Looking to buy your first home, but having trouble coming up with the down payment?  Typically you need to have between 5-50% of the purchase price of your home, so here are a few tips to help you save your down payment faster!

Save Your Tax Refund—Doing this alone for a few years may add up to a considerable amount to contribute to a down payment, especially if both you and your spouse commit to contributing the full amount.

Set Up A Savings Plan—This is a great way to make a regular contribution to your down payment fund, and with accounts that allow you to round up all your purchases and automatically deposit them into your savings account, this can be an easy way to save money quickly.

Sell Unwanted Items—This can add a considerable sum to your down payment fund, and is also a great way to get rid of unwanted items before your move.

Check Out Government Programs—There are a number of government programs available, depending on your area, that can assist you in saving for a home, especially if you are a first time buyer.

Dip Into Your Retirement Fund—Be sure that you consult a financial advisor before choosing this option. Some government programs offer this option with no penalty, and it is certainly worth looking into.

Congratulations!  Now that you have found the perfect home, all that’s left is getting the perfect mortgage.  In order to do that, you will have to know what your lender needs from you in order to get your loan application approved.

Property Description

When applying for a home loan, you will need to provide the lender with detailed information regarding the property that you intend to purchase, including a physical address, what type of loan you are requesting and how you obtained the funds to be used as a down payment.

Borrower & Co-Borrower Information

All persons named on a home loan must be able to provide their name, date of birth, current address, former address (if within the last two years), marital status, current and former employment information, telephone number and social security number.

Most lenders require tax returns for the two years preceding the loan application, along with current paystubs or, if self-employed, a year-to-date profit/loss statement.

Current Mortgage Expenses

An important part of every home loan is affordability, which is why your lender will need to know how much of your income is available to pay for a new home.  If you have a current mortgage, be ready to provide a detailed list of expenses that you pay each month in relation to the property.  This includes a mortgage payment, real estate taxes, mortgage insurance, homeowner’s association dues, utilities, etc.  If you plan to sell the home, let your lender know so that they will understand you are simply replacing one debt with another.

Yes Or No

Almost every loan application asks both the borrower and co-borrower (if applicable) to answer a few simple yes and no questions on the application.  Questions pertaining to outstanding judgments, bankruptcy filings, foreclosures, lawsuits, alimony, child support and citizenship status are standard and should be expected when applying for a home loan.

Statement Of Assets & Liabilities

When applying for a home loan, both the borrower and co-borrower will be required to disclose all of their current assets and liabilities.  An asset is property, either real or personal, that is owned and is of value.  A liability, on the other hand, is a financial obligation for which one is liable.

A loan application will request information relating to assets and their current market value, including automobiles, real estate, stocks, bonds, life insurance (cash value), business net worth, personal property, etc.  If any amount of money is owed on these properties, the lender will request information relating to the unpaid balance in order to determine the actual equity that the borrower has in any given property.

Saving for a down payment can be a difficult and time-consuming task, but there are options for financing a home purchase other than saving or the traditional borrowing options.  One option that is becoming more popular is owner financing, and though it may be intimidating to ask the seller to help you finance the purchase of their home, it is certainly an option worth exploring.  Here are a few tips to help you successfully negotiate an owner-financing purchase.

What Is An Owner Financing Purchase?

Owner financing is a mortgage or lending option whereby the existing homeowner lends a portion (or in the case where no mortgage exists on the property, the entire amount) of the purchase price of the property to the buyer.  The interest rate, monthly payments, and terms of the loan are negotiated between the buyer and the seller, and the loan is recorded to protect both parties.

Finding Out If It Is A Viable Option With Your Home’s Seller

Most sellers are not in the real estate industry and so may not even be aware that this option exists, and most of the time if asked they will probably reject the idea.  In most cases, you will have to convince the homeowner of the benefits they receive from this financing option.

Benefits Of Owner Financing To The Seller

There are a number of benefits to a seller in this type of transaction. Here are just a few that you can use to convince the seller that this option may be in their best interests.

  • Potential Tax Breaks—Because the value of the home is being paid out over time, this means fewer taxes being paid on the profit made on the home.  Working out the actual figures may help the seller see the benefit of this deal.
  • Monthly Income Increase—In addition to the tax breaks, having the value of the home paid out to the seller over time creates an additional income, and in most cases it can add up to a considerable amount in their monthly revenue.
  • Higher Interest Rates—Because the seller is essentially the lender, they can determine the interest rate, within the legal limits, and it may mean a greater profit for them in the long run.

