The Full Story About Low and No Down-payment Home Loans

Article submitted by: Wendy Thompson, Bank Of England Mortgage

A no down payment mortgage allows first-time home buyers and repeat home buyers to purchase property with no monies required at closing. Other options, including the FHA Home Loan, the HomeReady™ mortgage and the Conventional 97 loan offer low down payment options with a little as 3% down. Mortgage insurance premiums typically accompany low and no down payment mortgages, but not always.

Is A No Down Payment Mortgage Right For You?

It’s a terrific time to buy a home.

Sales are rising, supply is dropping, and prices have increased in many cities and neighborhoods. Compared to next year, today’s market may look like a bargain.

Rates for 30-year loans, 15-year loans, and 5-year ARMs are cheap, which has lowered the monthly cost of owning a home.

The Down Payment Hurdle

However, it’s not the monthly payment that scares off new buyers these days — it’s the prospect of having to put 20% down.

Buyers are earning good incomes, but few have much saved in the bank.

The good news is that there are a bevy of mortgage programs requiring little or no money down and they’re available to the general public — no hoops required.

Want to buy a home with little or nothing down? You can.

Home Buyers Don’t Need to Put 20% Down

In today’s U.S. housing market, home buyers don’t need to make a 20 percent down payment. Many believe that they do, however.

It’s a common misconception that “20 Percent Down” is required to buy a home. And, while that may have true at some point in history, it hasn’t been so since the advent of the FHA loan, which occurred in 1934.

The likely reason why buyers believe a 20% down payment is required is because, with one specific mortgage type — the conventional mortgage — putting twenty percent down means private mortgage insurance (PMI) is not required.

PMI Is Not Evil

Paying PMI is neither good nor bad, but consumers seem to abhor it.

The purpose of private mortgage insurance is to protect the lender in the event of foreclosure — that’s all it’s for. However, because it costs money, private mortgage insurance gets a bad rap.

It shouldn’t.

Because of private mortgage insurance, home buyers can get mortgage-approved with less than 20 percent to put down and, eventually, private mortgage insurance can get removed.

At the rate at which today’s homes are increasing in value, a buyer putting 3% down would pay PMI for fewer than four years.

That’s not long at all. Yet, many buyers — especially first-timers — will put off a purchase because they want to save a larger down-payment.

Meanwhile, home values are climbing.

For today’s home buyers, making a down payment should be consideration, but it shouldn’t be the only consideration.

This is because home affordability is not about the size of your down payment — it’s about whether you can manage the monthly payments and still have cash left over for “life”.

A large down payment will lower your borrowed amount and, therefore, will give you a smaller monthly payment to make each month. However, if you’ve depleted your life savings in order to make that large down payment, you’ve put yourself at risk.

Don’t Deplete Your Entire Savings

When the majority of your money is tied up in a home, financial experts refer to it as being “house-poor”.

When you’re house-poor, you have plenty of money “on-paper”, but little of it available for the everyday emergencies of life.

And, as every homeowner will tell you, emergencies happen.

Roofs collapse, water heaters break, you become ill and cannot work. Insurance can help you with these issues sometimes, but not always.

That’s why you being house-poor can be so dangerous.

Many people believe it’s financially-conservative to put 20% down on a home. If that 20 percent is everything you have, though, putting twenty percent down is the opposite of being financially-conservative.

The true financially-conservative option is to make a small down payment.

Being house-poor is no way to live.

No Down Payment: VA Loans (100% Financing)

The VA loan is a no-money-down program available to members of the U.S. military and surviving spouses.

Guaranteed by the U.S. Department of Veteran Affairs, VA loans are similar to FHA loans in that the agency guarantees repayment to lenders making loans which means VA mortgage guidelines.

VA loan qualification are straight-forward.

VA loan qualifications are available to active duty and honorably discharged service personnel are eligible for the VA program. In addition, home buyers who have spent at least 6 years in the Reserves or National Guard are eligible, as are spouses of service members killed in the line of duty.

Some key benefits of the VA loan are :

You may use intermittent occupancy
Bankruptcy and other derogatory credit do not immediately disqualify you
No mortgage insurance is required

VA loans also allow for loan sizes of up to $636,150 in high-cost areas. This can be helpful in areas such as San Francisco, California; and Honolulu, Hawaii which are home to U.S. military bases.

No Down Payment: USDA Loans (100% Financing)

No Money Down options exist for non-military borrowers, too. The U.S. Department of Agriculture offers a 100% mortgage. The program is formally known as a Section 502 mortgage, but, more commonly, it’s called a Rural Housing Loan.

The good news about the USDA Rural Housing Loan is that it’s not just a “rural loan” — it’s available to buyers in suburban neighborhoods, too. The USDA’s goal is to reach “low-to-moderate income homebuyers”, wherever they may be.

Many borrowers using the USDA Single Family Housing Guaranteed Loan Program make a good living and reside in neighborhoods which don’t meet the traditional definition of rural.

Some key benefits of the USDA loan are :

You may include eligible home repairs and improvements in your loan size
There is maximum home purchase price
Guarantee fee added to loan balance at closing; mortgage insurance collected monthly

Another key benefit is that USDA mortgage rates are often lower than rates for comparable, low- or no-down payment mortgages. Financing a home via the USDA can be the lowest cost means of homeownership.

Low Down Payment: FHA Loans (3.5% Down)

The FHA mortgage is somewhat of a misnomer because the FHA doesn’t actually make loans. Rather, the FHA is an insurer of loans.

