Oh, the People You’ll Meet — While Buying a Home

 

When you’re ready to buy a house, there’s a whole cast of characters who will help you through the process. Who can you expect to meet along the way, and what do they do?

1. Real Estate Agent

This all-important person will help you find the right house and get your offer accepted. While it’s good to get recommendations from people who have bought or sold in your target neighborhood, Trulia’s real estate agent reviewscan help you select the agent who’s really best for you. Choose an agent you feel comfortable with. They should return your calls quickly because time matters in real estate deals. And never, ever stay with an agent who pressures you to spend more than you’re comfortable with or to choose a home before you’re ready.

2. Mortgage Broker or Loan Officer

You may use an independent broker who can help you procure a loan from one of several different banks, or an in-house loan officer who works for the bank that will provide your mortgage. Your best bet may be getting a loan from a bank you already have a relationship with, but make sure you choose a bank that offers the right loan product for your situation. And always shop around for competitive rates.

3. Loan Processor

Once you’ve started the application process, your mortgage broker or loan officer will hand you off to a loan processor. She’s the one who makes sure you’ve got all the documentation in order for your loan — and there can be a lot of it! Be prepared to provide evidence of your income for the past few years, as well as your current assets and debts.

4. Inspector

So, you’ve lined up financing and you’re under contract. Next step is to get the house inspected. Your real estate agent can recommend a good inspector, but you might want to check Angie’s List or even the Better Business Bureau to make sure someone is legit. The inspection is crucial, because many homes look fine to the untrained eye but have major structural problems you’ll want to know about before the sale goes through. Accompany your inspector when they go to look the house over, and ask a lot of questions. The final inspection report should be detailed and will often include pictures, but many inspectors will give you even more information if you walk through the house with them.

5. Insurance Agent

Now that you’re about to become a homeowner, you need homeowner’s insurance — a policy to protect you against the loss or damage from fire, theft, and other calamities. Start with the company who provides your auto insurance as you’ll generally get a multi-policy discount, but shop around. Some companies won’t insure certain types of homes, like buildings on steep hills, brick houses, or homes with older wiring. Find a company that will cover your new house and line up a policy before closing.

6. Title Insurance Company and Escrow Services

Title insurance protects you against problems with the way the title to the property is recorded. Escrow services handle the money when it changes hands between the buyer and the seller, while making sure that the local government gets all the necessary property transfer taxes and deed registration fees. Often, these services are provided by the same company, and the closing itself sometimes takes place at the title insurance company’s office. Your real estate agent may have a favorite company she works with all the time, but you can also request that a specific company be selected.

Repost of ~ Virginia C. McGuire/Trulia

 

To Have or Not To Have a Balance….

Credit Myth:      “My score will increase, if I pay my credit card down to a $0 balance each month.”

The problem is if you leave your credit card with no balance, you’ll have no payment history. You’ll want to leave a little bit of balance on your credit card every month (Ideal amount is 1%), to show that you can pay on time. Don’t just pay off a balance and leave it at zero balance account ongoing, because after six months it’s typically set as an inactive account, which gives you really no major positive. On the other hand, if you use the account every few months and leave a very small balance on it, then it will help you.  The way FICO looks at it, if you have no balance, they don’t know whether or not you can pay it, because you’re not getting a bill. You have no obligation to pay. What you’re advising your consumers to keep on their credit cards a very, very small balance.

Biggest Credit Myths, Mistakes, and Misconceptions

Good credit is well worth the effort it takes to both achieve and preserve it. If you have good credit, the following tips will help you keep it that way. If you are looking to improve your credit, however, now is the time to get started. Give us a call. We’ll review your credit and find out exactly where you stand. In the meantime, if you plan on entering into a loan transaction in the next 6 to 12 months, you simply cannot afford to make the following credit mistakes:

Don’t fall behind on existing accounts. This includes your mortgage and car payments. One 30-day late can cost you anywhere from 30-80 points or more depending on the other factors being reported on your credit reports.

Don’t pay off old collections or charge-offs during the loan process. Paying collections will decrease your credit score immediately due to the “date of last activity” becoming recent. If you want to pay off old accounts, do it through closing, and make sure that 1) you validate that the debt is yours, and 2) the creditor agrees to give you a letter of deletion.

Don’t close credit card accounts. If you close a credit card account, it will appear to FICO that your debt ratio has gone up. Also, closing a card will affect other factors in the score such as length of credit history. If you have to close a credit card account, do it after closing, and make sure that it is an account you’ve opened more recently. Remember, 10% of your credit score is made up of your Mix of Credit, so it is important that you have at least 1-2 major credit cards open and in good standing.