 

The satisfaction a homeowner feels when they make that last mortgage payment is really unmatched by any other financial achievement, and following these simple steps can more quickly make that dream a reality.

Finding the perfect home is a task, but shopping for the best home loan can be even more tedious.  With so many lenders promising low rates, closing costs and little or no down payment requirements, it’s often difficult to know which way to turn.  Luckily, there are several steps that you can take to find the right lender for your individual needs.

Assess Your Situation

Do you know what your credit score is?  If not, you should.  Most lenders rely on this triple digit number to determine both your creditworthiness and interest rates.  If you have excellent credit, you can probably work with almost any lender.  If you have severe blemishes in your financial past, however, finding the right lender may require a little more footwork.

How much money do you have for a down payment?  If you are on a budget, you will need to choose a lender that can help to get you into a home with a minimal down payment.  Knowing where you stand will give you a good idea as to which lender you need to work with.

Compare Rates

As is the case with anything in life, it pays to shop wisely.  Because a home is the largest investment that most people will ever make, it stands to reason that comparison shopping is a must.  As you speak with various lenders, ask about their rates, loan terms, qualification process and down payment requirements.

Interest rates change often, which means locking in your rates when they are low can save you a bundle of money.  Because there are so many lenders competing for your business, you will be greeted with plenty of appealing offers, including low rates, closing costs and down payment requirements.

Demand The Best

You are the one buying the home, so you should be the one to choose the length of your loan term.  With the exception of a situation where payments are simply unaffordable, it’s up to you to decide how long you want to pay for a house.  Many homebuyers prefer a longer loan term to keep the payments low, while others want to get the home paid for as quickly as possible with a shorter term.  It’s important to keep in mind that the longer you pay for a home, the more money you will end up spending in interest.

It’s a good idea to talk to your lender about their willingness to accommodate your needs.  If you’re in doubt about which lender to choose or are new to the area and need a little guidance, ask your us for a referral.  He/she knows the business and will be more than happy to assist you in making your dream of home ownership become a reality.

When you buy a home, the mortgage payment isn’t the only regular expense you will have to consider.  You will also be responsible for paying for your homeowner’s insurance policy as well as the property taxes on your new home.  There are two ways to go about this.  One is to roll them both into your mortgage payment, and pay them monthly along with your mortgage.  The other is to pay them on your own.

Larger Monthly Payments

Adding your insurance and property taxes to that monthly mortgage payment bill means that you will have a higher monthly payment.  If you are already cutting it close on your monthly budget with the mortgage alone, this could make it tougher.  You should keep these two payments in mind when you make up your home buying budget so that you know what you can really afford after paying both of these monthly expenses.

Lump Sum Payments

Both property taxes and homeowner’s insurance can be paid on their own directly.  This is usually either a yearly payment of a large lump sum or a different sort of payment plan set up by the insurance company or the county.  Coming up with all of that money at once can be tough, so many people opt for payment plans instead.

Simplifying Your Life

Most people choose to roll the payments into the mortgage because it is much simpler.  You have fewer monthly payments to think about and don’t have to come up with any large lump sums.  Even if you pay them on your own, in most cases it still winds up being a monthly payment, so it generally makes sense to combine it with the mortgage payment and have a lot less to think about each month.

The person handling your mortgage can help you decide what to do about insurance and property taxes.  Usually, the first year’s insurance will be part of the closing costs on your home, since you have to have insurance in place in order to get funding for a mortgage.  Whether or not property taxes are due will likely depend on when they were last paid on that home.  After the initial payment, you can add them to the mortgage payment and not have to think about it again.

In your house hunting you may have come across a mention of FHA loans.  FHA stands for Federal Housing Authority, and the loans available through this program are designed to help people qualify for loans and purchase homes more easily.  If you are wondering about getting an FHA loan for your home purchase, the first thing to do is to learn a little about them and find out if you might qualify.

FHA and HUD

The FHA is part of HUD—the U.S. Department of Housing and Urban Development.  It exists to help people who might not otherwise be able to apply successfully for a home loan purchase a home.  The FHA insures the loan against default, which means that if the buyer fails to pay the mortgage, the lender will not lose the money because the FHA will cover it.