The FHA publishes a series of standards for the loans it will insure. When a bank underwrites and funds a loan which meets these specific guidelines, the FHA agrees to insure that loan against loss.

FHA mortgage guidelines are famous for their liberal approach to credit scores and down payments. The FHA will typically insure a home loan for borrowers with low credit scores so long as there’s a reasonable explanation for the low FICO.

The FHA allows a down payment of just 3.5 percent in all U.S. markets, with the exception of a few FHA approved condos.

Other benefits of an FHA loan are :

Your down payment may consist entirely from “gift funds”
Your credit score requirement is 500
Mortgage insurance premiums are paid upfront at closing, and monthly thereafter

Furthermore, the FHA supports homeowners who have experienced recent short sales, foreclosures or bankruptcies through the agency’s Back to Work program.

The FHA insures loan sizes up to $636,150 in designated “high-cost” areas nationwide. High-cost areas include Orange County, California; the Washington D.C. metro area; and, New York City’s 5 boroughs.

Low Down Payment: The HomeReady™ Mortgage (3% Down)

The HomeReady™ mortgage is special among today’s low- and no-downpayment mortgages.

Backed by Fannie Mae and available from nearly every U.S. lender, the HomeReady™ mortgage offers below market mortgage rates, reduced mortgage insurance costs, and the most innovative underwriting idea on more than a decade.

Via HomeReady™, the income of everybody living in the home can be used to get mortgage-qualified and approved.

For example, if you are a homeowner living with your parents, and your parents earn an income, you can use their income to help you qualify.

Similarly, if you have children who work and contribute to household expenses, those incomes can be used for qualification purposes, too.

Furthermore, via HomeReady™, you can use boarder income to help qualify; and, you can use income from a non-zoned rental unit, too — even if you’re paid in cash.

HomeReady™ home loans were designed to help multi-generational households get approved for mortgage financing. However, the program can be used by anyone in a qualifying area; or who meets household income requirements.

Read this complete HomeReady™ Q&A for more on the program.

Low Down Payment: Conventional Loan 97 (3% Down)

Editor’s Note : The Conventional 97 program was originally discontinued in December 2013. It was later reinstated by the Federal Home Finance Agency in late-2014. This section has been updated to reflect the new product’s guidelines.

The Conventional 97 program is available from Fannie Mae and Freddie Mac. It’s a 3 percent downpayment program and, for many home buyers, it’s a less-expensive option as compared to an FHA loan.

Furthermore, the Conventional 97 mortgage allows for its entire three percent downpayment to come from gifted funds, so long as the gifter is related by blood or marriage; or via legal guardianship or domestic partnership; or is a fiance/fiancee.

The Conventional 97 basic qualification standards are :

Loan size may not exceed $424,100, even if the home is in a high-cost market.
The subject property must be a single-unit dwelling. No multi-unit homes are allowed.
The mortgage must be a fixed rate mortgage. No ARMs via the Conventional 97.

The Conventional 97 program does not enforce a specific minimum credit score beyond those for a typical conventional home loan. The program can be used to refinance a home loan, too.

Low Down Payment: The “Piggyback Loan” (10% Down)

The “piggyback loan” program is typically reserved for buyers with above-average credit scores. It’s actually two loans, meant to give home buyers added flexibility and lower overall payments.

The beauty of the 80/10/10 is its structure.

With an 80/10/10 loan, buyers bring a ten percent down payment to closing. This leaves ninety percent of the home sale price for the mortgage. But, instead of giving one mortgage for the 90%, the buyer splits the loan into parts.

The first part of the 80/10/10 is the “80”.

The “80” represents the first mortgage and is a loan for 80% of the home’s purchase price. This loan is typically a conventional loan via Fannie Mae or Freddie Mac; and it’s offered at current market mortgage rates.

The first “10” represents the second mortgage and is a loan for 10% of the home’s purchase price. This loan is typically a home equity loan (HELOAN) or home equity line of credit (HELOC).

Home equity loans are fixed-rate loans. Home equity line of credits are adjustable-rate loans. Buyers can choose from either option. HELOCs are more common because of the flexibility they offer over the long-term.

And that leaves the last “10”, which represents the buyer’s down payment amount — ten percent of the purchase price. This amount is paid as cash at closing.

80/10/10 loans are sometimes called piggyback mortgages because a second loan “piggybacks” on the first one to increase the total amount borrowed.

80/10/10 loans are meant to give buyers access to the best pricing available, so lenders may sometimes recommend an alternate structure. For example, for buyers of condos, a 75/15/10 is advised because condo mortgages get better rates with LTVs of 75% or less.

As another example, interest rates on HELOCs are sometimes better at larger loan sizes. Your lender may recommend that you increase the size of your HELOC, then, to lower your overall loan costs. The choice of your loan’s structure, though, remains yours.

You can’t be forced into borrowing more money on your second mortgage than makes you comfortable.

Mortgage Down Payment FAQ

How can I buy a house with no money down?

In order to buy a house with no money down, you’ll just need to apply for no-money-down mortgage. If you don’t which mortgage loan is your best zero money down option, that’s okay. A mortgage lender can help steer you in the right direction. There are multiple 100 percent mortgages available for today’s home buyers.

Can cash gifts be used as a down payment?

Yes, cash gifts can be used for a down payment on a home. However, when you’re receiving a cash gift, you’ll want to make sure you follow a few procedures.