Don’t max out or overcharge your credit accounts. This is the fastest way to bring about an immediate drop of 50-100 points in your credit score. Try to keep your credit card balances below 30% of their available on your monthly statement, and especially during the loan process. If you decide to pay down balances, do it across the board. Meaning, make an extra payment on all of your cards at the same time.

Don’t consolidate your debt onto 1 or 2 credit cards. It seems like it would be the smart thing to do; however, when you consolidate all of your debt onto one card, it appears that you are maxed out on that card, and the system will penalize you as mentioned above. If you want to save money on credit card interest rates, wait until after closing.

Don’t do anything that will cause a red flag to be raised by the scoring system. This would include adding new accounts, co-signing on a loan, or changing your name or address with the bureaus. The less activity on your reports during the loan process, the better.

Don’t do it alone. If you feel that the credit challenges you’re facing are too much, or you don’t have enough time to do the work necessary to improve your own credit, don’t lose hope and give up. Give us a call. We can help. In many cases, small changes to your credit profile could yield big results that could save you thousands of dollars on your mortgage. However, if professional credit repair does become necessary, we’ll gladly provide you with a referral to an experienced professional credit repair specialist you can trust.

Stay tuned for more great credit tips!

What’s Labor Got to Do with It?

The Impact of the Job Market on the Housing Market

Being unemployed, under-employed, or afraid of losing a job is never easy. One of the first things many people do in these situations is batten down the hatches and minimize their spending. Certainly, the last thing on their minds is making a major purchase like a house. It’s just not a commitment that most people are willing to make when they lack confidence in their financial stability.

Although such decisions are made based on an individual’s job prospects, they have a ripple effect that impacts the broader economy, including the housing industry. Here are three key points that shed light on specific ways that the labor market influences the housing market.

Home Prices: A more secure employment market can help home prices stabilize, as fewer people are at risk of losing their homes to foreclosure. In addition, improvements in the labor market often open the door for more first-time homebuyers to join the ranks of homeowners. This can eventually help home prices improve.

Home Size: If you are running a business and need to hire someone, during a good healthy labor market you may need to entice your top pick. How will you do that? Perhaps by paying them a competitive salary. And when someone is paid a good salary, one of the things they often think about doing is purchasing a larger home.

Home Location: When the labor market is thriving, an employer may even have to lure in people who live outside the local area to take a job. This is one of the reasons housing markets are so localized. One state, city, or community might have a much better job market than a neighboring one. That’s why it’s very important to understand the labor
situation in your own state and city in order to really get a feel for the health of the housing market there.

The bottom line to remember in 2012 is that all real estate markets are local…and that means that there can be enormous variations across the country. In areas where employment is struggling, the housing market may continue to struggle as well. But employment is improving in many parts of the country, which also means the housing market in those areas will follow suit.

Your Mortgage Application: What You Should Know!

Lenders evaluate the following when underwriting a mortgage for approval:

1)    INCOME – The ability to repay

2)    CREDIT – The willingness to repay

3)    COLLATERAL – What’s the value and condition of the property being financed

4)    ASSETS – for down payment and reserves after closing

1 – 3 are pretty self-explanatory, assets may be the least discussed and most important factor in loan approval.

What is meant by “assets”?

1)     Monies for down payment

2)     Monies for closing costs – lender and other third-party charges – appraisal, title etc

3)     Monies for pre-paid costs – insurance, property taxes and mortgage interest due

4)     Monies for reserves –this is what’s left over in your ‘liquid’ accounts, meaning it can be w/d immediately and w/o penalty. For any unforeseen emergency, should the need arise.

Why do lenders care about “assets”?

1)     It demonstrates the borrower’s fiscal strength. The ability to save and budget is a significant indicator of future paying habits.

2)     Where did the monies come from? Savings, gift, lottery etc.  Lenders want a clear paper trail.

3)     The borrower may have a few late payments, but have excellent cash reserves. The lender will take this into consideration as a compensating factor.

Common mistakes:

Large Deposits and Cash Deposits – Where did the money come from? Was it from a loan that requires monthly payments not reflected in the debt to income ratios?

Gift monies – While acceptable, borrowers are usually required to have at least 5% of their own monies in the bank, whether they use it or not unless there is a 20% down payment. Will the borrower be able to repay the loan?

Lenders may want to know where the money came from to pay down credit cards in order to qualify.

Big Deposit or Transfer of Funds ~ What You Need to Know If You’re Buying a Home!

You’ve probably heard the saying, “When you fail to plan, you plan to fail.” That is especially true when it comes to buying a home today. Underwriters are following strict guidelines–and that means even things like bank deposits and transfers are under scrutiny.

Here’s some insight on how underwriters analyze bank statements…and what you need to know and do (or not do) during the loan process.