Who Can Get an FHA Loan?

Just about anyone can apply for an FHA loan.  There are no income level requirements, either on the high or low end, and even people with some credit problems can qualify.  You will have to meet a certain credit level, however, and you must have a debt to income ratio that is acceptable for the program to prove you can pay the mortgage.

There are specific FHA loan programs for first time buyers, seniors, and people looking to purchase a “fixer-upper” home as well.  The many programs can suit just about any buyer.

Limits With FHA Loans

The main problem many people run into is that the limit on how much you can borrow on an FHA loan may make it difficult to purchase the house you need.  Allowable amounts are usually on the low end of the market, and it can make house hunting a challenge.  If you are willing to take on a home that needs some work, you will probably have better luck with an FHA loan.

If you need to buy a home with a low down payment and are having a little trouble qualifying elsewhere, an FHA loan might be a good option for you.  Every state has different laws and requirements for qualification, so check with your state to find out what the process will be.  FHA loans can help people get into a house who might not otherwise have the opportunity to buy.

Refinancing is something that most people will do at some point in their home ownership years.  The reasons are many; sometimes it’s to get a better rate, sometimes to combine a first and second mortgage.  Still others will refinance to take money out from the equity on the home and pay bills or do renovations.  Whatever the reason, equity plays a major role.

What Is Equity?

Simply put, equity is the difference between the value of your home and what you owe on it.  Although the term is very common, the truth is that not every homeowner has equity, and in fact some may be in the opposite position.

Equity increases over time when, as a general rule, the value of a home increases while at the same time the mortgage loans are being paid down.  In difficult economic times, equity may build slowly or even be lost.

What Does Equity Have To Do With Refinancing?

While it is possible to refinance a home in which there is little to no equity, it is more difficult.  You can refinance for a better rate, but you won’t be able to take any money out on the loan.

When the house is “upside down,” meaning that the amount owed is higher than the current value of the home, refinancing becomes much more difficult.  In most cases this situation will not qualify for a refinance, although many mortgage companies do allow refinances up to a certain percentage above the market value.

Refinances in these situations can be done, but they are a little different from doing a refinance with equity.

Cash-Out Refinancing

Many people refinance in order to take some cash out of the home’s equity.  When you do this you are drawing on the value of your home.  Taking out cash against the equity you have in your home can be a helpful way to pay off bills or take on renovations.  It’s important to note, however, that it comes with some risk.

If you refinance and use up all the equity in your home, and then the value of your home drops, you could find yourself upside down.  You will also be unable to use that equity in the future should you decide to sell and need a down payment on your new home.  Keep these things in mind before you make the decision to proceed with a cash-out refinance.

The equity you have in your home makes a big difference in the type of refinancing available to you, making the two closely related.

Coming up with a down payment in today’s economy can be difficult.  In most cases the down payment is expected to be 20% of the purchase price, and in some markets where housing prices are high that can be nearly impossible for the average person to save.  So are there ways to get around this?  Can you buy a home even if you don’t have the down payment?  There are a few ways to get into a home in spite of lacking the required 20%.

The 80/20 Loan

Also known as a piggyback mortgage, an 80/20 loan is a simple way to get a home without a down payment, but it can be a bit more expensive—or a lot more.  Basically, you take out a separate loan for the 20% portion of the purchase price.  You are financing your down payment.  You then take out a larger loan for the remaining 80%.  The interest rate on the 20% loan is usually a lot higher than the larger loan, so the best bet for any homeowner is to pay it off as quickly as possible.

The 20% portion of the loan is usually on a shorter term than the larger portion as well, and may have a balloon payment.  This means, for example, that the loan might amortize over 15 years, but after 10 years a balloon payment is due—meaning you have to either refinance or pay the balance.  There are also some variations on this loan, such as an 80/15/5 loan, where you put down 5%, take out a 15% loan for the rest of the down payment, and then finance the remaining 80% as a standard mortgage.

100% Financing Loans

While this type of loan used to be easier to get, today fewer places offer them.  There are still some places where you can get 100% financing on your home, but be prepared to pay PMI—Primary Mortgage Insurance.  This is something that the mortgage company will charge to protect themselves against the possibility that you will default on the loan.  It is charged on any loan when more than 80% of the value is being financed in most cases.  These 80/20 loans avoid PMI by financing less in one loan.