For example, make sure the gift is made using a personal check, a cashier’s check, or a wire; and keep paper records of the gift, including photocopies of the checks and of your deposit to the bank. Also, make sure that your deposit matches the amount of the gift exactly.

Your lender will also want to verify that the gift is actually a gift and not a loan-in-disguise. Cash gifts do not require repayment.

What are the FHA down payment assistance programs?

FHA down payment assistance programs are available to home buyers and 87% of U.S. single-family homes potentially qualify. Programs will vary by state, so be sure to ask your mortgage lender for which programs you may be eligible. The average home buyer using down payment assistance receives $11,565.

Are there any home buyer grants?

Home buyer grants are available to U.S. home buyers and all are eligible to apply, which are also known as down payment assistance (DPA) programs. DPA programs are widely-available but seldom used — 87% of single-family homes potentially qualify, but less than 10% of buyers think to apply. Your mortgage lender can help you determine which DPAs are best for you.

What are the FHA loan requirements?

The FHA loan requirements are; 1.) You must have a credit score of at least 500; 2.) Income which can be verified using W-2 statements and paystubs, or federal tax returns; 3.) No history of bankruptcy, foreclosure, or short sale within the last 12 months. 4.) You must not be delinquent on your federal taxes, your federal student loans, or any other federal debt.

What are the benefits to putting more money down?

Just as there are benefits to low and 0 money down mortgages, there are benefits to putting more money down on a purchase. For example, when you put more money down on a home, the amount you need to mortgage is less, which reduces your monthly mortgage payment. Additionally, if your mortgage requires mortgage insurance, with more money down, your mortgage insurance will “cancel” in fewer years.

If I make a low down payment, do I pay mortgage insurance?

When you make a low down payment, you’re more likely to pay mortgage insurance (MI), but not necessarily. For example, the VA Home Loan Guaranty program doesn’t require mortgage insurance, so if you use a VA loan, making a low downpayment won’t matter. Conversely, FHA and USDA loans always require mortgage insurance so even with large down payments, you’ll have a monthly MI charge.

The only loan for which your down payment affects your mortgage insurance is the conventional mortgage. The smaller your down payment, the higher your monthly PMI. However, once your home has twenty percent equity, you’ll eligible to have your PMI removed.

If I make a low down payment, what are my lender fees?

The size of your down payment doesn’t relate to your lender fees. No matter how large or how small your down payment, your lender fees should remain equal. This is because mortgage lenders are prohibited from charging higher fees based on the size of your down payment . It should be noted, however, that different loan types may require different services (e.g.; home inspection, roof inspection, home appraisal), and this may affect your total loan closing costs.

What is the minimum down payment for a mortgage?

The minimum down payment for a mortgage are:

VA loan: 0% down payment
USDA loan: 0% down payment
Conventional 97 mortgage: 3% down payment
HomeReady™ mortgage: 3% down payment
FHA loan: 3.5% down payment

In addition to the above programs, down payment assistance programs are often available and provide, on average, more than $11,000 to today’s buyers of homes.

How can I fund a down payment?

A down payment can be funded multiple ways, and your lender will often be flexible. Some of the more common ways to fund a down payment is to use your savings or checking account; or, for repeat buyers, the proceeds from the sale of your existing home.

However, there are other ways to fund a down payment, too. For example, home buyers can receive a cash gift for their down payment or can borrow from their 401k or IRA (although that’s not always wise).

Down payment assistance programs can fund a down payment, too. Typically, down payment assistance programs grants money to home buyers with the stipulation that they live in the home for a certain number of years — often 5 years or fewer.

Regardless of from where you fund your down payment, though, make sure to keep a paper trail. Without a clear account of the source of your down payment, a mortgage lender may not allow its use.

How much home can I afford?

The answer to the question of “How much home can I afford?” is a personal one, and one which should not be left to your mortgage lender.

The best way to answer the question of how much can you afford for a home is to start with your monthly budget and determine what you can comfortably pay for a home each month. Then, using your desired payment as the starting point, use a mortgage calculator to work backwards in order to find your maximum home purchase price.

Note that today’s mortgage rates will affect your mortgage calculations so be sure to use current mortgage rates when you’re doing your calculations. When mortgage rates change, so does home affordability.

Zero Down Mortgage Loans

Zero down mortgages are 100% financed loan types offered by the U.S. Department of Agriculture (USDA loan or “Rural Housing Loans”) and the Department of Veteran Affairs (VA loan). Additionally there are several low down payment options like the FHA loan (3.5% down), the conventional 97% (3% down) and the HomeReady mortgage (3% down).

Note: Find out which low down-payment mortgage loans you qualify for – Quickly, with no pressure: Click here

See How Home Appraisals Impact Your Purchase – It’s A Big Deal…

You have spent months searching for the perfect home and now you have found it. You haggled with the seller and you finally agreed on a price. While you are getting your home inspection completed, your lender has hired a real estate appraiser to appraise your purchase. It looks as if everything is finally going your way – but then you get the phone call.

The lender calls to say that the appraised value is less than your purchase price. Oh isn’t that just great! The lender informs you that he cannot write the loan unless you come up with the difference. But you have everything you own into this deal already. What happened? And what is more, what can you do about it?

How the Appraisal Process Works

An appraiser is not out to ruin your deals. He wants you to close on this as much as the other guy. But he has been hired as a neutral third party to make sure that the market value of the property is equal to or greater than your purchase price. You do not want to overpay for the house, no matter how much you love it, and your lender doesn’t want you to over pay either.

