So You’ve Found The Home You Want. Now What?

You-Found-A-HouseHuzzah! You’ve done it. You said you would, and you did.

You’ve checked out schools, neighborhoods, restaurants, parks, and communities, sifted through more online listings than you can shake a stick at, and you’ve doubtless walked through more prospective homes than you can count while looking for … THE ONE.

And after all of that, lo and behold, you’ve found it! THE house. The one you’d like to buy, the one where you want to build your life. Congratulations!

We know you’re brimming with excitement–finding THE house is a great feeling–but now it’s time to think about making an offer to buy it … and that’s not as simple as you might think. Before you start filling out forms and signing things, make sure you know what’s needed, that you know the documents required, and that you’re ready to make a *realistic* offer to purchase the house.

Something to think about: if, by the this time, you’ve not started working with a REALTOR, it’s something you should really think about. REALTORS are generally experts with respect to the home prices in the neighborhoods where they work. They’ll be able to counsel you & make sure you’re offering enough  money, but not too much or too little for the home. A REALTOR will know the laws of the area where you’re looking to buy, what paperwork and forms are needed, what sorts of deadlines and requirements there are, and, most importantly, a REALTOR will be your advocate; they are able to remove emotion from the situation–they have no “skin” in the game–so they will be able to negotiate on your behalf while maintaining a level head (you’d be surprised how easy it is to lose your cool when you’re dealing with YOUR home).

Another SUPER important thing: If you’ve not talked with a lender before finding the house, that’s the first thing you should do. 

Getting pre-approved for a loan will go a long way toward putting you in position to get the home you want. It’ll give you peace of mind about being able to afford it, and pre-approval will also give you more than a fair amount of leverage when it comes to writing an offer to purchase the house you want. When sellers look at an offer that says, without question, that you are able to buy the house and have the money to do it, they’ll be more inclined to accept the offer.

The offer you prepare and submit, if accepted as you (or you and your REALTOR), will become a binding sales contract. Accordingly, it’s important you ensure it contains all the items that will serve as a “blueprint for the final sale.” These include, but are not limited to, such things as:

  • Address (and sometimes a legal description) of the property
  • Sale price (this is the amount you’re offering to pay)
  • Terms: for example, all cash or subject to your obtaining a mortgage for a given amount (remember what we said about getting pre-approved for a loan!)
  • Seller’s promise to provide clear title (ownership)
  • Target date for closing/escrow/settlement (the actual sale)
  • Amount of earnest money deposit accompanying the offer, and whether it’s a check, cash or promissory note, and how it’s to be returned to you–and in what period of time–if the offer is rejected–or kept as damages if you later back out of the offer for no good reason (a reason not provided for in the offer).
  • Method by which real estate taxes, rents, fuel, water bills and utilities are to be adjusted (prorated) between buyer and seller (the title/settlement company you use will give you information about this).
  • Provisions about who will pay for title insurance, survey, termite inspections, other home inspections, and so on.
  • Type of deed to be given.
  • Other documents and addenda specific to where you’re making your offer, which might include a chance for attorney review of the contract, disclosure of specific environmental hazards or other state-specific clauses.
  • A provision that the buyer can make a last-minute walk-through inspection of the property just before the closing (this typically happens on the day of or the day prior to closing).
  • A time limit (preferably short) after which the offer will expire.
  • Contingencies (which we’ll discuss in greater detail below).

If your offer says “this offer is contingent on ___________,” you’re saying that you will only go through with the purchase if that thing happens. Contingencies can include things like selling your current home (so you’re able to afford the new one), your financing getting funded as outlined in the offer, an acceptable home inspection, or other such things.

Accepted or … Not So Much?

If the seller of the home you want accepts your offer unconditionally, you will have a binding contract. As soon as you’re notified that (either by the seller’s agent or the seller himself) that the offer has been accepted, you have a binding contract. If they reject it outright, the offer is, likewise, considered immediately null and void.

Sooo … what about a counter-offer?

