Want to buy a home? Heed these lessons from the past.

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The American Dream has long been that of home ownership. It makes you feel settled, and a part of a community. It gives you pride in ownership.

But still, purchasing a home is not a decision to be made lightly, and it’s not a decision to be made if you’re heavily in debt.

In fact, financial guru David Ramsey believes that you should not only be out of debt, you should have a hefty emergency fund set aside. And… if you simply can’t wait long enough to pay cash, you should at least wait until you can pay 20% down.

That’s why our rule #1 is: Make the largest down payment you possibly can.

There are no crystal balls. While the banking industry is being a bit more careful about handing out loans now that it was prior to the housing crash, and while prices are now escalating, home values could drop.

If you purchased a $200,000 home with a 3% down payment and the market suddenly dropped by 20% – or even 10% – you’d be instantly under water. If you needed to move, you’d owe far more than the house would bring.

If you paid 10% or 20% down – or paid cash – you’d be in a much better position.

Lesson #2: Never spend all you can.

Because your lender only knows about the obligations you put on paper, he or she has no idea what your budget really looks like. You may have personal obligations, such as a promise to help support an elderly relative. You may feel that you actually need a skiing vacation each winter in order to re-charge and keep working. You may have children who just “have” to attend an expensive summer camp each year.

In addition, if you and your spouse both work, consider what would happen should one of you become ill or lose your job. Could you make a house payment on just one income?

Before you commit to a monthly payment just because a lender says you qualify, go over your own spending and make your own decision about how much you can spend. A good rule of thumb is to keep your mortgage payment below 25% of your monthly take-home pay.

Lesson #3: Stick with a fixed-rate mortgage.

The foreclosure crisis was due in large part to Adjustable Rate Mortgages (ARM’s) that let buyers in with low interest and low payments for a few years. Then, the rates adjusted, monthly payments skyrocketed, and the buyers were unable to make the payments.

Led by promises of refinance, they didn’t worry going in. But when those homes were no longer worth the mortgage balance, all hopes of refinance went out the window.

When you have a fixed rate mortgage, there are no surprises. Aside from changes in property taxes and insurance premiums, the payment can’t change for the life of the loan. Hopefully, your income will grow over time and the payments will become easier and easier to meet.

15-year mortgages offer lower interest rates than 30-year mortgages, but may strain your budget. However, there’s nothing to prevent you from adding a few extra dollars to each mortgage payment in order to bring the balance down faster – and thus reduce the total interest you’ll pay.

Lesson #4: Think ahead.

Buying a starter home in order to build equity so you can move up in a few years is a good plan, but do consider that you may be there longer than you anticipated. Another down turn in the market could wipe out that equity.

With that in mind:

  • Consider whether you and your family will still fit in the home a few years from now. Buying a 1-bedroom cottage when you plan to start a family is probably not a wise move.
  • Consider whether you’ll be happy in the neighborhood long-term.
  • Do hire a home inspector so you don’t get caught unawares and find yourself with major repairs in the near future.
  • Consider whether the house will have good resale value. Your real estate professional can point out the pros and cons of any home you are considering.

Before you begin to shop, call on Homewood Mortgage, the Mike Clover Group, to get pre-approved for a home loan. (At the same time, do remember lesson #2.) We’ll be glad to talk with you, show you the available loan programs, and determine the interest rate you’ll be offered based on your employment, income, expenses, and credit history.

We’ll also help you determine what you should spend on your new house based on your own examination of your spending habits.

Call any time: 800-223-7409

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Should you refinance your home mortgage loan?

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Refinancing your home mortgage loan can be a benefit or a detriment to you, depending upon a few factors.

First is the reason for the refinance. If the purpose is to lower your interest rate and/or reduce the remaining years on your loan, it’s a good idea.

It’s an even better idea if you have an FHA loan with a mandatory mortgage insurance payment each month. If you’ve acquired 20% equity in the house and your credit is good, you can refinance into a conventional loan and do away with the mortgage insurance payments.

It can also be a good idea to refinance and take some cash out if the cash is going to be used to do renovations and increase the value of the house.

If the purpose is to extend the length of the loan or take cash out for an unnecessary expense – such as a new car or a vacation – it’s a very poor idea.

Second is the rate of interest you’re paying right now, compared to the rate you would pay on a new home mortgage loan.

Third is your future plans. If you plan to stay in your home until the loan is paid off, then shaving $100 or more off each months’ payment is a really good idea.

If you plan to sell within a year or two, the cost will outweigh the benefit.

Remember that a new loan is not free. You’ll pay for an appraisal, title insurance, and a variety of closing costs and transaction fees. Sit down with your lender and calculate both the costs and the savings. Then you’ll see how many months it will take you to “break even” on the costs of the loan.

Will refinancing harm your credit?

Refinancing your home mortgage loan will have an effect on your credit, but it will be negligible in comparison to the benefit of paying less each month – and therefore less overall – for your home.

The effect on your credit will largely depend upon the FICO version your lender is using.

When you shop for a new loan, each lender will pull what’s called a “hard inquiry” on your credit report. Since the credit bureaus recognize several mortgage loan inquiries in a short time as shopping, your credit score will only be affected by one inquiry.

