Should You Pay for Your Home in Cash Upfront?

Should You Pay for Your Home in Cash Upfront- 150x150Generally, people buy homes by taking out mortgage loans, which they will pay back over a number of years. Those who have better financial situations have the option of paying upfront for the home, and not have to deal with the hassle of making mortgage payments each month. Paying cash upfront for a home if you have the financial means sounds good and has its advantages, but it also comes with a few disadvantages that have to be taken into consideration before making this step. Before investing a large sum of money into a home, you should take a close look at your financial situation and your long-term investment strategies.

How to Buy a Home with Cash Upfront

Before buying a home with cash, try to evaluate all your assets and financial obligations in order to determine if you really can afford spending all that money at once. Make sure you have enough money to continue paying off any debt that you might have, health insurance, school tuition and other current and future expenses. If you come to the conclusion that you can afford paying upfront for a home, the next step would be determining how much you can realistically spend on a home. Aiming for a budget that’s smaller than what you can really afford is a good idea, because there will probably be some fees and costs that you will overlook.

Start searching for a home in the desired area or hire a real estate agent to do it for you. Hiring a real estate agent means that you will have to pay an extra commission, but it will increase your chances of finding a home quicker, and maybe even cheaper. After finding a home, it is time to make an offer. If the appraiser agrees with the selling price, make sure that you offer a deposit immediately. Also, be prepared to provide documentation that proves you can afford to buy the home in cash. Arrange a closing date and prepare a check for the full amount of the price that was agreed upon.

Advantages and Disadvantages

The largest advantage to buying a home with cash is that you won’t have to pay interest on a loan. At 4 or 5 percent, interest rates seem low, but they will become tens of thousands of dollars over time. Not paying interest can save you a lot of money that can be invested into something else. Another advantage which will save you a nice sum of money is that you won’t have to pay closing costs, like you would when taking out a mortgage loan. Application fees, mortgage insurance and other fees can cost you several thousands of dollars, even up to 4 percent of the home price. Last, but not least, paying cash for a home offers you security. If you lose your job or have other financial trouble, you won’t be in danger of losing your home.

The biggest disadvantage is that you will have to spend a large amount of money at once when buying a home in cash. That money could have been invested into something that would yield a better return. Another disadvantage is that, if you come across financial hardships in the future, it would be more expensive for you to borrow money than it would be for someone with a mortgage. A third disadvantage would be that home owners who have bought their homes with cash upfront don’t receive any tax deductions, unlike those who have bought their homes with a mortgage.

Paying cash for a home has its advantages and disadvantages, but your decision should also be largely influenced by your financial situation. Buying a home with a mortgage loan while interest rates are low might be more beneficial, but, as interest rates rise, it makes more sense to pay for your home in cash upfront.

What You Need to Know About Stated Income/Stated Asset Loans

What You Need to Know About Stated Income-Stated Asset Loans- 150x150Borrowers with good financial situations and who make all their payments on time are usually regarded as low risk borrowers and will be in good standing with their lender. This type of borrower can take out a mortgage loan without having to provide too much documentation regarding their income. Usually, the lender will trust that what the borrower declares as income is true and make a loan offer. Stated income loans are designed for those who have enough money and income to afford a mortgage, but don’t meet the conventional underwriting standards.

Normally, in order to get a mortgage loan, the borrower has to provide full documentation, which includes income proof for the previous 2 years, usually done by presenting a W-2 form or tax returns. Self-employed mortgage borrowers and people with full time jobs who have just received a large pay increase usually aren’t able to come up with these documents, but they can afford the mortgage.

Can Someone Simply Lie About Their Income?

Some lenders choose not to check the income of some borrowers, but this usually only happens for borrowers who have very good financial situations and a good relationship with the lender. Some lenders ask borrowers to allow them, by executing a Form 4506, to check their tax returns for the last 2 years through the Internal Revenue Service. Lenders don’t normally go as far as actually checking tax returns, but the fact that they can at any time should persuade the borrowers to report their income truthfully.

Even if they don’t check a borrower’s actual income, all lenders check the source of the income. They also require self-employed borrowers, as well as borrowers who work full time jobs, to be in the same business or be employees in the same field for at least two years before applying for a stated income/stated asset loan. The borrower’s income must also be close to incomes earned in the same line of work as he or she is involved in.