Sure! A counter-offer is pretty common.  Many times, sellers will request to change a couple of small things, or maybe a big thing. The seller might ask for a higher purchase price, might strike down your contingencies, change the closing date, or other such things. Once that happens, you can review the proposed changes and either accept or reject them … or you can even make changes yourself. Each time either party makes any change in the terms, the other side is free to accept or reject it, or make another counter-offer. The document becomes a binding contract only when one party finally signs and makes unconditional acceptance of the other side’s proposal.

What If You Change Your Mind? Can you withdraw the offer?

In most cases, you’re can withdraw your offer, but there are conditions (there are always conditions, right?) If you withdraw before the offer’s been accepted, there should be no problem. Once it’s a binding contract, however, it’s best to consult with a real estate lawyer or your REALTOR (those folks come in handy, like we said), so you know what the fallout from withdrawing might be. Consequences could mean anything from losing your earnest money deposit to being sued for breach of contract (no one wants that).

When it comes to making an offer to buy the home of your dreams (or any other home)  it’s important to make sure you have all your ducks in a row. We can’t emphasize enough how beneficial it is to work with a REALTOR; they’ll make everything is “just so” and make sure you’re positioned properly.

Congratulations! You’re one step closer to crossing the threshold to the home of your dreams. Good luck!

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What’s a Qualified Mortgage? Regulation Z? Ability to Repay?

Qualified_MortgageEarlier this year, the Federal Housing Administration (FHA), following the terms of the Dodd-Frank Wall Street Reform & Consumer Protection Act, put into effect a set of new rules that have (and will) change the way mortgage loans are made in this country.

The Ability-to-Repay & Qualified Mortgage Rules are just one of the things our government is doing to prevent the US from falling victim to a mortgage crists like the one we’re just coming out of.

How did we get here?

Part of what got our system into this mess in the first place was that mortgage lenders were making loans to people who simply didn’t have the means to make their payments. These loans, often based on stated income (which is exactly what it sounds like–you just say, “I make XXX dollars per year” and the lender would take that on “faith”), were made on the assumption that home values would continue to skyrocket as they had over the years prior and that borrowers could always refinance and use the equity in their homes to make up their shortfalls.

No more.

By now, we all know where all of that got us. Lots and lots of people took out loans that they just couldn’t afford and those same people, all too often, found themselves in hot financial water, unable to meet their financial commitments. Lots of those people ended up in foreclosure or other such trials. We’re only now starting to recover from this ugliness; our financial system, as well as the real estate industry are finally starting to gain some headway. The Dodd-Frank Act hopes to prevent anything like this from happening again.

Enter the Qualified Mortgage.

What, exactly, IS a Qualified Mortgage? It’s just what it sounds like: it’s a mortgage for which you MUST be qualified … and your lender has to prove that you are able to repay the loans they make to you. As such, when you go to apply for a mortgage loan–and FHA loan or any other–you’ll be held to much higher standards than you might have been during the height of the housing boom. If lenders DON’T follow these rules, they can be on the hook if you default. So you can believe they’re going to cross every T and dot every I.

What does this mean for you?

For a mortgage to be classified as “qualified”, a borrower’s debt-to-income ratio (DTI) can’t be higher than 43%. What this means in for you is that the amount of debt you have can’t be more than 43% of your gross (before tax) income. Also, the fees lenders can charge–origination fees, points, and all of those things–can’t add up to more than 3% of the total value of the loan (fees that are charged for things like running your credit report generally aren’t included in this amount).

If you have questions or would like more information about Qualified Mortgages & The Ability to Repay Rules, visit http://consumerfinance.gov/regulations. You can always ask your lender, too, or other financial advisor.

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First-Time Homebuyer? What You Need To Know About FHA Loans.

Dreaming of HomeBuying your first home is a big deal. It’s exciting and stressful and wonderful and there are a million and one things to thing about. Of all the things to think about, however, the most important thing–next to the house you ultimately buy–to consider is how you’re going to pay for it.

(Take a deep breath. It’s OK … everyone gets worked up about financing).

