There are many important topics to consider when buying your home. Buying a home is a big decision, that can get overwhelming at times. At Sole Realty, we want to help make the process simple and easy for you. Below you will find key topics that we believe you should consider and focus on when looking to buy your new home.
Click on the question below to read the detailed answer that follows.
There are many types of financing options available to homebuyers. Here is a brief overview of the most common types:
Fixed Rate Mortgage (FRM)
The interest rate on a fixed rate mortgage stays the same throughout the term of the loan, usually 15 or 30 years. This means the principle interest portion of your payment remains the same. Payments are stable but initial rates tend to be higher than adjustable rate loans and often can not be assumed by a subsequent buyer. Fixed rate mortgages can keep you protected from rising mortgage rates.
A balloon mortgage is a loan that must be paid off after a certain period, generally after 5-7 years. The advantage they offer is an interest rate that is lower than a mortgage that is made for a long term. They sometimes are compared to adjustable rate mortgages because after the period the full remainder of the balance is due or the rates re-adjust. Balloon mortgages are usually used in commercial real estate as opposed to residential. There can be re-financing risks with this loan because it was set up to benefit someone that sells or re-finances the property before the loan matures.
Adjustable Rate mortgage (ARM)
ARM's are generally 25-30 year loans that are amortized over the life of the loan. ARM's have rates that are usually fixed for the first few (usually 3, 5 or 7) years then the interest rate adjusts up or down depending on the financial markets, such as the Treasury security or a cost of funds. After the fixed-rate period ends, the interest rate can adjust monthly, annually or every or every few years depending on the loan. Your monthly payments can vary up or down over the life of the loan. Some ARM's have a cap on the interest rate increase, to protect the borrower.
Federal Housing Administration (FHA) Loan
FHA does not lend money or make a loan, rather, it insures loans. The down payment can be as low as 2.25%. Either buyer or seller may pay discount points. 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 paid in cash (no premium is required for condominiums). The borrower must also pay an annual Mortgage Insurance Premium or 0.5%, which is collected monthly.
Veteran Affairs (VA) Loan
The VA does not lend the money; it guarantees a portion of the loan so that the lenders who originate the loan feel comfortable with their risks. Qualified veterans generally don't exceed loans up to $203,000 with no down payment. VA guaranteed loans can be combined with other second mortgages and can be assumable upon qualifying by any future buyer. VA loans in the past have had lower interest rates than other traditional mortgages.
Second Mortgage/Second Deed of Trust/Junior Mortgage or Junior Lien
An additional loan imposed on a property with a first mortgage. Generally has a higher interest rate and shorter term than the "first" mortgage.
Buyer takes over or assumes the mortgage obligation of the seller (with concurrence of the leader). The interest rate doesn't change and is sometimes lower than the current rate. Often the loans fees are as well.
Getting pre-qualified and pre-approved for a loan
Getting pre-qualified for a loan gives you an idea of how much you can afford as well as loan programs that are available. This takes very little time, is of great value and can be done on the phone or at an initial meeting with a loan officer. Some states require that you are pre-qualified or pre-approved before you submit an offer.
Pre approval is going through the process and actually getting approved for the loan however, is not the final loan commitment. This requires detailed documentation and if you are approved for a loan you will receive a pre-approval letter stating the lender is willing to give you the loan which is generally good for 60 days.
Some general information that can be required to get pre-approval might include:
- Social Security numbers/cards of the borrower and co-borrower(s).
- Drivers License
- Where you have lived for the past 2 years. If you were renting, the landlords name, address, and phone number.
- Most recent two-year employment history, including income.
- W-2 tax forms for the past two years
- If you are self-employed: provide 2-3 years tax returns and YTD profit and loss statement, and other financial statements regarding both you and your company may be requested.
- A list of all creditors, including account balances.
- Provide two-three months of the most current bank statements for each bank, stock and mutual fund account.
- Provide recent copied of any stock brokerage or IRA/401K accounts that you may have.
- The value of other assets you may own, including other real estate.
- Gift letter statement. If you have received any money from friends or relatives which will be used towards the purchase of the home.
- Most recent pay stubs. (usually the last 30 days)
- Any supporting documents providing claims of additional or supplemental income for sources like: social security, pension, stock dividends interest and such.
- If recently divorced you will need to provide a copy of the divorce decree as well as proof regarding any claims of receiving alimony or child support.
- If you are not a US citizen, provide a copy of your green card, or if you are not a permanent resident provide your H-1 or L-1 visa.
- If VA loan certificate of eligibility, or DD-214 Discharge Paper/Employee Relocation Client
- If previous bankruptcy, copies of petition for bankruptcy and discharge, including schedule.
Find the Right Real Estate Agent when Buying a Home
Buying a home is one of the biggest financial and emotional commitments you'll ever make. It is a serious investment and a very personal lifestyle choice.
Real estate agents can guide you through this process with specialized knowledge of locating your perfect home, negotiating the best price and terms, disclosure laws and local market conditions. With the right real estate agent by your side, the home buying process can be an exciting and rewarding experience.
What Features Are Important to You?
Deciding on important features can be helpful before you start actually looking at homes. Make a list of important features and neighborhoods you are interested in. In your list include items you "need to have and are "nice to have".
As with any job, being an expert in the field is crucial. The most important areas a real estate professional should have exceptional knowledge in are:
- Area Expert
Find an agent that specializes in your neighborhood and has extensive knowledge of local market conditions.
- Pricing Expert
Pricing is a collaborative process based on information about recent sales, current listings and recently expired listings in your area. Your real estate agent should show you research to support any recommendations.