After inspecting the property, a real estate appraiser will head back to his office and determine the value of the property. He will look at the value of the land and the construction value of all of the improvements, less the depreciation. This is called the Cost Approach.

Then he will go find at least three recent sales that are in as close proximity, size and construction quality as possible. If there are any differences between these comps and the subject property, he will make monetary adjustments to each of the comps. For example, let’s say the house you are buying has 2,300 square feet but the comparable has 2,600. The appraiser will multiply the additional 300 square feet by the market value and then subtract it from the sales price of the comparable. From these adjusted figures, he determines a value to your property.

Why is the Appraisal Less than the Purchase Price?

If the appraisal comes in for more, we are all ecstatic and praise the merits of the appraiser. But, if he says the property is worth a little less than the purchase price, we freak out and claim that the appraiser is an idiot. Well, it is not that simple.

The reality is that the appraiser thinks of homes in a range of value rather than one concrete number. For example, say your offer on the 2,300 square foot 3 bedroom/2bath is $198,000. If 100 hundred people made an offer on that property would all of the offers be $198,000? No but I bet that 80% of them would fall between 5% either side of the purchase price say $188,100 to $207,900. In reality, that property is worth between $188,100 and $207,900. Any offer in that range would be reasonable.

That makes sense, right? But the problem here is that the lender wants one number to work off of. What is more, lenders also have their own guidelines on what makes an appraisal acceptable for underwriting. The appraiser is balancing between all of these factors. If he lacks perfect comps and his adjustments are too high or too many, the lender may not accept his appraisal at all – even if he meets the sales price. Which is still a problem for you.

What Can You Do with a Low Appraisal?

The first thing is to ask yourself if the appraiser is correct, do you want to still purchase the home at your purchase price? Should you negotiate a lower price? Speak to your real estate agent about it.

The next step would be to have your lender contact the appraiser and see if there is some “wiggle-room.” Could he perhaps use a different comp? Could an adjustment be altered just a smidge to push up the value? Is the purchase price within the appraiser’s range of value? Often a little tweak is all that is needed.

If those fall through, then the choice is to either pay more out of pocket to close the loan or to start shopping for another home. That choice is entirely up to you, but regardless of your decision, aren’t you glad you know the true worth of the property?

Questions regarding the home loan process? Get quick answers here: Click Here

Home Buyers: Are Foreclosures REALLY a Cheaper Investment?

Would you like to see a list of all the latest foreclosures, and home deals in your area? Click Here Now!

“Buy this house for pennies on the dollar.” Sign me up! Or should you run the other way? Are foreclosures really a cheaper investment? Will you save money buying a fixer-upper? Does a discounted sales price mean you will pay less? Let’s look at some of the hidden costs of buying cheap real estate.

Banks are not Required to Disclose the Condition

Because the lender and their employees have not lived in the house, they are not required to disclose anything about the property. You are on your own to figure out the actual condition.

Foreclosures are sold in “As Is” Condition

Banks do not want to mess around with repairs. All they are interested in doing is getting their money out of this failed transaction. They want the property off their books with the least amount of expense. So, do not expect that you can put any type of repairs as a condition to your purchase agreement. It is absolutely critical that you get a home inspection on a foreclosure purchase.

Some Auction Foreclosures are sold “Sight Unseen”

As if buying a property “As Is” wasn’t bad enough, some auctions do not even allow the bidders to inspect the home. If they do allow inspections, it could be an hour before the auction with every bidder poking around at the same time.

Hidden Repair Costs

Even if you have had a home inspection, non-visual items are usually not covered. While there will be surprises in any home when a major renovation is in process, foreclosed homes tend to suffer from more deferred maintenance and hence hide more surprises. Finding out that the subfloor is full of termites can quickly escalate the cost of a kitchen remodel.

Not So Hidden Repair Costs

Some homeowners become very vengeful and destructive during the eviction process. Some have been known to pour concrete in the toilets, remove all saleable items including the wiring, and destroy the walls – just to name a few destructive ideas. Abandoned houses often attract squatters and vermin which can be expense to remove. Traditional purchases usually do not have this additional risk factor.

Financing Problems

If you will need a mortgage to buy your foreclosure, be prepared to face some financing problems. First, the purchase price will need to meet minimum lending guidelines. If the property is in really rough condition, you may have trouble with the appraisal and getting the financing approved. Residential mortgages must meet certain occupancy standards. Most major lenders, however, do offer mortgages that can wrap in renovation costs into the loan.

Paying Off Liens

Many foreclosure auctions do not guarantee that all liens have been removed. That means that though the first mortgage may be the one getting paid off, any secondary lines of credit, contractor liens or home owner association dues could transfer with the title. Do your research so you know what the true purchase price will actually cost you.

Benefits of Buying a Foreclosure

So, yes there are quite a few hidden costs and considerations when it comes to investing in a foreclosure home, but there can be a lot of awesome benefits. Consider a few of them.

You are going to have repairs and maintenance issues even if you buy a traditional home. That is just a part of home ownership and it cannot be avoided.
Depending on your area, there can be plenty of properties to choose from.
It is a great opportunity to make a high return on your investment.
Foreclosures give buyers to opportunity to get in a good neighborhood for less.
You can renovate the property and make it look like how you want.

Investing in foreclosures and other distressed real estate can reap some very good financial benefits, but you must go into the transaction with your eyes open and your wallet ready.

Would you like to see a list of all the latest foreclosures, and home deals in your area? Click Here Now!

Do you work full or part-time as an agent?

