Photo by todd kent on Unsplash
IMPROVE YOUR CHANCES
With inventory diminishing daily and multiple offers being extremely common, it is of great importance that you position yourself to have the "Best Chance" to get your offer accepted. You enhance your chance of getting the home of your choice by doing the following:
Get pre-approved for the purchase:
This takes very little time and is of great value. At this time, identify the price range for which you qualify and which fits your lifestyle.
Submit a strong competitive offer:
Submit the offer as if there will be multiple offers.
Include substantial earnest money deposit:
Acceptance of an offer is sometimes determined by the amount of the deposit. A larger amount may signify a bigger commitment to the seller.
Minimize or eliminate contingencies:
The fewer contingencies, the stronger the offer.
Make a buyer profile available:
Time on the job, flexibility, reason for purchasing seller's home, etc.
Be prepared to preview a new property quickly:
Homes sell sometimes in hours. Be prepared to make decisions quickly and be accessible to change the terms instantly.
Buyer and agent to have instant communication access:
Let us maintain instant access to each other via office phone, voice mail, fax, pager or cellular phone.
MORTGAGE APPLICATION CHECKLIST
- Copy of your Purchase & Sale Agreement.
- Your present mortgage information.
- Two year history of employment and verification of all income sources.
- If self-employed, copies of past two years Federal Income Tax Returns.
- Information about your checking, savings and credit card accounts.
- Name, account number and outstanding balance of each of your debts.
- Application deposits.
- Information about any assets.
- Information regarding any other assets that will be used as funds to close.
- If FHA - Copy of Social Security card and photo ID.
- If VA - Certificate of Eligibility or DD214.
- If Employee Relocation Client - include relocation information and copy of offer, promissory note and copy of check on bridge loan.
QUESTIONS FOR YOUR LENDER
- Are both fixed-rate and adjustable mortgage loans available?
- What is the interest rate?
- How long can I "lock-in" the financing at the current interest rate?
- Is a float down lock available in case rates drop after I have locked in?
- What are the other fees a lender may charge me in conjunction with my loan?
- Are funds for a second mortgage available?
- On adjustable loans:
- How often will the interest rate be adjusted?
- Is there a maximum limit on each rate change?
- How often will the monthly payment be adjusted?
- Is there a ceiling on payment adjustments?
- Can the term of the loan be extended?
- What is the maximum rate that can be charged over the life of the loan?
- Is there any potential for negative amortization?
- Is there a pre-payment penalty clause? This involves extra charges for paying off the loan before maturity. About 80% of all loans in the United States are paid off early.
- What is the "grace" period? How late can a monthly payment be made before a late charge is assessed? What will happen if a payment is missed?
- If you sell your house, will the new buyer (if he/she qualifies) be able to assume your mortgage at the same interest rate?
- Do you have to pay "points" to get your new mortgage? Usually lenders charge points for the cost of giving you a mortgage loan. A "point" is 1% of the loan.
- Will the lender require mortgage insurance?
- Is the loan serviced locally or is the servicing sold?
- Ask for a written "good faith deposit".
Fixed Rate Mortgage
The interest rate stays the same throughout the term of the loan - usually 15 or 30 years - so the principal interest portion of your payment remains the same. Payments are stable but initial rates tend to be higher than adjustable rate loans and often cannot be assumed by a subsequent buyer.
This is a loan which must be paid off after a certain period. The advantage they offer is an interest rate that is lower than a mortgage that is made for 30 years.
Adjustable-Rate Mortgage (ARM)
The interest rate is linked to a financial index, such as a Treasury security or a cost of funds - so your monthly payments can vary up or down over the life of the loan - usually 25 to 30 years. Interest rates can change monthly, annually, or every 3 or 5 years. Some ARMs have a cap on the interest rate increase, to protect the borrower. Other terms relating to adjustable-rate mortgages:
Adjustment period: The length of time between interest rate changes. Example: one year ARM-interest changes annually. Cap: The limit on how much an interest rate or monthly payment can change at each adjustment or over the life of the loan. Conversion clause: A provision in some loans that enables you to change an ARM to a fixed rate loan, usually after the first adjustment period. This may require additional fees. Index: A measure of interest rate changes used to determine changes in the loan's interest rate over the term of the loan. Margin: The number of percentage points a lender adds to the index rate to calculate the ARM's interest rate at each adjustment.
The VA does not lend money, it guarantees a portion of the loan so that lenders who originate the loan feel comfortable with their risk. Qualified veterans can obtain loans up to $203,000 with no down payment. VA-guaranteed loans can be combined with second mortgages and are assumable upon qualifying by any future buyer.
