The Top 10 Tips to Help Homebuyers Thrive in Today’s Current Home Market

Tips for Buying a Home Right NowThe economy has been slowly recovering for a while now, and home prices are starting to show it. An improving national economy means more people are getting new jobs, which means that the need for homes is also increasing. Some people want to buy a home because they don’t want to throw money away by renting anymore, some are changing jobs and need to move to a different part of the country, while others have found a better job and feel the need to upgrade their home.

No matter which category you are from, the increasing home prices and the raising interest rates are probably making you want to act quickly, before prices and interest rates go even higher. Prices and interest rates are much lower than they were before the housing market crash, but analysts say that they will keep increasing, so buying a home right now might not be such a bad idea (Read: 4 Things Home Buyers Should Look Out For With Mortgages Rates on the Rise).

However, needing a home and actually being able to buy one, or buy it at a good price, are very different. Getting approved for a mortgage loan is not that easy, especially if you are also recovering financially. Your credit score, income and debt will have a large influence on whether you will be approved for a mortgage or not. Even if you get approved, but you don’t have an ideal credit score or debt-to-income ratio, you will probably have to pay a much bigger price for the home. Also, getting a mortgage involves a large financial investment, which means that you will probably have to use some or all of your savings.

Tips for Buying a Home in Today’s Home Market

Getting a good deal and making sure that you don’t end up with a mortgage that you can’t afford can be done by doing a little research, consulting a mortgage professional, and having common sense. Here are the top 10 tips for those who are planning to buy a home in today’s home market. For even more reasons and tips see this.

  1. Figure out what you can afford. Put together a financial plan, which will help you determine how much you can afford. Home prices are still fairly low, but that doesn’t mean that you can go ahead and buy any home just because it’s cheaper than it was in the past. Having a mortgage that you can barely afford will cause problems in many aspects of your family’s life, and can result in losing the house. If you think you can’t manage setting up a financial plan, you can find a consultant who will work with you to determine how much you can afford to spend on a home (Read: Most Affordable Housing Markets in the US 2013).
  2. Start saving for the down payment. On a traditional mortgage, the required down payment is 10 to 20 percent. Even 10 percent can mean a large amount of money if the property that you plan on buying is expensive. Also, in order to avoid paying for Private Mortgage Insurance, you should aim to make a 20 percent down payment. By putting more money down, you also have the chance of receiving a better interest rate, which will help you save even more. If you can’t afford to make a 20 percent down payment, saving for it before you start looking for a home is a great idea (Read: Making a Larger Down Payment: Is it Worth it?).
  3. Try to improve your credit score. You need a good credit score to qualify for a mortgage, so anything less than what is considered a good credit score will result in rejection. But even if your credit score is in a “good” range, having a higher credit score will allow you to qualify for more advantageous rates, so you should do everything you can to increase it. Start by taking out a copy of your credit report, which you can get for free once per year, and look for any mistakes. These mistakes should be reported to the credit agency and corrected.
  4. Avoid making new debt. New debt can decrease your credit score, making it harder for you to qualify for a good interest rate. Also, lenders don’t like giving out large loans to someone who seems that is living on credit. You might think that opening a new credit card account will help your credit score, but it is actually the opposite. However, you should keep and use your old credit card accounts.
  5. Pay off some of your debt. Lenders will take your debt-to-income ratio into consideration when deciding on whether to give you the mortgage loan or not. Paying off some of your debt will help your ration, increasing your chances of being approved. Of course, to pay off some of the debt, you will probably have to use some of your savings, making it difficult for you to raise the 20 percent needed as a down payment.
  6. Get professional help. Hiring someone to work out a budget for you will help you figure out how much you can afford and save you a world of trouble in the future. After figuring out a price range for your new home, you should consult a real estate agent to help you find a home. Not only will a real estate do things quicker, but he or she also has access to more home listings, which will increase your options.
  7. Get pre-qualified and pre-approved for a mortgage loan. Getting pre-qualified for a mortgage loan is relatively easy. All you need to do is provide the lender with some info about your financial situation. Unfortunately, being pre-qualified for a mortgage means very little when the time to buy a home comes. Being pre-approved, on the other hand, is very important because things will move much quicker once you find a home that you want to purchase.
  8. Hire a home inspector. You might think that you have found your dream home, but unless you hire a professional to carefully inspect the property, you might have to pay for a new roof or plumbing system in only a few years. This is especially important if you are buying a distressed property. Hiring a home inspector will add to the cost of buying a home, but it’s probably the best few hundred dollars that you will ever spend. To read more about the reliability of a home inspector click here.
  9. Hire a real estate attorney. Ensuring that you understand all the terms and conditions in the contract, and what is included in the purchase price means a lot when making a home purchase. This is one of the largest purchases you will ever make, so even if your lender has an attorney present at closing, hiring your own will make sure that your interests are represented during the whole process.
  10. Start planning early and don’t be in a hurry to make a purchase. Because buying a home involves such a large initial investment, you shouldn’t rush into buying a home, even if prices are rising. Only make a home purchase after you have set a budget, the home has been thoroughly inspected, and you are sure that you can qualify for a good interest rate. Making a quick home purchase might work for seasoned investors, but a simple home buyer should take more time before making the decision to buy a home (Read: Renting vs. Owning: Which is Best for You?).

