10 Steps to Prepare for Homeownership

Though quite general, follow the next 10 steps as a guideline on how to prepare for homeownership.

1. Decide how much home you can afford. Generally, you can afford a home equal in value to between two and three times your gross income.  A mortgage professional can help you get pre-qualified.2. Develop a wish list of what you’d like your home to have and a list of what you must have in your home. Then prioritize the features on your list.

3. Select two or three neighborhoods you’d like to live in. Consider items such as schools, recreational facilities, area expansion plans, and safety.

4. Determine if you have enough saved to cover your downpayment and closing costs. Closing costs, including taxes, attorney’s fee, and transfer fees average between 2 percent and 7 percent of the home price.  In many instances, gifts from family members may be used.  Make sure to consult your mortgage professional to see which programs allow this.

5. Get your credit in order. Obtain a copy of your credit report HERE.

6. Determine how large a mortgage you can qualify for. Also explore different loans options and decide what’s best for you.  Again, a mortgage professional can help you.

7. Organize all the documentation a lender will need to preapprove you for a loan.

8. Do research to determine if you qualify for any special mortgage or downpayment-assistance programs.  Depending in your profession, there may be programs available for teachers, police, fire and other such employees among others.  Your mortgage professional can help you determine which program you may qualify for.

9. Calculate the costs of homeownership, including property taxes, insurance, maintenance, and association fees, if applicable.

10. Find an experienced REALTOR who can help you through the process.  Though many feel they can skip this step, a real estate professional could be invaluable when buying a home.  If this is your first home, this resource alone could save you much time, aggravation and money, while guiding you through the entire process from finding a good mortgage professional to post-closing.

Also, consider that in today’s market, it is highly advisable to get pre-approved by a mortgage professional before you begin your search.  This very important step will ensure you don’t spin your wheels looking for property you cannot afford, possibly frustrating you from continuing your search and buying your first home.

To avoid being bombarded with calls from creditors, make sure you register with the National Do Not Call Registry (click HERE), and Opt Out from receiving junk electronic and postal mail (click HERE) BEFORE having your credit pulled.  Typically lenders pay special subscriptions with the national credit bureaus (Experian, Transunion, Equifax) and buy your contact information, thus causing a sleugh of calls, emails and junk mail, all triggered by your credit file being pulled by any mortgage professional.

How Big a Mortgage Can I Afford?

Not only does owning a home give you a haven for yourself and your family, it makes great financial sense, too.

This calculation assumes a 28 percent income tax bracket. If your bracket is higher, your savings will be, too.

Rent: _________________________

Multiplier: X 1.32

Mortgage payment: __________________

Because of tax deductions, you can make a mortgage payment—including taxes and insurance—that is approximately one-third larger than your current rent payment and end up with the same amount of income.

For more help, use Fannie Mae’s online mortgage calculators at http://www.fanniemae.com/homebuyers/calculators/index.jhtml?p=Resources&s=Calculators.

It’s a Wonderful Day in the Neighborhood

At REALTOR.com’s new “Find aNeighborhood” site, home buyers and real estate investors now have another tool to add to their online arsenal of research resources.

Site visitors can now learn how many homes are for sale in a given market or defined geographic area, research the rental market, collect demographic data, and even learn about lifestyle profiles in specific neighborhoods.

People who are considering a move can also literally find out if it’s a beautiful day in the neighborhood by studying the area’s weather index and historical climate data, and can zoom in on specific locations using satellite imagery.

See below for more and contact me for any specific information about the value of your property, how to sell fast and for top dollar even in this market, or even how to stage your property for sale.Just click HERE to begin your neighborhood search.

In addition, note that this search can be made for any neighorhood in the country.  It is not limited to Miami-Dade County, Florida. 

So, if you are considering a move to another city in the US or if you are considering a move to South Florida and you would like to get all the necessary facts before you begin your house-hunting, this tool will proof to be a great starting point.

This is an ideal stop for anyone in the military being reassigned, anyone relocating due to work requirements or just looking for adventure and opportunities in a new location, foreign nationals looking to move to South Florida or to exploit buying opportunities of a second home or vacation home now afforded by the favorable currency exchange, or investors looking for opportunities across the US.