FHA does not lend money or make a loan; rather, it insures loans. The down payment can be as low as 2.25%. Discount points may be paid by either buyer or seller. FHA charges a 2.25% up front Mortgage Insurance Premium (or as little as 2% for a first time home buyer) that can be financed in the mortgage amount or paid in cash (no premium is required for condominiums). The borrower must also pay an annual Mortgage Insurance Premium or .5% which is collected monthly.
Seller Assisted Second Mortgage
The seller of the house lends the buyer enough to make up the difference between the purchase price and the down payment plus first-mortgage balance (a commercial lender may also make this kind of loan). The terms including the interest rate, are based on buyer/seller agreement. It is often a short-term (5 to 15 year) loan; sometimes "interest only" payments until the term date when the balance is due in full. A buyer can then refinance the home.
Buyer "takes over" or assumes the mortgage obligation of the seller (with concurrence of the lender). The interest rate doesn't change and is sometimes lower than current rates. Often the loan fees are less as well.
HOME BUYERS GLOSSARY
Agent- A person acting on behalf of another, called the principal. Appraisal- An expert judgment or estimate of the quality or value of real estate as of a given date.
Assessed Value- The valuation placed upon property by a public tax assessor as the basis for taxes.
Bill of Sale- An instrument which transfers title to personal property (chattels); a "Deed" transfers real property.
CC&R's: Covenants, conditions and restrictions- A document that controls the use, requirements and restrictions of a property.
Certificate of Reasonable Value (CRV)- A document that establishes the maximum value and loan amount for a VA guaranteed mortgage.
Certificate of Title- A document signed by a title examiner or attorney stating that the seller has a good marketable and insurable title.
Closing Statement (Settlement)- The computation of financial adjustments between buyer and seller as of the day of closing a sale to determine the net amount of money which buyer must pay to seller to complete purchase of the real estate and seller's net proceeds. Also, "settlement sheets," "HUD-1."
Commission- Payment to a real estate broker for services performed.
Condominium- A form of real estate ownership where the owner receives title to a particular unit and has a proportionate interest in certain common areas. The unit itself is generally a separately owned space whose interior surfaces (walls, floors and ceilings) serve as its boundaries.
Contingency- A condition that must be satisfied before a contract is binding. For instance, a sales agreement may be contingent upon the buyer obtaining financing.
Deed- A formal written instrument by which title to real property is transferred from one owner to another. Also, "conveyance".
Deed of Trust- Like a mortgage, a security instrument whereby real property is given as security for a debt. However, in a deed of trust there are three parties to the instrument; the borrower, the trustee, and the lender (or beneficiary).
Due-On-Sale Clause- An acceleration clause that requires full payment of a mortgage or deed of trust when the secured property changes ownership.
Earnest Money- The portion of the down payment delivered to the seller or escrow agent by the purchaser with a written offer as evidence of good faith.
Equity- The interest or value which owner has in real estate over and above the debts against it. (Sales Price - Mortgage Balance - Equity).
Escrow- A procedure in which a third party acts as a stakeholder for both the buyer and the seller, carrying out both parties' instructions and assumes responsibility for handling all of the paperwork and distribution of funds.
Federal National Mortgage Association (FNMA)- Popularly known as Fannie Mae. A privately owned corporation created by Congress to support the secondary mortgage market. It purchases and sells residential mortgages insured by FHA or guaranteed by the VA, as well as conventional home mortgages.
Fee Simple- An estate in which the owner has unrestricted power to dispose of the property as he wishes, including leaving by will or inheritance. It is the greatest interest a person can have in real estate.
Fixture- What was formerly personal property which is now permanently attached to real property and goes with the property when it is sold.
Graduated Payment Mortgage- A residential mortgage with monthly payments that start at a low level and increase at a predetermined rate.
Hazard Insurance- Protects against damages caused to property by fire, windstorms, and other common hazards.
Home Inspection Report- A qualified inspector's report on a property's overall condition. The report usuallyincludes an evaluation of both the structure and mechanical systems.
Home Warranty Plan- Protection against failure of mechanical systems within the property. Usually includes plumbing, electrical, heating systems and installed appliances.
Joint Tenancy- An equal undivided ownership of property by two or more persons. Upon the death of any owner, the survivors take the decedent's interest in the property.
Lien- A legal hold or claim on property as security for a debt or charge.
Listing Contract- Between a home owner (as principal) and a licensed real estate broker (as agent) by which the broker is employed to market the real estate within a given time for which service the owner agrees to pay a commission. Also, "listing agreement".
Loan Commitment- A written promise to make a loan for a specified amount on specified terms.
Loan-To-Value Ratio- The relationship between the amount of the mortgage and the appraised value of the property, expressed as a percentage of the appraised value.
