but your best bet is to have a licensed mortgage professional run it for you, as the information and scores he or she can pull are often different from the reports you may be able to obtain yourself. Plus, lenders will use only credit reports they pull themselves, so you will need to have them run the report eventually.

Pay Your Bills on Time

It’s amazing the number of buyers who don’t realize the importance of paying bills on time.

Lenders place a lot of importance on your ability to pay bills in a timely manner, especially over the past 12 to 24 months; this recent payment history is most likely to reflect your ability to make monthly mortgage payments.

Never Get Attached

Borrowers often fall in love with a property when they submit an offer, only to find it has been sold to another bidder. It’s usually not their fault; this happens. But especially in the current market, there are lots of homes available; take time with the process and find what’s right for you.

Rely on Your Team When Buying a Condo

Buying a condo can be a great choice for many, as it offers lower-maintenance living and other advantages not available in a single-family home.

However, there are things that you will want to keep in mind when starting to look for a condominium. Not the least of them is to ensure you have a great team of experts behind you, including your mortgage professional, your real estate agent and your real estate attorney.

Association Dues

Condos differ from single-family homes in that maintenance for the entire development is managed by the association. This includes landscaping; painting; snow removal, if applicable; and often such items as roof replacement, if required. While this may result in a significant monthly fee, you are spared the burden of having to deal with these issues; this is very much worth the expense for many buyers, especially those who are less able to perform these tasks themselves.

Financing

If you are planning on financing a condominium through the FHA, the development needs to be included in the FHA Approved Condo Listings. This means that the FHA has examined the rules and regulations that govern the development and approved it as one that can be financed through the FHA. Your team can help you find whether the condo property you’re interested in has been approved by the FHA.

Association Financials

You and your attorney should look closely at the financial statements of the association. You need to find out if there are any financial or administrative challenges with this particular property that may result in either significantly higher dues at some point or even the folding of the association itself. This is rare, but  it does happen. And you don’t want it to happen in your case; prevent this by being an informed consumer and listening to your team.

Discuss financing your condominium with your mortgage professional.