Let’s start by explaining what a “closing” is.  When you buy a home, you have to pay for it.  When you sell a home, you have to transfer the ownership to the new Buyer.  The “closing” is when both of these things happen, usually at the same time.  The Buyer pays for the home by signing all the mortgage paperwork.  The mortgage bank then gives the Buyer the money to pay for the home.  The Seller signs title transfer paperwork which puts the house in the new Buyer’s name.  It takes about an hour.

As a Home Buyer, in addition to paying money for the home itself, you will have other fees to pay.  These fees are called Buyer Closing Costs.  These fees fall into four categories.

1.  There are loan related fees.  You will pay your mortgage broker a 1% origination fee (1% of the mortgage amount) and some other fees.  The other fees shouldn’t exceed $500-700.
2. There are title insurance and closer fees.  Your bank requires this insurance to make sure the title of the home is “clear” and no one else has a claim on the home.  The closer, working for the title insurance company, is the person who prepares and processes all the paperwork at closing.
3. There are miscellaneous taxes and fees.  The biggest tax is the mortgage tax which is a state tax.  This is $3.40 per $1000 of mortgage.  There are some courier fees, conservation fees etc.  These are all relatively small.
4. Finally, there are prepaid expenses.  Your bank will require you to buy and prepay for a hazard insurance policy for the first year on the home; and also pay another 2-3 months of hazard insurance premium  into a special savings account called an escrow account.  It will also require you to prepay 6-8 months of property taxes into this account.  Also you will be pre-paying the mortgage interest on the money you are borrowing through to the end of the month in which you close.  The bank uses the money in your escrow account to pay your property taxes and insurance policy when they come due.

These expenses total roughly 3-3.5% of the cost of the home.  As we have discussed in another blog on this website, you can usually negotiate with the Seller to pay these costs on your behalf.  However, these fees are a part of the usual and customary costs of buying a home.  Be sure to include them in your budgeting for a new home.

For more detailed information, come to our FREE NO OBLIGATION FIRST TIME HOMEBUYER class or wait for future blogs.  “Simple answers to home ownership questions”.

The mind boggles!!  $8000 in free cash, very few strings attached, from my favorite uncle, Uncle Sam.  I’m sure you’ve already spent this money in your mind but here area a few more suggestions related to home ownership.

Let’s say you are short of cash for the down payment but you have a blood relative who would “gift” you the money if you promised to repay them some time in the future.  If you were buying a home on an FHA mortgage, you would need 3.5% of the purchase price in down payment money.  For $8000, you could buy up to a $230,000 home (assuming you qualified for that much monthly payment) and take a loan from uncle/aunt/grandma/mom.  You could then collect your $8000 tax credit from Uncle Sam and pay them back this year.    If you’ve read some of our other blogs, you know that the closing costs can be paid by the seller.  You could get into that lovely home for FREE.

Or let’s say you are interested in a home but it needs some redecorating such as new carpet or flooring throughout ($4000), new paint in all the rooms ($300) and some new appliances in the kitchen ($3000).  None of these fixes would make it hard for you to get mortgage approval but they might make it hard for you to LOVE your home.  Buy the home, claim your $8000 tax credit and use the cash to create a home you LOVE.  Put in the carpet, repaint the rooms in custom colors and buy those stainless steel kitchen appliances.  Then sit back and enjoy.

Or let’s say the home is pretty darn nice but the yard isn’t.  It’s been neglected, never had any landscaping or fencing for the kids and the dog, and the deck needs to be removed and rebuilt.  Let’s plan a new deck ($5000) and let’s get some landscapers out there to put in the perennials, replace sod and add a tree or shrub or two ($3000).  From ugly to lovely.  There’s lots more ideas too but these should get you thinking of the POSSIBILITIES for that lovely $8000 First-Time Homebuyer Tax Credit.

For more detailed information, come to our FREE NO OBLIGATION FIRST TIME HOMEBUYER class or wait for future blogs.  “Simple answers to home ownership questions”.

Many Home Buyers are surprised to learn that in addition to a down payment, they may need to pay other fees at closing, commonly referred to as “closing costs”. The amount of these fees will vary from mortgage company to mortgage company. A good estimate is about 3-3.5% of the purchase price of the home.

