Sushi Money

    In a challenging housing and mortgage lending climate, it is obvious that both buyers and sellers are looking to improve their chances for completing the deal.  CNN/Money has written a great piece on how to Make the Rocky Real Estate Market work for you.   There is more worth considering…especially if you’re a seller. I’ve been there several times myself over the past fifteen years, and strongly believe there are specific things you must do to get your home sold.  So if you’re planning or trying to sell your home, take a look at Get Ready to Sell That House  posted in March.  When I look back, it was the little things that mattered most in selling several homes, and I would do those same things today.  Perhaps I might be even more accomodating to prospective buyers and really examine the bottom line selling price I would accept.

     For buyers, the real estate market offers incredible opportunities right now… and maybe for the next 12-18 months.  We never really know, but it’s a good bet that a housing recovery is a year or two away, so it’s a buyer’s market for now. Yet there’s always something to deal with… and getting a mortgage loan isn’t quite so simple anymore.  That doesn’t mean you can’t get a loan, because you can.  But lenders are obviously very concerned about mortgage risk right now, and will grill you from top to bottom to ensure income verification and credit score analysis meets their criteria.  Here’s a few things to consider as a buyer BEFORE you begin the mortgage application process:

• Get a copy of your credit history and look carefully at every item.  I recommend getting a copy of your credit history from all three major credit agencies.  You can do this through MyFico.com or a similar company.
• If there’s something you think shouldn’t be on your credit report, then send a dispute letter to the credit bureau.  They are required by law to investigate and return their findings to you.  If they can’t, they must drop that item after 30 days.
• Unless your credit situation is severely challenged, I would not recommend going through a “credit repair” agency or business.  You can do the same thing yourself intead of paying them monthly fees and retainers.
• Take a close look at your individual or family debt situation.  If you’re married, and will be applying jointly for the mortgage loan, then both spouse’s debt and credit history will be closely examined.  Avoid applying for any loans, of any kind, within 6 months of applying for a mortgage. 
• Work hard to pay down your debt to improve your debt-to-income ratio.  Mortgage lenders have slightly different criteria, but the bottom line is that you must be able to make the monthly mortgage payment.  Check out this article from Bankrate.com describing the basics of mortgage lending criteria.  There’s a calculator at the end of the article to conduct your own analysis.
• Be realistic about the size of the mortgage you can afford.  When your credit history, debt and income situation are in control, then it’s time to think about that down payment. 
• Mortgage lenders are probably going to require a 10% to 20% down payment for the home you choose to purchase.  If you put less than 20% down, you’ll also be paying for Private Mortgage Insurance which can be 5% to 10% of your monthly payment.  Maybe even more with the mortgage fallout this year.
• Consider the costs of insurance on your prospective home, which may add up to 10% to 15% of your monthly payment.
• Taxes… a biggie.  Take a look at your county collector or assessors property tax requirements.  You can probably see what homeowners are paying for taxes in the area you might choose to live. Property taxes vary widely throughout the nation, but in some areas monthly property taxes can make up 20% to 40% of your monthly mortgage payment! 
• Most lenders will require an “escrow account” to hold funds for property taxes, insurance and private mortgage insurance.  That escrow account accumulates funds throughout the year, and is why it’s added to your monthly mortage payment.  The lender wants to make sure those fees are paid, so most insist on escrow accounts.
• Is it time to look for a home?  This should be something you spend several months on… take your time and have a good idea of the size and cost of the house you can afford.  When you are serious about looking at homes, with the potential to make an offer to buy… you’ll want to have a mortgage loan “pre-approval” letter in hand.  This is more than a “pre-qualification” that simply says you are qualified to apply for a loan.  The “pre-approval” is an initial commitment from a lender for a given mortgage product, and given mortgage amount.  You should not have to “apply” for a mortgage loan to gain a pre-approval letter.  Talk to your preferred lender(s) and ask what is required to get a pre-approval letter. 
• Ready to apply for a mortgage?  Do so very carefully… Bankrate.com also offers a great look at national and local mortgage rates from many different lenders.  Just do your homework and shop around.   When you are ready, it might be in your interest to apply with two or three lenders.  It may mean paying several hundred dollars extra for more than one home appraisal, etc. but that’s an option you can choose.  During a home purchase in 2006, I applied with two lenders, one of which refunded the home appraisal if we did not close on a loan with them.  Just make sure you are not committed to the loan for any excessive costs when applying with more than one lender.  The lender does want your business, but if they cannot offer as good or better rates than another lender, they will usually tell you.
• When applying for a mortgage, do not space out loan applications over several weeks or more.  Your credit history will normally show multiple “hits” for loan application if spaced out over time and it may lower your credit score.  But two weeks is usually the magic timeframe.  If you apply for a loan with several lenders within a two-week period, the credit bureas normally don’t consider that negatively for your credit score, understanding that consumers may be shopping or applying for a loan.
• Type of loan?  I’m a firm believer in a 30-year fixed rate mortgage.  You can pay points at closing to lower the rate, or take a higher rate for little to no points.  All points are is a prepaid form of interest tacked on to your costs at closing.  In exchange for a lower rate, you are prepaying the lender up front.  Sometimes you can wrap those points up in the mortgage itself.  Rates are still very good right now by historical standards.  I paid for several years on a loan at 8.9% and 7.9 percent.  I even paid off a truck loan at over 12% in the mid-1980’s!  Sounds absurd right now, but that was life back then.   You can talk to many people who had mortgage loans ranging from 10% to 14% in the early 1980’s after rampant inflation during the Carter years.  Why do you think Ronald Reagan was elected?  So if we can get a mortgage loan today from 6.5% to 7.5% we’re doing pretty darn good!
• Finally, be patient yet firm with your lender, and ensure you understand the process and forms you’ll be dealing with!  There will be appraisals, inspections, etc, etc.  Your buyers agent (you have one, right?) should be knowledgeable about the process and help shepard the closing.  The lender can (and should) give you a package of estimated closing costs, including most of the forms you will see at closing.  Read and understand the terms of your loan… and go over the expected closing costs in advance so there are no surprises on closing day.  If you do get a surprise at closing, perhaps a change in interest rates or some excessive costs that were not previously disclosed… be prepared to walk away.  Most people never do, they just want the process finished and are happy to get into the home of their dreams.  But it’s your money, and your mortgage.  It should be something you understand and are prepared for.  After all, it’s probably the biggest expense of your life!

There are many library books and other sources of information on buying and selling homes… do yourself a favor and continue to learn as much as possible before hand.  I’m sure I missed something… let me know!

No comment - Post a comment

« Where Goeth Pfizer? | Bond Gurus and Banks Must Solve Liquidity Crisis First! »