A full-time agent is more focused and will be in a better position to give you more time and attention. They will also have accumulated much more experience.

How long have you been an agent and what extra education have you received?

Just having a license doesn’t cut it these days. To stay on top of this rapidly changing market, agents need additional accreditation. Additionally, look for someone who has preferably been in the business for more than 5 years.

Could you please supply me with some names and phone numbers of a few past clients?

First-hand evidence is the best review you can get of a prospective agent. Make sure you give them a call and ask them how the transaction went. Ask the client if they would list again with that agent.

How many homes have you sold in this area within the past year?

Don’t be satisfied with a number pulled out of thin air. Ask them to show a list home homes, days on the market, original list price, list price at the time of the offer and the sales price. Now compare this with the average for all agents in the area.

What parts of the transaction will you handle and what will you delegate to others?

Delegating is not a bad thing, but you will want to know how much you can expect from them. This question generally leads into a discussion of how they will be marketing your property.

What price do you think I could sell my house for, and why?

Their confidence and ability to present market data to justify their sales price will give you an idea of how much they know about the area. Their answer should come in the form of a Comparative Market Analysis (CMA) that will show you some of the most recent comps. If they are checking Zillow or Trulia to get their data, then it is time to find someone else.

What is your marketing plan for my house?

This should be a combination of online and offline marketing. Do not put a lot of weight on having lots of open houses – this is a trend that is slowly dying off. Instead, ask them how many pictures they will be taking and if it will be shot by a professional. Each agent will have a different type of marketing style, find out what is their philosophy on what is the best marketing. When you get home, go check out their listings and pay particular attention to the photos and listing information. Your property will probably be marketed the same way.

Do you suggest I stage my house? If so, how should it be done?

Professionally staged homes sell quicker and for more. Some agents stage their own homes. At the least they should be able to recommend some companies that can help. Ask them for their suggestions on what you could do to improve the salability of your home.

How will you communicate with me?

What do you prefer? Emails, phone calls, or text messages. Now what method do they prefer? Hopefully you are on the same wave length. Other than the medium, you should find out how often you can expect to hear from your agent.

Would you represent both the buyer and the seller in this transaction?

While representing both sides is legal, I do not recommend it. There is the potential to create a conflict of interest at some point. It is hard to get you the highest price if the buyer is begging for a cheaper offer. If they say they would consider it, then have them walk you through how they would handle it and if they have done it in the past and how it turned out.

During the interview process, you are going to get a feeling about this agent. While I don’t recommend going with your gut, you should be able to create a good rapport. A very skilled and experienced agent can be a frustrating person to work with if you communicate on completely different platforms and think completely opposite from each other. It is okay to “connect” with your agent. But do not let that be your only deciding factor, make sure they know their stuff and that others have had a good experience with them.

Have questions about the home buying or selling process? Here’s how to reach me: Kaizen Realty – Karen Love

Discover the Hidden Costs of Home Ownership

Are you buying your first home? If so, then congratulations! You have saved for the down payment. You have made it through the loan approval process. You survived the closing and now you have your keys and are ready to move in. But are you prepared for the real costs of home ownership? There are quite a few hidden costs of owning a home that new buyers forget to factor into their budget. Here are a few of the big ones.

Mortgage Insurance

It can be a real challenge for a first-time homeowner to scrounge up 20 percent for a down payment. Often they opt for a FHA loan that only requires a minimum of 3.5% down. While this may look like it will save you money, it can cost hundreds each month. Mortgage insurance, which is paid on loans with equity less than 20 percent, will annually cost 0.05 to 1.5 percent of the original loan value. Let’s say the loan is for $150,000 and you went with FHA who charges a PMI of 1.5%. You will need to pay $187.50 extra, in addition to your mortgage payment, each and every month from here on out. Ouch!

Homeowner’s Insurance and Property Taxes

You need property insurance and you have to pay real estate taxes. Most likely your mortgage company is going to require that you make escrow payments each month. What is more, they will want to make sure you will have enough in the account to cover the bill when it comes due, plus a little extra. That means that you may end up paying slightly more than 1/12^th of the annual costs. Your annual property taxes are most likely going to be 1 to 2 percent of your home’s value. Don’t forget to add that into your monthly budget.

Repairs and Maintenance

Renting was so easy. When the faucet leaked, you called the landlord. When a breaker burnt out, you called the landlord. When the furnace died, you called the landlord. Well, now you get to call the repairman and you get to pay the bill. Even if you do the repairs yourself, buying this and that for the house can add up to hundreds of dollars each and every month.

It is a good idea to set up a budget amount each month and to not exceed it. If a repair or renovation project will exceed the monthly budget, you might want to save for it rather than grabbing the credit card.

Lawn Maintenance

While you may have been content with keeping the grass cut at the last house you rented, now that you own a house, landscaping seems so much more fun. Be prepared for the upfront investment and the frequent maintenance as well as buying all the equipment to go with it.

Speaking of equipment, if you live where there is snow, you will have to decide if you want to pay for snow removal or handle it yourself. Depending on the length of your driveway, removing the snow could create the need for a plow truck or a fancy snow blower. ‘Cha-Ching!’

Filling the House

Now we are not just talking about decorating (be prepared to spend hundreds on window treatments, by the way), but things like a new fridge, stove, microwave, washer or dryer. How about furnishings? Will your old Goodwill sofa fill the new larger-than-life living room?