When you are buying your first home, it may be hard for you to come up with enough money for both a down payment and closing costs. Many first time Home Buyers ask for closing cost assistance from the Seller. Most mortgage programs will permit the Sellers to help the Buyer pay for their closing costs. All you need is the Seller’s consent. Your Realtor will ask the Seller for this assistance when they write up the contract on your new home. Asking the seller for closing cost help is very commonly done, especially when buying your first home.

For more detailed information, come to our FREE NO OBLIGATION FIRST TIME HOMEBUYER class or wait for future blogs. “Simple answers to home ownership questions”.

Each of the three major credit bureaus is going to give you a credit score.  This credit score is calculated differently by each of the bureaus. 

A company called Fair Isaacs invented the FICO credit scoring system. Each credit bureau has their own credit score; Equifax calls their score Scorepower, for instance. Each bureau also sells the VantageScore credit score, a competitor to FICO. Regardless of the system used, the credit score takes into account how much credit you have, how much you use it, how fast you repay your bills, if you have any legal or tax judgments recorded against you and so on.  Even though all three bureaus use VantageScore, credit scores will not be the same for all three. This is because they each track different information.

Not all scoring systems are the same so if you go to get your credit score from Fair Isaacs at FairIsaacs.com, the score will be higher than when you get a score from the credit bureaus.  A mortgage lender will look at all three credit bureau scores and select the middle of the three as the best measure of your current credit.

For more detailed information, come to our FREE NO OBLIGATION FIRST TIME HOMEBUYER class or wait for future blogs.  “Simple answers to home ownership questions”.

The Fair Credit Reporting Act states that you have the right to dispute any inaccurate or derogatory information on your report.  If you do have errors on your credit report, you will want to have them corrected as soon as possible.

You can either call or write to the appropriate credit bureau.  There are three major bureaus reporting on credit in the United States.  When you apply for a home loan, all three credit bureaus are checked by your mortgage consultant.  Each of these bureaus may issue a slightly different report on you.

In order to correct credit report problems, you will have to supply the bureau with the correct information in writing.  If you are unable to provide written proof of their error, you still have the right to formally dispute that account error with the credit bureau.  A good mortgage consultant also will be able to suggest a specific process to follow to make these changes.  Without a good credit report, the costs of your home loan can go up significantly.

If you haven’t checked your credit report in the last year, you will want to do this before you apply for a home loan.  What is your credit report?  It’s made up of any and all information obtained from businesses that have loaned you money in the last ten years.  If you haven’t borrowed any money for school or for a car or opened any charge accounts, you may not have a credit report.

The information on your report may or may not be correct.  Sometimes, errors are made when the data are entered.  Sometimes, other people’s information can get on your credit report by mistake.  old credit accounts, which you no longer use, may still be showing as “open” on your report.  Some accounts, which were past due but have been paid, might still show a balance due.

We recommend checking your credit report once a year.  If you don’t want to bother with this, be sure and check your credit with a good mortgage consultant if you plan to buy a house in the next year.  If it needs to be updated to make it more accurate, this will give you plenty of time.

Like so many things in real estate, the answer to this question is, it depends.  If you are buying a single family home, you will need three kinds of insurance. 

The first is called HOMEOWNER’S OR HAZARD insurance.  This insurance protects you and the mortgage lender against bad things happening to the home.  For example, your home is in a hailstorm or a fire and part of the home is destroyed.  Or your home is vandalized.  This is the insurance that helps you repair the damage and put the home back in like-new condition.  If you buy a townhome or a condo, you might pay your monthly insurance premiums in your association dues.  Otherwise, you will pay your monthly premium as a part of your house payment.

The second is called TITLE insurance.  You pay a one time premium when you buy the home and the insurance is good for as long as you own the home.  This insurance protects your lender and you against any errors or fraud in transferring the title of the home to you.  It also protects you against claims of others against the property in the future. 

The third is called MORTGAGE insurance.  We have talked about this type of insurance in another blog so read up on what it does there.  Your premium is paid as a part of your monthly house payment.  All these insurances are intended to protect you and your home.  We hope you never have to file an insurance claim but if you do, you are covered.