Obviously, dealing with a competent Realtor during to guide you throught the process, from making sure you work with a competent mortgage consultant for pre-approval, to helping you find properties that meet your specific needs, to post-closing, a Realtor could be an invaluable resource for you.

Meanwhile, enjoy your search.  You are making a very intelligent decision today.

How to Avoid Post-Closing Pitfalls

Selling a home is like climbing Mount Everest – getting a signed contract is a great accomplishment, but that’s only half the journey. The typical home sale today involves more than 20 steps after the initial contract is accepted to complete the transaction.

Much of what needs to be done before the closing is the responsibility of appraisers, loan processors, attorneys, and inspectors — the REALTOR®’s role is to coordinate those responsibilities, helping to ensure that others do their jobs promptly and correctly and that the closing isn’t jeopardized.

Many steps between contract ratification and closing involve the cooperation of both buyer and seller, and attentive REALTORS® on both sides of the transaction will troubleshoot and keep everyone on track.

Home Selling from A to C (Acceptance to Closing)

Home Sellers	Home Buyers
1. Select an escrow agent. One of the parties selects an escrow agent. The escrow agent will collect the necessary documentation from each side and will conduct the closing.	1. Deposit earnest money funds. Earnest money funds are deposited according to instructions, which include who will hold the deposit, whether interest is to be accrued, and conditions of release. These funds are applied to the down payment at closing.
2. Assemble condo or home owners association (HOA) documents. Sellers who live in condos or in a neighborhood subject to an HOA must provide financial statements and recent reports to the buyer for review.	2. Make the final loan application. If interest rates are falling and more home owners are refinancing, additional time may be needed to obtain a mortgage commitment. If the property is being financed with a VA, FHA, or other government-backed loan, it will be necessary to obtain copies of correctly filed building permits for all remodeling or additions done since the original construction. Decisions about locking in interest rates can be made at any time after a contract is ratified.
3. Order a preliminary title report. A title search examines all public records to determine any defects in the chain of title; in other words, to confirm that the seller actually owns the property and has the right to transfer ownership.	3. Order the home appraisal. Lenders require an appraisal before committing to a loan. Appraisers compare the features and condition of a home to similar properties to arrive at a dollar figure for its value.
4. Request a satisfaction letter from present lender. Total amount due on any existing mortgages must be provided in advance of settlement.	4. Arrange the property survey. A survey determines the boundaries of the property, its location, and the size and shape of any buildings on the lot. The survey also identifies any existing easements or encroachments.
5. Coordinate home appraisal and inspections. Arrangements for access to the property must be made for the lender’s appraisal and any inspections as specified in the contract.	5. Order inspections. Inspections may include those for home condition, radon, lead, earthquake, and termite infestations. Inspections should be ordered as soon as the contract is ratified so there is time to remedy any problems or renegotiate terms. REALTORS® have established relationships with inspectors and contractors to help ensure that their transactions get priority in busy times.
6. Arrange final utility readings and payments. When bills are prepaid, payments will be prorated at settlement between buyer and seller.	6. Verify employment and financial information. Lenders will require buyers to verify employment and financials before committing to the loan to ensure that there have not been significant changes since the process began.
7. Obtain home warranty policy (if applicable). If a seller has offered a home warranty policy, he or she must obtain this policy before closing.	7. Purchase homeowners’ and hazard insurance. Homeowners’ and hazard insurance is required by lenders; in some areas, flood insurance is also required.
8. Complete repairs. If the sellers have agreed to make repairs as a result of a home inspection, these must be completed. If repairs require a building permit, sellers must apply for one as soon as possible, because this could delay closing.	8. Obtain title insurance. Title insurance can help ensure that title defects will not make a property unsaleable in the future because of: Forged documents Undisclosed heirs to the property Mistaken legal interpretations of wills or trusts Misfiled documents — deeds, liens, mortgage satisfaction documents Confusion caused by similarities in names Incorrect marital status Mental incompetence
9. Have an attorney prepare the deed. The deed is the document by which the owner transfers title to the property.	9. Secure a loan commitment. Lender notifies escrow agent of commitment and confirms settlement date.
10. Arrange for payment of transfer taxes. Most states require a tax on transfer of property. This expense is most often the responsibility of the seller. Cities and local municipalities may also charge transfer taxes.	10. Transfer utility accounts. Utilities should be transferred into the buyers’ names as of the date of settlement.
	11. Complete the final walkthrough. Buyers walk through the property with their REALTOR® shortly before closing to ensure that the property is being delivered in the condition agreed to in the contract.