Buying a home in today’s home market requires you to act more quickly, but older home buying rules still apply, especially because you can still find many distressed properties in certain areas of the country at better prices. Making a home purchase can be a great experience if you take the time to set your budget up, do the research and make sure that you qualify.

Are You Applying for a Mortgage? These Things Might Ruin Your Chances of Approval!

Are You Applying for a Mortgage-These Things Might Ruin Your Chances of Approval- 150x150The initial cost of purchasing a house or an apartment can be very high. A 10 to 20 percent down payment plus several closing costs means that you will have to pay thousands of dollars before you can even move into your new home. But having this kind of money available won’t guarantee that your mortgage application will be approved. Lenders want to protect themselves from default, so they will take the necessary precautions.

This means that they will take a close look at your financial situation, which includes your credit score, income and savings. They will also look into things like recent debt, your marital status and your job situation. Getting approved for a mortgage can be pretty difficult if your lender encounters red flags when checking out your finances and parts of your personal life. This article will take a look at what lenders may consider reasons for not approving your mortgage loan and what you can do to get out of that situation.

Financial Situation

First of all, lenders look at your credit score. People usually think that credit scores only affect the interest rate that they will receive or the down payment that they will have to make. Low credit scores can also ruin your chances of getting approved for a mortgage. Lenders use credit scores to determine how big of a default risk you are, so a low credit score will probably result in being denied for a mortgage loan. Best case scenario, they are willing to give you a mortgage loan, but at much higher interest rates, and with the requirement that you make a down payment that is larger than 20 percent.

Another aspect of your financial life that lenders look at is your income. Lender requirements usually state that your housing expenses not exceed 28 percent of your gross monthly income. The good news is, besides your salary, you can count other sources of money as income. Bonuses and commissions, social security or veteran’s benefits, child support, or workman’s compensation are all considered income and can help you get a loan if your monthly salary is too low.

Debt

Lenders will want to know how much debt you have, and how it relates to your income. Generally, lenders require that your housing debt plus other debt not exceed 43 percent of your income. New debt is especially damaging to your chances of being approved for a mortgage, because the lender will consider that you won’t be able to pay off the debt without encountering problems along the way. Making a major purchase by taking out a loan or co-signing for a family member before applying for a mortgage loan should be avoided in order to increase your chances of approval.

Divorce

Applying for a mortgage loan while you are divorcing your spouse can make things difficult, or even result in the rejection of the mortgage application. Lenders want to avoid being caught in the middle of a battle over marital property, or giving out a loan to a family where one of the members will stop paying for it. Not mentioning to your lender that you are currently dealing with divorce is a bad idea, as they will most likely find out on their own and reject your application.

Job Situation

Borrowers who have kept a steady job for at least two years before applying for a mortgage are seen as having a smaller risk of default by lenders. The risk exists, but recently changing jobs doesn’t mean that your application will be rejected. Finding a new job in the same field as your old one, but for a higher salary won’t cause you any problems when applying for a mortgage loan. If you plan on switching jobs, try to wait until your mortgage loan application is approved. Also, if you are between jobs, you will probably have to find a job and keep it for at least two years before a lender will consider granting you a mortgage loan.