Things to Remember Before Considering a Stated Income/Stated Asset Loan

Stated income/stated asset loans are not for everyone, and there are a few things that you need to take into consideration before you decide to take out this type of loan. First of all, not all stated income loans are the same and have the same requirements. Requirements for this type of loan vary from lender to lender, and you might not qualify for all the offers. Second, stated income loans may cost you more than a traditional loan because they are riskier for lenders.

Another thing that you need to keep in mind is that, while stated income/stated asset loans take a shorter while to be processed, this shouldn’t be the only reason why you should choose this type of loan. Even if a conventional mortgage loan takes longer to process, it might be a better and even cheaper choice.

Stated income/stated asset loans may be a great choice for some borrowers, especially if they don’t meet the requirements for full documentation for conventional mortgage loans, but are able to easily afford a mortgage loan. All borrowers who consider taking out a stated income/stated asset loan, should first do a little research to make sure that this type of loan is their best choice, and check out other options, which may actually prove to be more beneficial.

A Clever Guide to Mortgage Loans with No Documentation Needed

A Clever Guide to Mortgage Loans with No Documentation Needed- 150x150Similar to low documentation loans, a no documentation loan is a type of mortgage loan that requires very few documents in order for the loan to be granted. You essentially just need to sign an affordability statement which states that you are aware of how much you will have to pay back and that you can afford to pay back the loan. You won’t have to provide proof of income when taking out a mortgage loan with no documentation needed.

Unlike conventional mortgage loans which require a 10 to 20 percent down payment, no documentation mortgages require a 5 to 30 percent down payment, depending on what your credit score is. Home buyers with less than perfect credit score also have the option of taking out a no documentation mortgage through the Federal Housing administration (FHA), which insures mortgage loans against default.

Because no documentation loans don’t take long to be approved since there is little that your lender has to verify, and since they require so little paperwork to prove your income, these are typically mortgage loans for self-employed or for those with bad credit history.

How Can You Qualify for a No Documentation Mortgage?

Many people believe that someone who is looking for a no documentation loan must have something to hide, but that is rarely the case. This type of loan is preferred by people who are self-employed and can’t provide the proof of income for lender requirements in order to give out a conventional loan, people who are unemployed and can’t meet the requirements for a traditional mortgage loan, and people with a poor debt to income ration, but who can afford to pay back a mortgage loan without difficulty. It is true that someone who makes money from illegal activities can take advantage of this type of loan, but it is not why this loan was designed. It is estimated that approximately 20 percent of all borrowers have chosen this type of loan instead of a conventional one.

Even though this loan is described as a no documentation loan, there are still a few documents that you will have to provide for your lender. The lender will still have to see a credit report in order to determine how big of a default risk you are. Also, the property that you wish to buy will need a home appraisal so that your lender can determine if the money that you are borrowing actually represents the value of the home.

You could obtain a mortgage loan even without those documents, but the loan will probably be much more expensive. You should also keep in mind that this type of loan is only valid for the purchase of a single family home, town house, or apartment. Commercial property and manufactured homes can’t be purchased with a no documentation loan.

Another thing to remember about no documentation loans is that they typically require a higher down payment than conventional loans, and also come with higher interest rates and closing costs. Your credit also has to be in good standing, or the loan will be much more expensive and your mortgage application can also be denied.

Mortgage loans that have no documentation requirements are a good alternative for home buyers who don’t qualify for conventional loans, or for those who wish to take out a mortgage loan without providing too much info about their income. Before deciding to go with a no documentation mortgage loan, you should do a little research and find out if you can meet the requirements of a conventional loan, which can be cheaper and provide greater benefits.

Self-Employed? Here’s How You Can Qualify for a Mortgage!

Self-Employed-Here's How You Can Qualify for a Mortgage- 150x150Being self-employed certainly has some great advantages, like not having a boss or setting your own work hours. But not being an employee also has its disadvantages, such as not having paid sick days or paid vacations. The biggest downside, though, is that buying a home is a bit more difficult. With all of the strict requirements, becoming a home owner is tough even for people with steady jobs. Not having a full-time job, a regular income and an employer’s tax form can make it even more difficult for a self-employed worker to get a mortgage loan.

However, it is not impossible. Buying a home when you are self-employed will require more documents than getting a mortgage as a full-time regular employee, and it will probably take longer, but it is doable. Most lenders will probably be worried that you won’t be able to make enough money to pay your mortgage, while others will simply not want to deal with the hassle of giving a mortgage loan to a self-employed home buyer.