Time Estimates for Delays

When things go wrong, closing can easily fall behind. Here’s how much time to expect on particular delays:

One-Week Delays

• Buyer submits incorrect information to lender.
• Source of downpayment changes.
• Escrow fails to notify parties about missing documents.
• Principals leave town without signing all necessary papers.
• Unknown defects are discovered in the property.
• Last-minute liens discovered.
• Cloud on title.
• Move-out date changes.

Two-Week Delays

• Lender decides at the last minute it doesn’t approve of the borrower or the property.
• Lender raises interest rates.
• Lender requires last minute reappraisal or repairs.
• Appraisal too low.

REALTORS® have extensive experience in handling problems that may arise during the time between contract and closing; they can anticipate difficulties and address them in time to ensure a smooth settlement for all involved.

Source: National Association of Realtors

It’s All About Perspective

The news reports can be very scary and confusing to say the least. Take a look at some recent headlines:

Foreclosures up 57 percent in the past year-Cape Coral-Fort Myers, Fla., leads U.S. with highest rate of any metro area

Home sales fall to lowest level since 1999 – Median price down nearly 5 percent from a year ago, Realtors report

Key home price index shows record decline – Drop of 8.9 percent in late 2007 is largest in index’s 20-year history

Buyers snap up commercial property – “The report (from Real Capital Analytics), the first to comprehensively track transactions in metropolitan areas worldwide, unearthed $1.04 trillion in office, industrial, hotel, retail, land and apartment sales worldwide in 2007. In all, 114 metropolitan areas logged more than $1 billion in transactions.

South Florida rang up $13.82 billion in commercial sales, placing it just behind Hong Kong, with $14.4 billion, and ahead of Dallas ($13.22 billion), Houston ($13.18 billion) and Philadelphia ($6.14 billion), according to the Feb. 13 report.

“South Florida is the 15th-largest metro in the world for commercial real estate investment,” said Dan Fasulo, managing director of New York-based Real Capital Analytics. “It is one of those very desirable markets, with a plethora of parties that want to invest there.”

Housing construction posts modest gain – But applications for future construction of homes fell in January

Mortgage rates rise to highest level in 7 weeks – Freddie Mac reports 30-year, fixed-rate mortgages averaged 6.04 percent

Dump this house! How to sell your home fast – 5 mistakes anxious sellers make, plus tips to get the highest sticker price

8 reasons why your house is unsellable – Plus, trends that are on the way out and tips to keep your house current

The more one reads, the dizzier one gets. With all this press about real estate, ups and downs, sell, buy, refi…it’s no wonder the market is where it is.

Given an alternate of no more than 3 choices, most people can make a decision and be happy with the results. Zig Ziglar tells a story about beans. I’m not sure exactly how it goes but here’s how I get it. One goes to the supermarket and sees two different cans of beans. One makes a choice, one buys.

Next time, if one were to shop at a different supermarket and were to find 100 different cans of beans, most people would need to spend a lot of time reading labels, determining which loos better, what ingredients one might be comfortable with, prices, etc.

In short, some people may be so overwhelmed, they may even skip buying beans this time around. Too much information! Others, would require a long time reading labels before determining which product to choose.

With all the choices available in the market today, all the news reports, rates increasing, prices falling, inflation gaining a foothold into our bank accounts reducing our downpayment ability and making it yet more difficult for us to decide if we should buy or wait, it’s no wonder things are the way they are. Buyers don’t know what to do with good reason!

But, if one puts it all in perspective, and evaluates the reasons for considering to buy, leaving out all the market and economy issues, the decision may be less daunting.

Assuming your job or business outlook is good consider that, whatever you may have saved is being eaten away by taxes and inflation, interest rates may be on their way up, home prices may be at levels unlikely to be seen again for many years to come, and assuming one is looking to buy our next “home” where we intend to stay for 7-10 years, then it becomes easier to just decide on the neighborhood or building and take the plunge.