For more detailed information, come to our FREE NO OBLIGATION FIRST TIME HOMEBUYER class or wait for future blogs.  “Simple answers to home ownership questions”.

When you make your monthly house payment which repays your mortgage loan, interest will be the biggest part of that payment.  Interest rates make a huge difference in the size of your house payment.  Look at the table below:

5% interest on $200,000 mortgage over 30 years:  principal/interest payment $1074.

6% interest on $200,000 mortgage over 30 years:  principal/interest payment $1200.

7% interest on $200,000 mortgage over 30 years:  principal/interest payment $1278.

So it’s important to qualify for the best interest rates.  Most home buyers don’t know that when you apply for a mortgage, you may not be receiving the best interest rate on your loan.  If your credit isn’t good, the bank will penalize you and quote you a higher rate for your mortgage. 

If you are borrowing money for a mortgage and you don’t have 20% towards the down payment, you will also be paying for insurance on the loan called mortgage insurance.  Your mortgage insurance rate is a percentage of the loan amount divided by the 12 monthly house payments.  It is added into the house payment.  If your credit is poor, the mortgage insurer will charge you a higher rate as well.  Higher interest and higher insurance rates will mean a higher house payment.  It’s worth your while to repair your credit and make sure you qualify for the best mortgage.

For more detailed information, come to our FREE NO OBLIGATION FIRST TIME HOMEBUYER class or wait for future blogs.  “Simple answers to home ownership questions”.

Mortgage Insurance is necessary if you buy a home and put less than 20% of the purchase price into the down payment.  Banks believe that if you don’t have a lot of money into the home purchase, you may be more at risk for default on your mortgage.  This makes your loan riskier for them.  To decrease the risk to them, they ask you to buy insurance for them.  Just as there are large companies that sell car insurance and life insurance, there are 4-5 national companies that sell mortgage insurance.  You pay a monthly premium which is included in your monthly house payment.  This pays for the policy.  If you default on your mortgage (stop making payments and go into foreclosure), the bank will be reimbursed for their losses by the insurance company.

Mortgage insurance companies can play a part in your loan approval.  They have criteria for credit and employment that must be met.  The bank knows their criteria.  If your loan doesn’t meet these criteria and it is not insurable, the bank will not give you the loan.  It is simply too risky for them. 

Mortgage insurance premiums can vary according to your credit history.  If you have good credit, your premium may be lower.  If you have less good credit, your premium may be higher.  When you are borrowing your mortgage money, make sure you know the rate your mortgage insurance company is charging you as it will affect the size of your house payment.

For more detailed information, come to our FREE NO OBLIGATION FIRST TIME HOMEBUYER class or wait for future blogs.  “Simple answers to home ownership questions”.

The time is here.  You are finally ready to go buy a home.  What should you do first?  It’s a good idea to meet with your mortgage consultant and discuss your financial situation.  You will need to have a loan preapproval letter from your consultant and they can answer questions about interest rates, house payments, how much you can afford and so on.  It can be a relief to find out how much mortgage you are approved for so that you know what your shopping price range will be.  If you don’t have a loan consultant, consider working with a loan broker rather than a bank based lender.  Brokers sell loans to many different investors (banks) rather than just to one bank so you will get the best price quotes.

Once you have that important loan approval from your lender, contact your Realtor.  Sit down and discuss your wants and needs and be clear about the price that is acceptable to you.  You can do some of your shopping on line and eliminate homes that are too old or too small or too expensive.  Then you need to put on your walking shoes and start touring the homes that are on your list of top prospects with your Realtor.  There is no quick way to check out home interiors and neighborhoods.  You just have to put in the time.  Soon, some homes will emerge as your top picks.

After you’ve found the home of your dreams, your Realtor and loan consultant will work with you to put an offer together and help you purchase the home from the seller.  You can buy a home in as little time as two weeks or as long as two years. You set the pace.  Your housing professionals work with you to keep your schedule.  Good shopping and good luck on finding that great first home.

For more detailed information, come to our FREE NO OBLIGATION FIRST TIME HOMEBUYER class or wait for future blogs.  “Simple answers to home ownership questions”.