Today, many banks require an explanation and proof of source of funds for any large non-payroll deposits that are listed on a bank statement. What is deemed a large deposit is largely determined by the underwriter and can be as low as a few hundred dollars. The reason for the underwriter’s concern is that an applicant may be borrowing money from individuals, or accepting money from an interested party to the transaction, to help with the settlement costs.

It’s easy to see how this bank requirement can create a lot of frustration, especially for people who are used to moving money between their accounts, which many of us do today. The key thing to remember is that anyone applying for a mortgage should avoid transferring money between accounts or making large non-payroll deposits during the home buying or selling period. While that may feel like an inconvenience, the time and headache you’ll save yourself from having to account for all your deposits will be worth it.

Let me know if you have any questions at all about this or if there’s anything I can do to help you at this time!

Think Mortgage Pro’s Are Confused…Imagine Being A First Time Buyers?

IF YOU THINK MORTGAGE PROFESSIONALS ARE CONFUSED TODAY,  IMAGINE BEING A FIRST TIME HOME BUYER!

FOR SOME BUYERS, WHAT IT COMES DOWN TO IS TRUST – TRUSTING A MORTGAGE PROFESSIONAL AND TRUSTING A REALTOR.

SHE REALLY WANTS TO OWN A HOME.  A long conversation last week with a very nice woman who is in her late 40s but never owned her own home was, to say the least, insightful.  The news on TV etc is not reassuring to her.  First, she doesn’t understand the statistics published by the government.  Second, she hasn’t been able to find a mortgage professional or realtor who could explain the local real estate market to her. 

PROBLEM IS, SHE DOESN’T KNOW WHOM SHE CAN TRUST.  She’s always wanted to own a home.  That long held desire to be a home owner was evident throughout our conversation.  She never made the commitment because, as she said to me, she doesn’t understand the financing and when trying to get advice, simply became more confused.  As she described her reluctance to buy to me, I knew that speaking with 3 different loan officers or 3 REALTORS would only add to the confusion about the state of the real estate market or the availability of loan types for her financial profile. 

NO NEED TO RUSH.  I assured her that there was no need to make a quick decision.  That reassured her that I wasn’t going to push her into buying a house.  Further, since she has no knowledge about her credit, I suggested having her credit report pulled before having an agent take her on a home tour.  Her income would qualify her for a purchase price of about $350,000 but I know she’s not going to be comfortable with the mortgage payments at that price range. 

WHAT IS THE BUYER’S “COMFORT LEVEL”?  Although her income qualifies this prospective buyer for a price range of about $350,000 to $375,000, I know that a price range of $250-275,ooo is the top of her comfort level. She could probably find some nice homes in Northern Marin and Sonoma Counties in this range.  Yes, I did tell her that, in my opinion, the market is about as low as it’s going to go and, with interest rates soon to be on the rise, this is a very good time for her to buy her first home.  That is my educated opinion and I have no problem saying that to a prospective home buyer.  She agreed and said that was why she was determined to buy now more than at any time in the past.

FINANCING RESOURCES?  Since she mentioned that she is a member of a credit union, I suggested that she talk to them and see what they have to offer, but that I will have more options available to her.   She trusts me enough to let me get her pre-approved. 

IT’S ALL ABOUT TRUST.  Throughout the long conversation, several times, the lady said she just wants to work with someone she can trust.  The time spent gaining this prospective home buyer’s trust was well spent.  She has a mortgage professional she trusts and I gained a tremendous amount of insight speaking with a home buyer who has been on the fence for far too long.

A BIG “THANK YOU”!  The woman was very grateful that I took the time to help her understand financing alternatives and the home buying and home search process.  She said that this was the first time she really understood the process.

Am I Ready To Buy A Home?

Owning a home is the American dream, but understanding what it takes to become a homeowner can be overwhelming.  There are many things to consider when determining whether homeownership is right for you.

                                                                                                         
– What are the costs associated with being a homeowner?
– How do I know if I’ll be approved?
– Where do I begin the process to home ownership?
– Who do I talk to once I’m ready?

With a brand new year quickly approaching, why not make the decision to own instead of renting?

Here are 5 questions to determine if you’re ready to buy a home: 

1.  Do I have full time employment and have I been employed on a regular basis for at least the last 2 years? Can I document my income (usually pay stubs; tax returns if you’re self employed) and has my income been consistent over the last 2 years?

2.  Do I have credit cards, car payments or installment loans that have a record of being paid on time?  Has my overall credit history shown my ability to pay bills on time?

3.  Do I have few outstanding long-term debts, like car payments or installment loans?  Lenders will be looking at your monthly debt versus your income when determining pre-approval.  Having a monthly budget and understanding what monthly mortgage payment fits into your budget will make pre-approval easier when you decide to buy a home.