Lawsuits

Being sued or even suing someone can interfere with being approved for a mortgage loan. If you lose, you will either have to pay a settlement or have to pay some large attorney fees, making you appear unable to pay your mortgage in the eyes of a lender. Just like when divorcing, you should be truthful when the lender asks you if you are involved in any lawsuits.

There are plenty of things that can ruin your chances of being approved for a mortgage loan, but, with the proper research and knowledge, you will be able to analyze all these problems and resolve them. Even if it takes a couple of years, you should start taking care of anything that might interfere with your loan application approval.

 

 

 

Mortgage Myths Finally Explained

Mortgage Myths Finally Explained-150x150Before buying a home, most people go through the same process, which mostly involves researching for lots of information. While going through mortgage loan options, pros and cons of each type of loan, and using mortgage calculators, you may come across on some information that has very little truth to it. Mortgage myths are very common, especially online, where anyone can post information about buying a home. While some of these myths are harmless and you will probably find out the truth before buying a home, there are others which can potentially cause some serious damage, and interfere with your ability to buy a home. In this article, we will explain some of the most common and dangerous myths, to ensure that you make the best decisions when shopping for a mortgage loan.

Top 5 Mortgage Myths

  1. The best mortgage is the one with the lowest interest. Looking only at the interest rate when comparing mortgage loans is a huge, but common, mistake. Several other important factors should be researched before deciding on a mortgage loan. Things like the overall cost of the loan, the down payment required and the closing fees are also important, if not even more important than the interest rate. There are also the adjustable-rate mortgages which offer a low interest rate in the beginning, but which can increase significantly over the repayment period.
  2. Pre-approved for a mortgage loan is like already being approved. The mortgage loan pre-approval process is designed to take a simple look at your financial situation, and give you an idea about how much you can borrow. Once you find a suitable home, you will have to provide more important information about your finances, such as employment information, to your lender. Sometimes, this additional information can affect the amount of money that your lender will let you borrow, or even cause your lender to refuse giving you a mortgage loan.
  3. 30-year mortgages are your best choice. 30-year mortgage loans are, indeed, very popular, and probably the most common choice among home buyers, but that doesn’t mean that this type of loan is the best for you. Depending on your situation, a 15-year loan, for example, might be a better choice, even if the payment will be higher. Paying off a loan in half the time, means that you will save significantly on interest, which will make the overall cost of the loan lower, and save you money.
  4. Fixed-rate mortgages are your best choice. Fixed-rate mortgages may be more popular, but you should decide on which loan you want to go with, based on your situation. For example, many home buyers don’t live in the home that they bought for very long, which makes adjustable-rate mortgages a better option for them. Adjustable-rate mortgages start out with a fixed interest rate, which lasts for a predetermined period, and it’s generally lower than the interest rate on a fixed-rate mortgage loan. By getting a mortgage loan with an adjustable-rate, you will be saving money over a loan with a fixed-rate, if you don’t plan on living in the home for a long while.
  5. You won’t be granted a mortgage loan if your credit score is low. Credit score has a large influence on whether you receive a mortgage loan or not, the loan type, loan amount, interest rate, and the down payment. But having bad credit doesn’t necessarily mean that you will be refused when you apply for a mortgage loan. You lender will see you as a high default risk, and your loan will probably not have the best terms, such as the interest rate, and the required down payment, but your lender will be willing to help you buy a home. After all, they have only to gain if they bring in a new customer.

You’ll be encountering mortgage myths at every step when researching mortgages and the home buying process. It is up to you to tell apart myth from reality. Knowing the dissimilarity between these two can make the difference between getting a mortgage loan that you are comfortable with, or one that will cause you nothing but issues down the line. Getting the best deal is your main goal when shopping for a mortgage, so being prepared will help you avoid falling into some expensive traps, and even ruin the chances of becoming a home buyer.

10 Ways to Improve Your Chances as a Buyer in a Sellers’ Market

Top 10 Tips for Home Buyers in a Sellers' Market- 150x150Prices and current mortgage rates are very low right now, and it may seem like the perfect time to buy a home, but things are not as good as they seem in the real estate world. Inventories of homes for sale are extremely low and home builders are just starting to recover from the recession. Homes listed for sale receive a lot of offers, which makes it very stressful for all home buyers.