Chances are, you are buying at or near bottom now. Trying to time this is fruitless. “Experts” can’t even agree on where our economy is, why should buyers?

Buying with a long-term view however, is the only way to go right now. Enjoy the tax benefits, enjoy your new home, and let everyone else continue to scram out there.

Some day, 7-10 years from now in say, 2018, when you tell your friends and acquaintances what you paid for your home back in 2008 while they decided to wait, they’ll be saying “if I had know that, I’d had bought 3 houses!”, leaving you wondering why you didn’t.

Yet, at least you’d be that much ahead of the game while they’re once again scraming to catch whatever crums they can find in their new seller’s market, at which time of course, you can sell them your house!

Besides, once you make the move, you’ll find yourself watching less stressful news and more entertaining shows. After all, the writers are back!

Your Mortgage Matters

The market may be turning and therefore, the time has come to reevaluate your mortgage situation by studying the different types of mortgages that are still available for most people out there.  In general, consider the following:Conventional Conforming:

These are mortgages that are funded by banks but eligible to be backed by FNMA aka “Fannie Mae” (Federal National Mortgage Association) and FHMLC aka Freddie Mac (Federal Home Mortgage Loan Corp).  Both FNMA & FHMLC are Government Sponsored Entities are were designed by the Government to make mortgages available to the general public.

• Maximum Loan Amount is $417,000 (higher in HI & AK-plus changes in the law may increase these limits nationwide), but can be higher for 2, 3 or 4 unit properties.
• Available for Owner Occupied, Second Homes and Investment Properties.
• Generally require borrowers to document income & assets that justify their ability to repay the loan.
• Generally require borrowers to have fair to excellent credit.
• Generally available with minimum 5% down payment.

Government Loans:

These are mortgages that are funded by banks but eligible to be backed by the Department of Housing & Urban Development (HUD).  There are 2 common kinds of Government Loans:

FHA: Federal Housing Administration.

• For Dade County the maximum loan amount is $380,000 (higher for 2, 3 or 4 unit properties).
• Available for OWNER OCCUPIED PROPERTIES ONLY (second homes and investment properties not allowed).
• Allow for minimum 3% down payment which can be a gift from a family member, church, civic group or non-profit organization.
• Always require borrowers to document income & assets that justify their ability to repay.
• Poor credit is allowed with compensating factors.

VA: Veteran’s Administration.

• Designed as an option for eligible Veterans which must get an “eligibility certificate” from the local VA office.
• 100% financing allowed (subject to eligibility certificate).
• Always requires documentation of income & assets that justify the ability to repay.
• Uses the same loan amount limits as FHA.
• Poor credit is allowed with compensating Factors.

Non Conforming Loans
Jumbo Loans:

• Loans from $417,001 to $1,500,000
• Generally meet the same criteria as Conventional Conforming Loans except that down payment requirements are higher.
• These loans are not eligible to be backed by HUD, FNMA or FHMLC.
• Generally requires good to excellent credit.

Super Jumbo Loans:

• Loans from $1,500,001 to $3,000,000
• Generally slightly more restrictive than Conventional Conforming Loans
• Down Payments generally range from 20% to 40%.
• These loans are not eligible to be backed by HUD, FNMA or FHMLC.
• Generally requires good to excellent credit.

Mega Jumbo Loans:

• Loans over $3,000,000.
• Much more restrictive than Conventional Conforming Loans
• Significant income & assets must be demonstrated.
• Down Payments generally 40% to 50%
• These loans are not eligible to be backed by HUD, FNMA or FHMLC.
• Generally requires excellent credit

Expanded Criteria Loans

• Generally not eligible to be backed by HUD, FNMA or FHMLC.
• Down Payments generally as low as 10% or as high as 50%
• May not be required to document income, assets, employment, etc.
• Generally requires excellent credit

Other factors to consider which will help you understand how loans are priced are as follows:

Risk Based Pricing

Recently nearly every loan program (except those backed by HUD) are moving to a “risk based pricing” model.  The lower the risk – the lower the rate.  The higher the risk – the higher the rate.