4.  Do I have money saved for a down payment?  Most homebuyers will be required to come up with a down payment when they’re ready to buy a home.  However, there are down payment assistance programs that are worth looking into if you’ve been unable to save.

5.  Do I have the ability to pay a mortgage every month, plus additional costs?

Once you’re ready to buy a home, pre-approval is your first step.  Call me with any questions

TIPS FOR BUYING ANOTHER HOME BEFORE YOURS GOES INTO FORECLOSURE

 If you are considering purchasing another home then letting your present home go into foreclosure here are some tips that will save you trouble later down the line as well as help the transaction run smoothly.

1. You need an excellent lender who can structure your new home loan properly; after all there will be questions by the new lender.

2. You need an excellent real estate agent who knows how to structure this deal. Your real estate agent also needs to know how to find the right home. This may seem strange but not all homes will help the transaction and some actually will hurt your chances of qualifying.

3. There are no longer 100% loans so you will need a down payment. If you don’t have a down payment there are other alternatives but again your agent must be aware of these other options and how to implement them.

4. Once your real estate agent has located a likely home you’ll have to qualify for a new mortgage, so you can’t have any mortgage lates and you’ll have to have sufficient income to qualify for your existing mortgage and the new one. This is where a savvy lender is most important.

Many people are concerned with the ramifications of the foreclosure. Can the foreclosed lender sue for the difference? Can he attach my new home? And what about the IRS? These questions are whirling around in everyone’s head as they consider this method so let me help you with the answers.

1. Can the original lender sue me for the difference between what my home is worth and what I owe on a foreclosure in California?

California is a non deficiency state which means if you are foreclosed on and the mortgage company sells using a trustee sale which is the most common in California, then the lender has no recourse after the sale. But you must have the original loan you bought your home with. This is called the Purchase Money Loan. You can have a first and a second but the second should not be a HELOC as this is considered a line of credit and is viewed differently than a mortgage.

2. Will the IRS tax me on the difference between what the home sells for and what is owed?

If you have lived in your home for two years or more and considered it your primary residence then you have no capital gains responsibility for amounts $250,000 and under for single people and $500,000 and under for married couples. If you have not lived in you home for two years yet, there are other alternatives and a tax professional should be consulted before you begin this process.

Thanks to Steve Shoen of Alain Pinel Realtors for sharing this article with my readers.

Are Loan Modifications working?

I am working with several clients who are trying to get their loan modified because they cannot qualify for conventional financing due to income, value, credit or some/all of the above.

Here’s the facts as I have learned over the last several months:

Some loan modification firms say they can get the principal balance reduced and others promise to modify loans for a large up-front fee with no guarantee. These companies are giving false promises and it’s illegal.

As of October 2009, California law does not allow up front fees for loan modification. So if a loan modification company says you have to pay a fee upfront, walk away! 

Do not get sucked into a “too good to be true” scheme out of desperation.  Here are a few things you should know:

1.  I have personally talked to many, many people who were duped by loan modification firms.  They paid thousands of dollars and did not get a modification because the lender refused.

2. I know this is going to sound frustrating because many of you have been trying to get modifications on your own, but you don’t need to pay a third party to arrange a modification or other forbearance from your mortgage lender or servicer. You can call your lender directly to ask for a change in your loan terms. 

3.  There are nonprofit housing counseling agencies that offer borrower assistance for modifications free of charge. A list of nonprofit housing counseling agencies approved by the United States Department of Housing and Urban Development (HUD) is available from your local HUD office or by visiting www.hud.gov’

4.  Lenders are not required to give you a loan modification unless you have a Fannie Mae or Freddie Mac loan and you qualify under one of the federal programs: HAMP, HARP, etc.  Find out if you have a Fannie or Freddie loan and fit the eligibility criteria at: http://www.makinghomeaffordable.gov/

5.  If you don’t have documented income, you will not get a modification.  Face facts and consider your options to avoid foreclosure.

6.  You will not get a modification if you are able to pay.  You might be eligible to reduce your interest rate with a HARP refinance if you are underwater but your 1st mortgage is no more than 125% of your home’s value.  The deadline for HARP refinance is in June 2010.

7.  Permanent modifications are rare unless you modfiy under the federal programs.  Otherwise, you may only get a temporary one – often only a few months – and sometimes for more than you can afford – then you are back to square one. 

8.  Loan modification is a complicated process and can take between 6 – 9 months to get an answer.  Attorneys are well suited to help, but will charge a fee for their efforts.  They cannot, however, guarantee results, as the lender must agree to the modification.

Thanks to Jamie Lee Moore for providing information for this blog. See her site listed to the left under Resources.