When you’re a first-time homebuyer, there are some factors that can come into play when it comes to obtaining a mortgage loan. It’s possible that you don’t have established credit or don’t have the means that people who’ve bought and sold several houses might.

For those reasons, and others, an FHA loan is something you might consider.

First off, it’s important to know that the FHA is not a lender. It’s a government agency that guarantees loans for lots and lots of Americans. Since its inception, the Federal Housing Administration, or FHA, has helped first time home-buyers realize dreams of home-ownership by providing easy credit qualifying, low down payments, and low closing costs.

Not all FHA lenders are the same; do a little research.

If you do a little homework before submitting your application, you’ll be on the road to better success. Most lenders require 3 to 6 weeks for loan approval, and often there is an application fee. By starting early and by being prepared, you can save money, time, and headaches down the road.

About a month (or even a little more) before you start shopping for an FHA-approved lender in your area, get your financial documentation in order and make sure it’s up to date. You’ll have to be able to show proof of income, your credit rating, the amounts of your recurring bills, and how much you can put down as a down payment. All of these things will affect your approval and the kind of interest rate for which you qualify.

Speak with several FHA-approved lenders before making a decision about where to submit your application. Shopping for your FHA loan is like shopping for anything else; doing a little research ahead of time will help you find the bet deal. A little more work at the start will help you save money in the long run. Different lenders offer interest rates and fees that can vary greatly. Since a lower interest rate has a huge impact on how much home you can afford, comparison shopping is really important.

Once you understand what each lender offers, talk to them to negotiate the best deal you can. By making sure you’re prepared with your financial documentation, your most recent credit score, and having comparison-shopped, you’ll be ready to make the decision about with whom you’ll make loan application.

A little research and work ahead of time can save you lots of time & money in the long run. Good luck, happy borrowing, and happy new home!

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What’s A Qualified Mortgage & How Will The FHA’s New Rules Affect Me?

Screen Shot 2014-02-27 at 6.58.50 AMYou may have heard that at the beginning of 2014, the Federal Housing Administration (FHA)–according to the terms of the Dodd-Frank Wall Street Reform & Consumer Protection Act–made a lot of changes to the way mortgage lenders can lend money and to whom. So if you’re in the market for a loan this year, heads up; there are some things you need to know.

These new rules and standards, called the Ability-to-Repay & Qualified Mortgage Rules, are part of an effort to prevent this country from being plunged into a mortgage crisis like the one we saw in the late 2000s.

A look back.

Part of what got us into trouble over the last decade or so was that mortgage lenders were, not to put too fine a point on it, extending loans to people who had no ability to repay them. These loans were often based on stated income alone (which is exactly what it sounds like; a person could say, “I make XX dollars a year” and not really have to show any documentation showing that was true). Lenders justified these loans by saying they were made on the assumption that home values would continue to rise and that borrowers could rely on the equity in their homes if they needed to refinance, and so on and so forth. No bueno, as they say.

Times have changed.

By now, we all know the story of the mortgage crisis. Far too many people took out loans that they couldn’t afford and those same people found themselves in a position where they couldn’t make their payments; they found themselves going through foreclosures or making a strategic default–a situation in which a borrower, knowing they just can’t pay, simply walks away from their mortgage. It did all but irreparable damage to our financial system, nearly crippled the housing & real estate industries, and it’s why the Dodd-Frank Act was passed. It’s something we never need or want to have happen again.

Enter the Qualified Mortgage & Ability To Repay Rules. 

So, what IS a Qualified Mortgage? Really, it’s just what it sounds like. Effective January 2014, mortgage lenders must now prove that a borrower has the ability to repay a loan. Lenders must now hold borrowers to much higher standards than before. If they don’t, lenders can now be on the hook for loans they make. If those loans default, the FHA will go after THEM, so you can bet they’re going to be a lot pickier and a lot more careful about who they’re giving loans to.

What does this mean for you?