If you have not been responsible for outfitting a house, the little items that are necessary to live can quickly add up. We are talking about items like silverware, glasses, spices and seasonings, cooking staples, towels, pots and pans and cleaning supplies, just to name a few.

Owning a home creates a sense of security and personal pride, but it typically will cost more each month than what you were paying in rent. (Though in the long-term, the increasing value more than makes up for this!) While you can prepare for some of the initial moving costs, creating and sticking to a budget will help make sure you do not get in over your head and it will help you to enjoy your new home even more.

5 Secrets How To Get Your Purchase Offer Accepted

Finding the perfect home that has all your needs and most of your wants often is not the problem. The problem lies in getting your purchase offer accepted and approved by both the seller and your lender. Here are 5 secrets you must know about before you make your offer.

Secret #1 – Don’t Dismiss Older Homes

There is a general fear that if you buy an older home then you are going to have a lot more problems. While this may be true of some older homes – especially older rentals, bank foreclosures or short sales – this is not always the case. I have seen some older homes that were built so strong that I don’t think a Category 5 hurricane could touch it; but I’ve also seen some newer homes that was an appraiser’s nightmare.

Older homes generally have more personality, character and originality then newer cookie cutter construction. They tend to sell for less per square foot than new construction – meaning you could get more home for less money.

Look for older properties that have had major components remodeled within the last 10 years including the roof, electrical and HVAC. Make sure you have a home inspection completed by a qualified third-party. Pay particular attention to structural items.

Secret #2 – Include Repairs in Your Purchase Agreement

So, you may be thinking, “Right, like the seller is going to accept that.” While it is true that not all sellers will want to pay for repairs out-of-pocket, the decision to work out your repair requests with the seller has more to do with your lender. Depending on the type of loan you are getting (such as a VA loan or USDA), your loan approval will be contingent on finding a home that meets health and safety standards. If your home inspection revealed issues with the electrical, plumbing, stairs or other safety concerns, your lender may not approve the purchase.

So why not work this out with the Seller. You could increase your down payment. You could offer a little more for the house and wrap it into the loan – since you will have to make the repair the day after closing anyway.

Secret #3 – Know Your Market before Making an Offer

The seller wants all of your money; your lender wants you to pay nothing; and the appraiser… well we won’t go into that. The only way you will be able to satisfy them all and walk away with a good deal is to know your market before you make the offer.

Work with your real estate agent to determine a range of value for the home. This should be based on the closest and most recent comps that are in the same age bracket as the home you are interested in. Your goal here is to find a price that will come close to the appraised value and then offer a little less.

Secret #4 – Be Careful with Your Contingencies

Sellers hate offers with contingencies. They think the buyer isn’t serious or doesn’t have the money to close. If you are making offers in a competitive area (i.e. homes are on the market for less than 4 months), then you need to reduce your contingencies.

Don’t demand that the seller pay your closing costs. If you don’t have the money, wrap it into your mortgage. Or offer more for the house and then have the seller pay the closing costs. If closing costs will be $5,000 and your purchase offer is for $165,000, why not make your offer $170,000 and then ask the seller to absorb the closing costs. It’s a win-win and your lender is none the wiser. Also, don’t ask for a bunch of little repairs. As long as it is not health or safety related, you can take care of them after the closing.

Secret #5 – Make Your Offers Stand Out

Homeowners are sentimental about their homes. So why not include a brief letter about what you love about their home and how much you would love living there. It just might be your ticket to getting the offer accepted on the home of your dreams.

Note: Most home buyers go about the buying process all wrong… Just 15 minutes on the phone with me will prepare you to buy a home with less stress, all while saving a bundle! Request your FREE Strategy Session here!

Horrible Mortgage Advice You Need To Stop Believing

Getting a mortgage in Tennessee can be a long, complicated affair, so naturally home buyers appreciate all the help they can get to make the process a little easier. Many people who may or may not have knowledge or experience with mortgages will throw their advice into the hat with all the best intentions, but what worked for them might be completely wrong for you.

Before you risk losing your dream house over what a friend of a friend’s cousin did when they got their own mortgage, make sure you read this list of bad advice to the very end.

“You don’t really need to bother with getting pre-approved”

Why people say this: From their perspective, you haven’t even found the house you want, so why get ahead of yourself and bother with all that paperwork? Besides, getting pre-approved doesn’t even mean you’ll get a loan. You might as well wait for an underwriter to take a good look at your full application.

Why you shouldn’t listen: While they are right in saying that getting pre-approved isn’t final, it reduces the risk of running into problems later in the process. Getting pre-approval from a bank will help you avoid the heartbreak that comes from falling in love with a house you can’t buy. Pre-approval actually sets you apart if there is more than one offer on the house. Sellers feel more assured when they see that a prospective buyer has been evaluated buy a bank.

Start the process early to put yourself in the best position to receive the loan you want.

“Don’t apply for a mortgage at a bank you don’t have an account in”

Why people say this: They imagine that you will get better rates just because you’ve had an account with that bank for sometime. Surely, this will make the process much quicker.

Why you shouldn’t listen: Before you buy a house, you look at many different options to find the one that’s perfect for you. It’s no different with your mortgage. Experienced real estate attorneys will tell you that although your bank will promise a faster, easier process with them. In reality that isn’t always the case. Sometimes another bank might have more favorable rates for your situation. Always go with the place that gives you the best terms.

“Forget about the fine print, it’s not that important. It’s all about how much they’re giving you”

Why people say this: There’s so much paperwork involved. Are you really going to read through all of it? You probably won’t understand most of it. Everyone gets pretty much the same contract anyway. Just look at a few key figures and sign.