Expectations When Shopping for a Mortgage

Most lenders will regard you as a high risk borrower, so you will probably have to pay a higher interest rate than someone who works for a company or an institution. Interest rates advertised by borrowers are really low, but they are normally reserved for home buyers with perfect credit scores and perfect financial situations. The rates that you, as a self-employed worker, will get will probably be much higher than the interest rates that are advertised.

Because you are not looked at as the ideal borrower, you will most likely have to shop around more until you will be able to find a lender who is willing to work with you. Also, your ability to negotiate a lower interest rate will most likely be very limited. Based on your loan-to-value ratio, you will probably have to come up with a larger down payment, as well.

Mortgage Loan Options

Lenders try to stay away from giving out risky loans in order to protect themselves, but there are a few types of mortgage loans that lenders may be willing to give to self-employed workers. One of these loans is the Stated Income/Stated Asset Mortgage loan, which is based on the amount that you declare is your income. The bank will not verify this amount, but you will be required to provide a large amount of documentation, from a list of your clients, to several IRS forms.

Another loan that lenders might give you is the No Documentation Loan, which is great for self-employed workers with low profit, or even those who don’t make any profit at all. However, you will have to pay a much higher interest rate, and probably make a larger down payment.

However, if you are able to provide your lender with enough documentation that proves your income, you can qualify for a regular mortgage loan, which has lower interest rates, and a lower down payment requirement. Traditional employees receive a W-2 form, which reports his or her income, but a self-employed person will have to provide other types of documents, such as tax returns, a business license, balance sheets or profit and loss statements.

Make Yourself Less of a Risk

If you are sure that you can afford a mortgage, and would like to encounter as less difficulty as possible when applying for a loan, you should start by making yourself less of a risk in the eyes of a lender. You should start by improving your credit score as much as possible. Besides making you qualify much easier for a mortgage loan, a perfect credit score will ensure that you receive a much better interest rate on your mortgage.

By making a larger than usual down payment, your lender will regard you as less of a risk. Also, having savings will look good in the eyes of a lender, as you will be less likely to abandon the mortgage if your business stops making a profit.

Lenders may regard you as a higher risk if you are self-employed, but the truth is that a person who is working a full job can be an even higher risk than a self-employed worker. A traditional employee loses all of his or her income when fired, while a self-employed worker probably has several clients, and the chances of losing all of them at the same time are slim. If your business is doing well and you can prove to your lender that you can make monthly payments on your mortgage, then there shouldn’t be any issues getting a mortgage loan if you are self-employed.

Tackle the Loan Closing Process with this Preparation Guide

Tackle the Loan Closing Process with this Preparation Guide-150x150The last step needed in order to become a home owner and secure a mortgage is the closing. The closing involves signing a number of documents and paying a few fees as well. This step can prove challenging and overwhelming for most people. Being prepared beforehand can make the loan closing less confusing and a much easier overall experience.

What is the Loan Closing?

When closing a loan, the ownership to a property is transferred from one individual to another, while the person who buys the property receives a mortgage loan. Loan closing is a fairly complicated process, and it involves key decisions that will save you or cost you money.

The closing takes place at the office of a closing agent with someone working for the lender or the title company. Sometimes the closing agent can be a lawyer that was hired by you or the lender. The closing agent’s job is to inform you of what documents need to be signed and collect all of the paperwork from the buyer, the seller, and the lender.

During the meeting with the closing agent, you will discuss and agree upon the terms of your mortgage, your loan will go into effect and you will receive the loan, and the ownership of the property is transferred to you. Completing all of these steps requires the reviewing and signing of several documents.

Who Attends the Loan Closing?

Depending on state law and local customs, several people will be involved in the loan closing. People who are usually involved in the sale of a property are the seller, his or her real estate agent, your real estate agent, and the closing agent, who will usually be an attorney or a closing officer who works for the lender. If you are buying a property together with a spouse or a partner, all the people whose names are on the mortgage will have to be present or have an appropriate representation. If you are buying a unit in a new development, such as an apartment complex, multiple homebuyers will be present at the closing. Sometimes the closing can be private with only you and the closing agent present.

You can also hire a real estate attorney to assist you with the closing. Some legal questions can’t be answered by the closing agent, so having a real estate attorney present is a good idea, especially if you are buying a property that is for sale by owner. Your real estate agent doesn’t receive the commission until the loan is closed, so having additional people represent you will make sure that your best interests are being protected. Hiring a real estate attorney may cost you some money, but it will help you avoid more expensive issues that could arise in the future.