Risk Factors that may INCREASE the rate:  Any loan with these factors has a higher probability of default and or loss to the lender and therefore the rate charged to the borrower is higher.  The more risk factors layered into the loan results in a progressively higher rate.

• Low Down Payment
• Lower credit score
• Inability to document income (stated income / no income programs)
• Cash out refinances
• Multi-family properties
• Condos (high rise or low rise)
• Second Homes
• Investment Properties
• Multi-family properties
• Properties needing renovation or construction
• “Piggyback loans” where there is also a 2nd mortgage involved
• Job instability
• High Debt-to-income ratio
• Lack of reserves / cash on hand / savings

Risk Factors that may DECREASE the rate:

• Large Down Payment
• Excellent Credit Score
• Single Family Residence (condo or house)
• Low Debt-to-income ratio
• Ability to document income & assets
• Excellent / lengthy job history
• Significant reserves / savings
• Minimal use of credit card & other consumer debt
• Property values near or below the median for the area (in a slow market more expensive properties are often harder to sell)

Broker vs Banker

Loans can be arranged through a “mortgage broker” who acts independently and “sells” the loan to a bank.  The broker gets paid a fee for his / her work from either the bank, the customer or both.  Loans can also be arranged through a “loan officer” who works directly for the bank.

Key Differences:

Broker:

• Generally can arrange loans through several different banks
• Generally earns income by charging the customer fees

Loan Officer:

• Generally works for only one bank / lender and the line of products offered by them only
• Generally earns salary or commission paid by the bank – not the customer

Other factors necessary to provide financing for the purchase or refinance of any real estate are:

Appraisals

Federal Law Requires:

• Appraisals be ordered by the bank – not the Realtor, customer or other interested party
• Appraisals be ordered through licensed appraisers and not by appraisers selected specifically by the loan officer or other interested parties

Other Important Facts:

• Generally used to determine MARKET VALUE not to evaluate the quality of the home, functional defects or condition
• Generally good for 90 days
• Compares the subject property to other SIMILAR homes in the market area.
• Will utilize past sales as well as current listings to determine market value.

Misconceptions:

• A house that has recently been given $200,000 in remodeling upgrades will appraise for $200,000 more than the comparable, unimproved houses.
•  Not true … improvements do not add dollar-for-dollar to the bottom line.
• An appraisal ordered by the seller, customer or other party is acceptable.
•  Not true … appraisals must be ordered by a regulated lender to be acceptable for a loan transaction.  The lender may not accept all appraisals ordered from other lenders.

As you can see, there’s a lot involved in obtaining a loan, regardless of weather you are looking to buy your first home, second or investment home, or to refinance your present mortgage. 

Typically, weather you go to a bank or to a broker, all necessary paperwork needs to be reviewed and compared for accuracy, making sure it all makes sense and in order to avoid issues down the line.

Brokers for example, don’t get paid until after closing.  Bankers are paid a salary regardless of a loan closing.  Both have a lot to protect, however.  Some will argue that brokers will tend to do things that may not be quite “apropo” in order to get a loan closed, while arguing that bankers are not motivated at all to bend in any way to ensure a loan closes.  If the numbers don’t make sense, they typically don’t try any harder than they must.  5pm is quiting time while brokers must come up with all the ways they can in order to ensure they get paid.

All great arguments but, think about it.  Once you find a good honest broker, they have access to products from many sources, and will not rest until you close.  Just make sure to check out their record before signing up.

This, in my opinion, is no different than the homework you must do when you need a mechanic, doctor, lawyer, accountant, bank, banker or mortgage professional.  Even buying big ticket items, it is typically much better to buy a bed mattress for instance from a reputable house than at a flea market, don’t you think?

The bottom line is this, regardless of how many homes you’ve bought or sold or how many loans you have secured, hiring the right professional for the job is as important a decision as the decision to not going at it alone.

Consider doing your taxes on your own, repair jobs for your home or auto, or even medical, investment or any other venture.  Many attempt to go at it alone and many of those succeed.  Most however, end up short changed when compared to the results they would have obtained using the help of a professional who knows their business.

Of course, if you seek professional help, just ask me and you shall receive it.