Why you shouldn’t listen: The fine print is where all the juice is! You are entering into a long term contract with a financial institution. If anything goes wrong, you risk losing your house. You definitely want to read every single word of the contract and highlight any parts you don’t fully understand. Many homeowners have discovered items that they had to dispute buried in the fine print of their contract. Yes, it might take you longer, but you will be sure nothing has gone over your head.

“Just go with whoever has the lowest interest rate”

Why people say this: If the interest rate is low, the monthly payments will be low. Duh…

Why you shouldn’t listen: This isn’t that straightforward. Your terms might include a lower interest rate, but often with adjustable-rate mortgage. You need to read the fine print to make sure the lower interest rate means what you think it does.

Adjustable-rate mortgages actually aren’t so bad in some situations. Wendy Thompson from Bank Of England Mortgage in Memphis advises that home buyers should be cautious when lenders push interest-only adjustable mortgages. It can put you in a bad position if rates increase later on.

Before, the value of homes was going up as interest rates came down. In that circumstance, adjustable-rate mortgages made sense for people–especially people who weren’t planning to extend the loan past its first term. Interest rates might seem low now, but they’re quite likely to go up soon so be extra careful.

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Don’t Ever Do These 5 Things With Your Down Payment

You’ve finally saved up enough money for a down payment on a decent house in a nice area. You’re proud of yourself (#success) and well, you should be. But here comes the tricky part.

You don’t have a house just yet, but you have this big stash of cash (hopefully) in an account somewhere. A lot can happen to that money between now and the day you get the keys to your dream home if you aren’t careful.

What do I mean, you ask? Well.. Have you ever said you’d do something on a certain day at a certain time and not done it? That’s exactly what I mean. In this case, the consequences could mean you are under a stack of extra paperwork, or worse still, your mortgage request gets denied.

If you’re doing any of the 5 things below, I suggest you stop right this minute!

Hide it under your bed

Having a piggy bank when you were younger was cute and more importantly, it helped develop a savings habit. Storing cash in a box under your bed as an adult is a different story entirely. Nothing against having a physical reminder to save–particularly if you earn tips in cash and only take them to the bank once it’s a substantial amount.

But having large amounts of money lying around is risky not just because it could get stolen or misplaced, but because you are missing out on money you could be earning through interest. If you put your cash in an account that earns interest, you put your money to work for you – Far better than letting it depreciate in value right?

Another reason to deposit your cash in an account regularly is that some lenders see large deposits before escrow and assume it is a loan you got elsewhere unless you prove to them that it isn’t. It’s never a good idea to raise red flags prior to closing. You want a smooth transaction right? This leads to our next point…

Large last minute deposits

This is a big no no. Even if you know you will be getting a large portion of the down payment from your parents on your wedding day for example, make sure you don’t deposit it all at once a week before your meeting with the lender. As mentioned above, lenders will assume that a large sum of money coming in at once means that you’ve just received a loan. Letting the money ‘season’ in the account for some time (we’d recommend 60 days) will make sure no red flags are raised.

In our experience, most lenders will look at 2, or 3 months of bank statements to understand your financial situation before they can approve a mortgage. So if you want to dump a huge pile of cash into your account, just make sure it’s before those all-important 60 days.

Invest in high-risk products

Having all that money in your account might make you think you should do something smart with it so it isn’t just sitting there. If you can multiply it, then you’ll have even more money for a down payment, right? Well not really.

We aren’t saying you shouldn’t invest your money, we’re just saying you shouldn’t invest this money. You want to stay as far away as possible from stocks and other high-risk investments. If something happens and the stock price crashes, you’ll end up in a worse position than when you started out. You’ll then have to start saving all over again. If you must do something, we would suggest a money market account, or a Certificate of Deposit (CD).

Although an interest-earning money market account won’t make you rich, it’s the best place to store your money until you need it.

Keep your funds in another person’s account

Now this might seem obvious, but it happens quite often. If your family or partner for example is contributing to the down payment, you might keep all the money in their account until you need it. This can be a real obstacle to getting your loan. The lender wants to see that you, the buyer, can afford the down payment.

As we mentioned before, they usually look at 2 months of your statements before deciding to approve a loan. If these funds are kept in someone else’s account, that could raise a flurry of red flags and give the lender a reason to reject your request.

In cases where you and your partner have a joint account and you both have decent credit scores, you’re good to go. If however, one person’s credit rating is less than stellar, it would be in your best interest to move the funds to a separate account.

Last minute consolidation

Buying a house is a big decision which often takes a few weeks to finalize. The last thing you want to do is gather the money from your different accounts and make one big transfer 2 weeks before you go to the mortgage office. This is a paperwork nightmare for your lender and trust us, you want to keep your lenders happy.

Instead, prepare ahead of time and put your money together 1 – 2 months before you apply. We’re not saying this alone will get your loan rejected, but as discussed earlier, ‘seasoned’ funds will help shorten the time it takes for you to get a decision.

All in all, make sure you keep an eye on that money in the months before your loan application to avoid getting rejected after you’ve put in so much effort into saving up.

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Planning to use your last paycheck for a down payment? Think again

Looking to buy a house? Here’s something you might not have considered: Putting money aside from your regular paycheck could delay your mortgage. It may seem counter-intuitive, but I’ll explain.