To be a “qualified mortgage”, a borrower’s debt-to-income ratio (DTI) can’t be higher than 43%. What this means is that the amount of debt you have can’t be more than 43% of your gross (before tax) income. Also, the fees that lenders can charge–origination fees, points, and the like–can’t be more than 3% of the total value of the loan (fees that are charged for things like running your credit report generally aren’t included in this amount).

Qualified mortgages can’t have:

  • An “interest-only” period, when you pay only the interest without paying down the principal
  • “Negative amortization,” when the loan principal increases over time, even though you are making payments
  • “Balloon payments,” which are larger-than-usual payments at the end of the loan term—though these are allowed in some limited circumstances
  • Loan terms that are longer than 30 years

These changes are important to how loans are made now and how you (as well as lenders) will be protected. More regulation might make it seem like getting a mortgage is now harder, but these measures have been put into place to protect you from taking out a loan whose payments you can’t handle. While all of this might sound like a lot of hassle, know that the FHA & CFPB have put these rules in place to protect YOU. You don’t want to be put in the position where you have a loan you can’t afford anymore than lenders want to give you one.

If you have questions or would like more details about Qualified Mortgages and the Ability to Repay Rules, visit http://consumerfinance.gov/regulations or take a look at the video below.

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What Are The Costs Associated With Buying A Home?

closing_costsWhen you write an offer to buy a home, you know the price of the home. But do you really know how much the purchase is going to cost you?

When it’s time to sign on the dotted line, do you know what costs to prepare for?

Closing costs are a big part of buying a home. Depending on the cost of the home, they can really add up, too. Typically, a home buyer can expect to pay between 2-5% of the purchase price of a home on closing costs.

That’s not chump change.

So what’s the breakdown? Here’s what you can expect–typically–to spend in closing costs when you sit down at the settlement table and become a homeowner.

First off, when people talk about closing costs, what’s included?

Closing costs are fees related to the purchase of your new home. These are costs over and above the amount you’re borrowing for your mortgage and any associated interest charges. In addition to your down payment, there are monies due to your lender and other parties–and most of these are the responsibility of the buyer (there are some exceptions, like in the case of VA and other such loans).

No matter what, be sure to check with your lender, so you’ll know exactly what to expect come settlement time.

So what can you expect? You can expect to pay …

  • A fee for running your credit report–this fee is minimal and usually paid at the time the report is run.
  • A loan origination fee, which lenders charge for processing the loan paperwork for you.
  • Attorney’s fees.
  • Charges for any inspection(s) required or requested by the lender or you–these can include, but aren’t limited to: a home inspection, a termite inspection (this is almost always required by the lender), and the like.
  • Discount points, where applicable, which are fees you pay in exchange for a lower interest rate (be sure to check with your lender).
  • Appraisal fee (charged by your lender).
  • Survey fee, which covers the cost of verifying property lines.
  • Title insurance, which protects the lender (and you!) in case the title isn’t clean.
  • Title search fees, which pay for a background check on the title to make sure there aren’t things such as unpaid mortgages or tax liens or any other such holds on the property.
  • Escrow deposit or earnest money, which may pay for a couple months’ property taxes and private mortgage insurance.
  • Title recording fee, which is paid to a city or county in exchange for recording the new land records.
  • Underwriting fee, which covers the cost of evaluating a mortgage loan application.

Sound like a lot? Yeah, we know.

We mentioned that closing costs average between 2-5% of the purchase price of your new house. So, if your home cost $150,000, you can expect pay between $3,000 and $7,500 in closing costs. These costs, too, are things that can’t be rolled into your loan and for which you have to have cash.

Your lender will give you a good faith estimate of what you can expect at closing, but this isn’t an exact figure. Within a day of your closing, you will receive a form HUD-1, which will go over, in detail, all of your closing costs.

Remember: these costs aren’t always set in stone and if they’re too far removed from what you’ve been led to expect, you can always walk away. There may well be lenders who will make your loan with closing costs that aren’t nearly as expensive.

As with all matters related to purchasing a home, be educated. Talk to your lender. Talk to your REALTOR. Know your rights. The last thing you want is to be taken by surprise.

 

 

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