- Negotiating Experts
Your Agents should have specialized knowledge of legal contracts, disclosure laws and the negation process.
- Expert at Maximizing Profits
Your agent can help you negotiate contract terms in your favor.
When looking for a real estate agent, find someone you are comfortable with and someone who is compatible with your personality. If you don't feel you can ask questions or can openly discuss the home buying process, you have the wrong person! Many agents have desirable qualities but your expectations can set how they work with you.
- Will you mesh well together as business partners
- What personality suits you best (Structured, Detail-Oriented, friendly, Persuasive, sensitive, analytical and persistent)
- Make a list of the most important traits you want in your real estate agent. (Assertive, loyal, methodical, organized, networked, good communicator, good judgement, enthusiastic, ambitious, trustworthy, committed, experienced.
Agents should have referrals from past clients. You can ask for referrals or check there website for client testimonials.
- Newer agents may only have a few referrals but don't be deturred, the quality of work that an agent produces is most important. Any gent should show you how their expertise and services match your needs.
- Experienced agents often emphasize the number of years in the business or transactions they have closed. They should have plenty of referrals and a track record of outstanding service. In addition, they should show you their quality of work, and how their services match your needs.
Questions to ask when interviewing a real estate agent
It is your duty to make sure you are comfortable with your agent and they are qualified! Have questions prepared ahead of time. Here are some good questions to get you started:
- Do they belong to the local Multiple Listing Services so they have access to all the homes available in your area? (MLS's are cooperative information databases that provide homes for sale in the area, as well as the market history of homes, and in depth property descriptions.)
- Do they have extensive market knowledge of the local area?
- Can they point out important features or potential possibilities of properties to creater solutions for your needs?
- Do they have superb listening and problem solving skills and a good business sense?
- Do they embrace technology in order to serve you better?
- Do they offer personalized services that cater to your needs?
- Can they improve your bottom line through their negotiating skills?
- Do they have a good network in the real estate community to further locate homes for you?
- Are they enthusiastic, honest and trusted consultants?
- Are they willing to go the extra mile to insure you receive the best home buying experience possible?
Mortgage Questions to Ask Your Lender
The following are some good questions to ask your lender when applying for a home loan:
- Are both fixed-rate and adjustable mortgage loans available? (See adjustable rate mortgages below)
- How long can I "lock-in" the financing at the current interest rate and what is the "lock-in" policy?
- 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?
- 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 charged 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 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".
- What will the total closing cost be?
On Adjustable Rate Mortgages
- 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 adjusted?
- What is the maximum rate that can be charged over the life of the loan?
- Is there any potential for negative amortization?
- What is the annual percentage rate?
First Time Home Buyer's Tips
Buying your first home can be a satisfying and rewarding experience however, you need to determine if you are ready to take that exciting leap into home-ownership.
Are You Financially Ready?
- Find out how much you really can afford. There are mortgage calculators available online that can give you an idea of what mortgage payments will be. However, these often don't include other expenses of home ownership like property taxes, maintenance and insurance.
- Save as much as you can for a down payment and closing cost. Standard mortgages require between 5-10% down. The more you have down the less you're monthly mortgage payment will be.
- Think about saving for your down payment longer. For 6 months try putting aside what you think you're monthly mortgage payment, insurance and property taxes will be. This can show you if you are financially able to afford a home. If you can't afford this, don't get discourage and keep saving for a larger down payment!
- Contact a few mortgage professionals and get pre-qualified. Getting pre-qualified for a loan gives you an idea of how much you can afford as well as loan programs that are available. This takes very little time, is of great value and can generally be done over the phone or at an initial meeting with a loan officer.
- Consider what closing costs might be. There are associated fees when getting a mortgage including lender, title and settlement fees, taxes and prepaid items such as homeowners insurance or HOA fees.
- Check prices of homes online. There are plenty of sites that offer home prices and the capability to look at homes currently on the market. You might also start looking for a real estate agent to help with your search.
- Consider smaller homes including townhouses, condominiums and manufactured homes. These are usually the most affordable in most areas and might be only slightly higher payments than what you could be paying in rent. If your rent is $900 per month, with a 6% rental increase per year, you will pay $133,560 in rent over a 10 year period!
- Weigh your wants verses your needs. What are your needs now and what will they be in 5-10 years? How long do you see yourself living in this property? Make a list of important features and areas you are interested in. In your list include items you "need to have" and are "nice to have".
- Look at a homes potential. Remember that you can re do anything you don't like down the road. Look for a good core in a house, you can always paint, put new carpet in or re do a bathroom. If you find a property that you like but it has a few items you'd like to change, get a bid from professionals to see what it would cost to get those items changed.
- Look at other surrounding areas and neighborhoods. This might take some compromising but looking outside of neighborhoods you primarily thought you wanted to live in can open more opportunities for homes in your price range or with the features you are looking for.
Reasons to Buy a Home
- Pride of Ownership
- Quality of Like (No Landlord)
- Mortgage Interest Deductions
- Property Tax Deductions
- Appreciation (Historically housing has appreciated over the years)
- Deferred Gain and Capital Gain Exclusions
- Build Equity
- Investment Leverage (Where else can you buy this size of an investment with 5-10% down?)
- Real Cost of Renting
If you believe you are ready to purchase your new house, please contact us to help you. If you would like to contact one of our realtors directly, click here to access our agents page. If you would like to E-mail us click here. Our brokerage number is (330)-872-7799. Feel free to E-mail or call us with any questions you may have.