Trying to buy a home in a seller’s market is a frustrating process that will usually result in you not being able to buy the first home that you want. When demand for homes exceeds supply, sellers will receive multiple offers on their homes, which will make the home prices go up. With a little research and preparation, your chances of succeeding in a sellers’ market will be greatly improved. Here are 10 tips that will turn the odds in your favor:

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Tips for Home Buyers

1. Find a Good Real Estate Agent. In a sellers’ market, sellers receive multiple offers on their home, so things tend to move faster than usual. You will need to be quick and have knowledge of the whole process. A very good real estate agent will greatly increase the chances of you getting the home that you are looking for. He or she has to know the area, have good relationships with many other real estate agents, and give you the best advice when it comes to making an offer on a home.

2. Know the Process. Do some research on the whole home buying process. From knowing what to look at when considering a house or apartment, to knowing the steps involved in buying a home, this process can be overwhelming. You must also be aware of what you are looking for and what the home prices are in your area. Having a good real estate agent is enough for most people, but knowing a few things about what buying a home involves can help you act quickly when needed, and avoid a lot of headaches.

3. Get Pre-Approved with a Good Lender. Getting pre-approved for mortgage loans will involve some running around in order to get the paperwork ready, but it is an important step in buying a home, as most sellers will not even consider your offer otherwise. Preparing all the paperwork before even starting looking at houses is always a great idea which will save you a lot of time, and give you the advantage of acting quicker when you find a home.

4. Act Quickly. After finding a home that you like, don’t wait too long before making an offer. The more you wait, the bigger the chances are that more people will become interested in that home, and your competition will increase to a point where someone else will make a more attractive offer.

5. Pay the Closing Costs. Because it’s a sellers’ market, the seller will most likely have a bunch of offers for his or her home. Asking the seller for closing costs credit will put you at a disadvantage, as there might be other buyers who didn’t ask for credit. For example, if the sales price of a house is $450,000 and you need a $15,000 credit for closing costs means that the seller will only get $435,000 for the house. Even offering him $465,000 and asking for closing costs credit will put you at a disadvantage, because the seller will have to pay more in commission, tax and title fees.

6. Expect to Pay Market Value. Adjust your offer according to sales prices in the area that you are interested in. If your initial bid is too low, you may ruin any chance of getting that house. In a sellers’ market prices usually keep going up and you need to adapt before making an offer.

7. Good Faith Deposit. While a good faith deposit, or an earnest money deposit, doesn’t normally have a set requirement, sellers in a sellers’ market expect buyers to show a little more “good faith.” Normally, good faith deposits are between 1 and 3 percent of the sales price.

8. Be Flexible. If you can offer a larger down payment or if you can move in any time after you buy the home, then make sure you mention it. Also, if you plan on fixing and improving things in your new home, then it’s generally best not to be too picky after you inspect the house or apartment.

9. Write a Personal Note to the Seller. A personal letter that includes a little about yourself and why you like the seller’s home can make you stand out from other interested parties, or it can make a big difference if the seller has another offer similar to yours.

10. Don’t Give Up. In a sellers’ market, the chances that some of your offers will be rejected are very big. Try not to take it personally and, more importantly, don’t give up. While it is disappointing, keep in mind that the seller is only making choices based on what is best for him or her.

Buying a home in a sellers’ market, when prices are high and your offers keep getting rejected, can prove to be a challenge, but doing a little research on the subject can go a long way and save you a lot of trouble.

Pre-Approval – The First Step in Getting a Mortgage

pre approval- 150x150With lending institutions turning down 50% of all potential home buyers due to unsatisfactory credit scores, insufficient incomes, and high debt obligations, it is a good idea for borrowers to seek pre-approval to make qualifying more favorable. Getting pre-approved is the best way to know where a borrower stands in the loan qualification process. A preliminary lender can evaluate creditworthiness by requesting income, savings, debt obligations, credit reports, and credit ratings to be followed up by the lender’s appraisal regarding approval status. If qualifications are met, the amount considered for funding is also offered. Loan pre-approval will get you one step closer to being a home owner!

Steps to Take When Seeking Loan Pre-Approval

Access and Repair the Credit Reports – Evaluate the reports from each of the three credit bureaus for accuracy, checking every detail and entry for verification and correctness. Take any necessary steps to correct any mistakes affecting a lender’s decision. Take sufficient time to accomplish this important step before approaching any lender to put the credit status in the most positive framework.