What You Need to Provide

The closing agent and the lender will be responsible for getting most of the documents ready for your closing, but there are some that you will need to provide. One document that you will have to bring to the closing is your homeowner’s insurance policy and proof of payment. Many times the lender will need to take a look at your insurance policy before scheduling the closing.

Another document that you will have to bring to the closing is a check for all of the closing costs. You have the right to receive a copy of the HUD-1 Settlement Statement at least one day before the closing. All the fees that you will be required to pay should be negotiated before the closing.

Closing Costs

How much you will have to pay at closing depends on many factors, but here are some of the fees that you will need to cover before closing on the loan. You can find out from the lender how much this is going to cost you a few days before the closing.

  • Application fee. The application fee is determined when you apply for the mortgage loan, and it covers the processing of your application. This fee may include the property appraisal fee and the credit report cost.
  • Appraisal fee. Also normally charged when you apply for the mortgage loan, this fee represents the cost of an independent home appraisal.
  • Origination fee. Usually charged as a percentage of your mortgage loan, this fee covers the cost of processing your mortgage application and completing your loan.
  • Points. Points are fees that you pay to the lender in order to receive lower interest rates. Usually, a lender will offer you several mortgage loans with different interest rates. The lower the interest rates, the more you will have to pay on points. Points are also charged as a percentage of the mortgage loan. 1 point represents 1 percent of the loan value.

Documents that You Will Be Signing

During the closing process, you will have to sign several documents. Here are the most important ones:

  • HUD-1 Settlement Statement. A very important document, the HUD-1 Settlement Statement contains an itemized listing of fees charged at closing. This document will be signed by both the seller and the buyer, and it is also known as the closing statement.
  • Truth-in-Lending Statement. This paper contains the terms and conditions of your mortgage, including the APR and several other fees.
  • Mortgage note. This document is basically your promise that you will pay back the mortgage loan, repaying your debt with the lender. It also includes the penalties that the lender will charge if you fail to make your monthly mortgage payments on time.

The loan closing process may seem confusing, but it is your duty to inform yourself on all that this process entails and do your homework before buying a home. Not only will this make things easier for you when the time comes to close the loan, but it could also save you money. Seeking professional help from a real estate attorney is also a great way to make sure that your interests are protected and that you won’t have any unpleasant surprises with your mortgage loan in the future.

Documentation Details for Mortgage Loans

documentation details for mortgage loans- 150x150When a borrower approaches the refinancing or loan application process, there is a required set of documents and disclosure statements which are necessary to activate the negotiation process with the lender or broker. This initial ‘package’ will include the Truth in Lending disclosure, the Good-Faith Estimate, and Credit Report disclosure. These permit the lender to acquire the background information about the borrower, such as employment records, credit history, banking activity, income and asset verification, and so on. Once these documents have been signed or provided, the loan process can move toward qualification and subsequent loan approval.

Documents Needed for Loan Approval Process

  • Application Fee – covering the cost of appraisal and credit report requests
  • Sales Contract of the home under negotiation, signed by both Seller and Buyer
  • Social Security Numbers for each loan applicant
  • Address listings of each applicant for the previous 2 years (including landlords)
  • Income earned from any employer for the previous 2 years (name and address)
  • Copies of each W-2 forms from each employer for the previous 2 years
  • Copies of the most recent pay-stubs, including year-to-date amounts
  • Account information on existing installment, auto, student, and mortgage loans, and credit accounts (name, address, acct. number, monthly payments, balances)
  • Account information on checking and savings accounts, stocks, and bonds (name, address, account numbers and balances, and three months of deposit statements)

If the borrower has filed for bankruptcy within the previous 7 years:

  • Copies of all documentation for petition and discharges, reason for filing, and any evidence in support of excellent credit behavior since the time of discharge

If the borrower is self-employed or is compensated by commission:

  • Federal Income tax returns, including each Schedule, for the previous 2 years, and a year-to-date profit and loss statement

If the borrower owns any additional real estate:

  • Property addresses and market value assessments
  • Mortgage obligations on all property (name, address, payments and balances)
  • Federal Income tax returns, including each Schedule, for the previous 2 years
  • Copies of all active leases and rental agreements

All of this paperwork can look overwhelming, but all of it is necessary for the mortgage loan approval process. Before meeting with a lender, be sure to make a checklist of the documents you need and include these in one folder to keep everything organized. If you have what you need at the beginning of the loan process, there will be less delay and stress! Be sure to also prepare a list of the top questions for lenders.