The decision to purchase a house is a big one. You need strategic planning, an above average credit rating, a good handle on any debt and a good income. Being able to put aside up to 3.5% of the whole price can make all the difference in some cases. In other situations, you might need to put down as much as 20% of the total price of your dream home.

Unfortunately, certain types of savings are better than others. When you put aside money from your paycheck (a great way to build financial discipline), that money is not necessarily eligible to be used as a down payment. In the mortgage world, it is referred to as ‘income from assets’ (the asset being your paycheck), and this type of income is generally frowned upon.

Let’s imagine your earnings after tax for that month is $6000. That $6000 would need to remain in your bank account for at least 60 days for it to be deemed ‘seasoned’ enough for the down-payment. This is a way for banks to be sure that you aren’t just using your earnings to close the deal, but can save on your own. If you are in the middle of closing a deal on a house, this ‘unseasoned’ money might stall that process. In the event that this is your only option for the down-payment, we suggest you make sure the funds have been in your account for at least 60 days.

Now, while this is in no way the biggest consideration in the whole process of buying a home, it is definitely something that your banker will look into. You don’t want to give them any reason to delay your dreams of being a homeowner. Using your latest paycheck in particular will be a red flag to any bank’s underwriter. It’s like putting your hand between the elevator doors just before they close rather than pressing the button and waiting for it like everyone else.

If your main obstacle to getting a mortgage right now is cash, don’t worry; all is not lost. One option might be to create a new savings plan and wait until you do have enough money saved up. Another is to ask for a contract over a longer term. Your lender will have his own targets, so he/she could help you come up with a plan to get your cash ready.

P.S., Mortgage lenders will be looking for applicants with good credit ratings, so it is in your best interest to find out whether you are one of them. A high credit score can also get you lower monthly payments and better rates.

I recommend you watch the tutorial videos here, and request a FREE 15 minute Home Buying Strategy Session afterwards: Click Here To Watch Tutorials

10 Questions You Should Definitely Ask During An Open House

Write all of these important questions down before you go to your next open house

For home buyers, going to open houses shouldn’t just be about walking through a nice house and admiring the features. Open houses are a great way not just to experience the space, but to speak to the agent and get important information on the house that could help you decide whether to buy it or not. You might not get another opportunity to talk to the listing agent and more importantly, get some of the answers you need. The best way to maximize this window of opportunity is to come prepared. Don’t worry if you don’t know what to ask, we’ve got you covered! Here are 10 important questions for your next open house:

Why do the sellers want to leave?

You want to know whether the sellers are moving because the area is becoming increasingly unsafe, the neighbors throw parties every weekend, or the schools are horrible. The agent probably won’t give this information out straight away, but look out for any hesitation or sign that you aren’t getting the full story.

Have many offers been made on the house?

If they have received good offers, they’ll probably be trying to hide their grins. The listing agent will likely be willing to tell you how many offers they’ve had in the hopes that you’ll join the bidding process and hike up the price.

Has the price been stable?

Your realtor can show you how many times the price of that house has gone up or down since it was listed, but the listing agent will want to tell you why. Perhaps the price went down because the seller wants to move out as soon as physically possible. Information like this can help you negotiate a better price since you know what the seller’s priority is.

Does the house have any issues? What are they?

Every seller is required to inform all potential buyers of any structural issues, or code violations that come with the house. It’s best to ask for a complete seller’s disclosure in writing, so make sure you get one–if you’re luck is up that day, a chatty listing agent might tell you even more in a face-to-face meeting. Make sure you have a look at all problem areas suggested by the agent and take photos for your records. Don’t forget to factor this cost into your budget.

How many months has the property been on the market?

Sites like Trulia can tell you how long a given property has been available for sale. Your agent can also get this information from the local listing service, but you won’t get a full picture of what’s really going on. The house might have been on the market for quite a while, not because no one wants to buy it, but perhaps because the buyer who made the best offer couldn’t access financing in good time. The house could have been on sale for only a week, but the sellers expect high demand and multiple offers. This is all incredibly useful information when you are considering making an offer on a property.

How soon does the seller want to sell?

Some sellers might want to sell as soon as possible, while others might want to wait till the end of the year so they can spend their last Christmas as a family there together for example. The more you can learn about what the seller’s real motivations are, the more easily you can start to organize yourself around that.

When was the last time the house was updated?

It is easy to spot the obvious changes: a fresh paint job, brand new tabletops and appliances, etc. However, it’s just as necessary to find out how some of the smaller details are holding up. You want to know how old the roof is, how good the wiring is, etc.

Are there any (good) food spots around?

Knowing the local restaurants and coffee houses will tell you a lot about the vibe of the neighborhood. If there’s a popular retail strip nearby that locals (not just tourists) recommend, definitely try that out!

Are utility costs high?

Ask to see a few of the most recent utility bills if possible. That will let you know what the running costs of the house are like. If you’re moving to a much bigger flat than where you’re currently living, you might over or underestimate the cost of utilities.

Are there any ‘bad’ neighbors?

Is it a younger neighborhood with great nightlife? Or a quiet neighborhood that attracts retirees? Are there child-friendly places around? Some people are happy not knowing who their neighbors are and would prefer not to integrate in the community while others want to know they can leave their children at their neighbor’s house if they need to. The agent should be able to tell you more about who you’ll be surrounded by if you decide to purchase that home.

Remember: While it’s great and necessary to ask lots of questions, make sure you don’t give away too much about your own current situation. Keeping some mystery around your own financial state and how keen you are to buy the house will work in your favor when it’s time to negotiate.

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