Gather All Required Documentation – Along with the pre-approval or loan application, there will be numerous documents required for inspection by the lender, including proof of current and past employment via pay-stubs, existing loan documentation, credit card bills, banking statements, social security numbers, and telephone and email contact addresses. In addition, there will be requests for verification of current residency as well as a list of previous addresses and length of time lived in those locations. On top of this will be questions regarding the number of dependents, annual income, and a list of all assets including property owned, checking and savings accounts, as well as any stocks, bonds, and retirement accounts.

The pre-approval process can take anywhere from one to two weeks for complete evaluation and response from the lender. Naturally, depending upon how complete the documentation was provided, and how complex the finances, determines the response time. In addition, if the loan pre-approval is granted, it will have a 30 – 90 day time limit stipulation attached to the lending offer.

 

The Benefits of Loan Pre-Approval

Loan PreapprovalMost lenders and real estate experts often suggest that before a prospective home buyer even begins the search for the right home it is important to submit applications for a mortgage before anything else. This advice goes beyond the pre-qualified stage, and provides the more serious home-hunter with a few significant advantages. Once they have a pre-approval letter in hand, borrowers can really get down to business.

Saving Time and Money

When a borrower is pre-approved, real estate agents can direct listings of potential purchase options specifically geared toward the pricing range of the loan pre-approval status. This saves considerable time and trouble for the borrower, having only to view their options that fit into their budget, instead of those that fall outside the range of requirements.

Focusing on the Right Options

With a short-list of home buying options that are most favorable to the borrower’s cost parameters, more time and energy can be applied to the more intrinsic details of the home purchase. This means better investigation of local neighborhoods, schools, and services, along with the physical necessities like adequate square footage, appliance upgrades, or remodeling needs.

Better Bargaining Influence

Because the borrower holds that letter of pre-approval, more sellers will be willing to accept an offer to purchase, oftentimes even if the purchase price is lower than what the seller is asking. Knowing that the pre-approved offer can move quickly into a pending sale status, and taken off the market, encourages most sellers to readily accept a pre-approved buyer’s offer with a greater amount of confidence.

Quicker Closing Process

mortgage-loan-processingPre-approval status dramatically reduces the whole mortgage processing agenda, simply because the application procedure has already been taken care of. If it happens the seller requires immediate decisions to be made based on their needs, and has multiple offers on the table, the pre-approved buyer will more than likely tip the scales in their favor due to expediency. Even a standard month-long closing schedule can be reduced to two or three weeks, giving the seller further incentive to close the deal.

Prequalified or Preapproved?

get-prequalified-for-a-mortgageWhen home buyers or mortgage loan hunters set out to initiate the borrowing procedures to accomplish this task, they invariably try to arm themselves with a bit of negotiating advantage by getting a pre-determined evaluation on their chances. Usually they have preconceived ideas regarding the term ‘prequalified’ and ‘preapproved’ when presenting their credentials to prospective sellers and real estate agents. In the home-buying and mortgage lending world, these terms are quite different.

Prequalification Status

This classification refers to the estimated amount of a mortgage a lender would offer after performing a preliminary investigation regarding a borrower’s current credit status, as well as the overall asset and liability figures presented for evaluation. This information is unverified at this stage, and yields only an estimate of the funding available until further inquiries can be performed. This preliminary status does not indicate a predetermined or ‘approved’ line of credit has been offered by the lender. Prequalification is a term used to describe what a potential lender might approve for the mortgage loan, and is only based on the validity of the unverified information provided by the borrower. It is a basis for the borrower to begin shopping for a home in the general framework of affordability.

Preapproval Status

This classification describes an evaluation that is further along in the loan acquisition process, though it doesn’t represent the lender’s complete and documented commitment toward a borrower’s final approval for the loan. Once a full credit evaluation is completed after acquiring the necessary reports from the credit bureaus will the lender finally commit to providing a mortgage estimate in writing. In recent years, there has been far more scrutiny directed toward complete verification of the stated asset and income figures a borrower provides before a ‘preapproval’ status will have much credibility. Therefore, until a complete application process has been initiated, a lender is not genuinely bound by the preapproval notification to actually honor any real terms in the preliminary agreement. Not until an application is officially filed will a prospective lender get serious about investigating a borrower’s true financial integrity.