It is possible to buy a home with no or very little down payment, and there are a few other special programs such as FHA loans out there to help.  Do your research, and be sure you know which option will best fit your budget.

One of the most important factors to consider when buying a new home is affordability.  As a general rule, mortgage payments should not exceed 25-30 percent of your monthly take-home pay.  The best way to know what you can afford is to determine the possible payment range by comparing the price of the home with other essential ingredients.

Figure Out How Much You Want To Borrow

Your first step to calculating your monthly mortgage payment is knowing how much you want to borrow.  This can be determined by subtracting your down payment amount from the purchase price of the home, which will give you the amount that you will need to request from a lender.

Know Your Rates

The next step is to determine the current interest rates for the purchase of a home.  Rates vary and may change often, so check with your lender for current rates.  It’s worth noting that the interest rates you receive will, in part, be based on your credit history.  This means that knowing your FICO score and credit rating will give you a good idea as to how your interest rates will be calculated.

Choose Your Loan Term

Your monthly mortgage payments will be determined by a number of factors, including the term of your loan.  If you were to borrow $250,000, your monthly payments would be less with a 30-year mortgage than with a 15-year mortgage.  The reason is because it would take larger monthly payments to get the loan paid off quicker, which is why you will need to select a loan term before calculating your payments.

Additional Costs To Consider

Your total mortgage payment will include taxes, homeowner’s insurance and possibly even private mortgage insurance (PMI) if you provide less than 20 percent down and your loan requires it.

Just The Facts & Figures

Now that you know how much you need to borrow, have chosen your loan term and are familiar with the current interest rates, it’s time to calculate your payment.  Most lenders offer a mortgage calculator on their Web site or you can get an estimate by speaking with your lender.

If you still need help in calculating your potential monthly mortgage payments, don’t hesitate to contact us!!

Buying a home can be both exciting and stressful but, for those with past credit problems, the process may also seem intimidating.  The good news is that many lenders have adapted to the idea that many hopeful homeowners simply need a second chance, which means that past credit problems no longer have to define your future.

Credit Blemishes

When life unexpectedly takes a turn for the worst, it’s not always possible to come out without a few bumps and bruises.  Every day, people are faced with late or missed credit card payments, mortgage foreclosures, bankruptcy proceedings, auto repossessions and even civil judgments that will affect their credit reports for years to come.  Whether it’s from a job loss, injury or just a simple case of temporary hardship, credit blemishes are often a part of life.  The good news is that they no longer have to prevent you from becoming a homeowner.

Give Yourself A Little Credit

After experiencing a credit problem, most lenders will want to see an attempt to rebuild your credit through a steady payment history with a new account.  This can be accomplished by applying for a credit card and maintaining a responsible use of the account.  If you aren’t approved for an unsecured card, you can always apply for a secured credit card.  Either will rebuild your credit over time and will help to show lenders that your past credit problems are just that – in the past.

Clean Up Your Credit Report

Before applying for a home loan, make sure that you check your credit report from each of the three major credit reporting agencies.  Every 12 months, consumers can request a free copy of their credit report from Experian, Equifax and TransUnion.  If anything is incorrect or found to be inaccurate, filing a dispute with the credit reporting agency can help to get the information corrected before speaking with a lender.

When you apply for a home loan, the lender will access your credit report for the purpose of determining your creditworthiness.  In an effort to ensure that you have the best possible chance at being approved for the loan at the best possible interest rates, making sure that your credit report is accurate is a must.

Save Up For A Down Payment

Some homebuyers often qualify for a mortgage with down payments as low as five percent (three percent for FHA loans), but those with past credit problems may be required to shell out up to 35 percent or more for a down payment on their new home.  A buyer who pays a larger down payment obviously has more vested interest in the home and may, thereby, be less likely to default on a loan.  If you have past credit problems, check with your lender about specific down payment requirements and start saving!

Creative Financing Options

If you’ve exhausted all of your conventional efforts and are still turning up empty, don’t give up just yet.  Alternative financing is an option that many home buyers use to purchase a home.  Your REALTOR® can provide you with details regarding any lease purchase and/or owner financing properties, which may require no credit check, no bank qualifying, a low down payment and competitive interest rate options.