Market Value- The highest price which a buyer, ready, willing and able but not compelled to buy, would pay, and the lowest price a seller, ready, willing and able but, not compelled to sell, would accept. Basis for "listing price', or "asking price".
Mortgage- A lien or claim against real property given by the buyer to the lender as security for money borrowed.
Mortgage Life Insurance- A type of term life insurance often bought by mortgagors. The coverage decreases as the mortgage balance declines. If the borrower dies while the policy is in force, the debt is automatically covered by insurance proceeds.
Mortgage Note- A written agreement to repay a loan. The agreement is secured by a mortgage, serves as proof of an indebtedness, and states the manner in which it shall be paid. Also, "deed of trust note."
Negative Amortization- Negative amortization occurs when monthly payments fail to cover the interest cost. The interest that isn't covered is added to the unpaid principal balance, which means that even after several payments you could owe more than you did at the beginning of the loan. Negative amortization can occur when an ARM has a payment cap that results in monthly payments that aren't high enough to cover the interest.
Origination Fee- A fee or charge for work involved in evaluating, preparing, and submitting a proposed mortgage loan. The fee is limited to 1 percent of FHA and VA loans.
PITI- Principal, interest, taxes and insurance.
Planned Unit Development (PUD)- A zoning designation for property developed at the same or slightly greater overall density than conventional development, sometimes with improvements clustered between open, common areas. Uses may be residential, commercial or industrial.
Point- An amount equal to 1 percent of the principal amount of the investment or note. The lender assesses loan discount points at closing to increase the yield on the mortgage to a position competitive with other types of investments.
Prepayment Penalty- A fee charged to a mortgagor who pays a loan before it is due. Not allowed for FHA or VA loans.
Principal- This word has several meanings:
- a) to denote the most important;
- b) a capital sum lent on interest;
- c) one who appoints an agent to act on their behalf;
- d) either party to a contract.
Private Mortgage Insurance (PMI)- Insurance written by a private company protecting the lender against loss if the borrower defaults on the mortgage.
Prorate- To allocate between seller and buyer their proportionate share of an obligation paid or due. For example a prorate on real property taxes, fire insurance, or condominium fee.
Purchase Agreement- A written document in which the purchaser agrees to buy certain real estate and the seller agrees to sell under stated terms and conditions. Also called a sales contract, earnest money contract, or agreement for sale.
Realtor- A real estate broker or associate active in a local real estate board affiliated with the National Association of RealtorsŪ.
Regulation Z- The set of rules governing consumer lending issued by the Federal Reserve Board of Governors in accordance with the Consumer Protection act.
Survey- A map or plat made by a licensed surveyor showing the results of measuring the land with its elevations, improvements, boundaries, and its relationship to surrounding tracts of land. A survey is often required by the lender to assure a building is actually sited on the land according to its legal description.
Tenancy in Common- A type of joint ownership of property by two or more persons with no right of survivorship.
Title Insurance- Protects lenders and home owners against loss of their interest in property due to legal defects in title.
Title Search or Examination- A check of the title records, generally at the local courthouse, to make sure the buyer is purchasing a house from the legal owner and there are no liens, overdue special assessments, or other claims.
Transfer tax- State tax, local tax (where applicable) and tax stamps (in some areas) required by law when title passes from one owner to another.
TOP BUYER BLUNDERS
Take a step back...don't complicate the purchase of your new home. Think realistically and use the following mistakes below as case studies before you purchase your new home. Listed below are some common mistakes and how to avoid them.
"This house is PERFECT for us!" Umm, tip number one...never say this. Don't divulge your love for a particular house or how high you are willing to go for it. A buyer agent can prevent this from occurring.
Overpaying. To determine what a house is worth, ask for a list of comparable homes sold. This will contain information on similar homes in your area and what they sold for. Make sure they are recent. The national home price index can also be useful.
Never speak directly with a seller or a seller's agent. Your agent (buyer's agent) will confer and counsel with the seller's agent to assure your interests are covered.
Not hiring an inspector. You have the option of making any offer contingent on a home inspection. Make sure you accompany the inspector on his tour.
Omitting a contingency for mortgage approval. This allows you to void the contract if you cannot find acceptable financing. The terms you desire should be expressly spelled out.
Not completing a final walkthrough to visually inspect the property directly before closing.
Not buying owners insurance. The insurance lenders require you to purchase only covers their interests. A separate policy that protects you may be purchased, at a reduced rate, at closing.
Letting a seller stay in the house after closing, or a buyer move into the house before closing. If you do, one of a host of problems can develop including the fact that the sellers then become a tenant, with all tenant rights.
Not itemizing what conveys. Completing a list of all items, including personal, which will be included in the transaction, is simply prudent.
Not selecting a timed deadline on your offer. Without this, the opposing party can shop for a better deal, without worrying about loosing you.