But what is considered a short time? Under the latest version of FICO scoring, 45 days is a short time. Under older score models, it’s only 14 days.

Also, since refinancing requires closing an old loan to open a new one, you could lose the benefit of your payment history with your current loan. Since payment history makes up 35% of your credit score, this will have a slight impact, depending upon the scoring model used.

Some models will eliminate that history while others will continue to report your payment history for the closed account.  However, the impact of hard inquiries and possible loss of payment history on your current loan will fade over time as you build a payment history with your new loan.

If you’re thinking of refinancing and aren’t sure if it’s the right thing for you, call us! We at Homewood Mortgage, the Mike Clover Group, will be glad to talk it over with you.

Call today: 800-223-7409

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Make your mortgage go away faster…

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You’ve purchased a fine new home and now you have a fine new mortgage. Even though you would have been spending those dollars on rent had you not made the purchase, looking at 30 long years of payments can feel like a heavy burden.

The good news is, you can make that payment go away much faster.

You may have noticed that in the first years of your loan, far more of your payment goes to interest than to paying down the principal. You may also have noticed that over time, those numbers change. Every dollar you pay toward the principal is a dollar that is no longer accruing interest.

Say you take out a loan for $200,000 at 4.5% interest. Your monthly payment is $1,013. Of your first payment, $750 will go to interest and only $236 to principal. Each month the numbers shift by one dollar- with one dollar less going to interest and one dollar more going to pay down the loan. It will take approximately 17 years for the balance to shift – more to principal and less to interest.

However, you can change that balance in your favor, simply by paying a little more, especially in the early years of your loan.

You can make one extra payment per year

If you get an annual bonus or always get an income tax refund, use part of that money to make an extra payment on your loan. In the example above, you’d be knocking 4.29 months off the length of your loan – or one year for every 3 years that you make the additional payment.

You can add a little extra every month.

Adding just $50 or $100 each month will shrink the number of years on your loan – but what if you could add an extra $236 per month? You’d effectively be making 2 payments rather than one – and eliminating $750 in interest that you will never owe.

Create your own amortization schedule.

Decide how long you want to keep making those mortgage payments, then create an amortization schedule based on the interest you’re paying today. It’s like refinancing, but without the reduction in interest OR the fees and loan costs that you’d pay for a refinance.

You can find amortization scheduling programs on line, or simply give your lender a call.

You can refinance.

If you’re still paying a high interest rate, it could be in your best interest to refinance. This is especially true if you now have 20% equity in your home and can finance OUT of an FHA loan. As you are probably aware, FHA loans carry mortgage insurance for the life of the loan – eliminating that will give you extra money to pay down your loan.

We at Homewood Mortgage, the Mike Clover Group, will be glad to go over the numbers with you so you can see exactly how a refinance would affect you.

Should you try to pay your mortgage off early?

You should if your goal is to become debt-free and you can answer yes to these questions:

  • Have I paid off my high-interest credit cards? (These should come first!)
  • Do I have an emergency fund set aside?
  • Have I got savings put aside for retirement and/or my children’s college expenses?

If you’re considering a refinance …

  • Is my income stable enough to support higher payments?
  • Is my credit score good enough to get me a low interest rate?
  • Do I plan to stay in the house long enough to benefit from the lower interest rate?

Take care of your day-to-day obligations and nest eggs first. Then think about cutting years off your loan. Considering the amount of interest you’ll save, paying down that mortgage could be more beneficial to you than putting the money in a savings account – and more “sure” than putting it in the stock market.

It’s most beneficial if you plan to stay in the house until it’s paid off, but can also help you build equity that can go in your pocket should you decide to sell at some time in the future.

When you’d like to explore your options, call us at 800-223-7409.

We at the Mike Clover Group will be glad help you see how each of these scenarios will affect your finances.  We’ll also be glad to get you pre-qualified so you’ll know what interest rate you’d pay for a refinance.

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5 ways to make sure your new home appreciates in value

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Some may tell you that all homes appreciate in value over time – or that it doesn’t matter, because you’re buying a home to have a home, not an investment.

The truth is, most Americans do move every few years, so thinking about that house as an investment as well as a home is a smart financial move.

  1. Choose your location wisely.

In fact, don’t even look at homes that are in the “wrong” location for you. You need first to consider your own situation and gravitate toward neighborhoods that will allow you to spend time at home rather than on the road.

In terms of appreciation, look for neighborhoods that are well-maintained and/or going through multiple upgrades. And then, whether or not you have children, consider the school district. Parents across the country are paying more for a home in order to get their children into top schools.

Do drive through the neighborhood looking for “For Sale” signs – too many is a good sign that others are finding it less than desirable. Keep looking.

  1. Search for the smallest, least-updated home in a neighborhood of nice homes. (Never choose the largest home in a neighborhood of small to medium sized homes.)

If you’re able to find the only home on the block that doesn’t have a deck or hasn’t had a kitchen upgrade lately – but you can afford to make those improvements – you’ll add instant value. In addition, pay attention to the size of the lot, since you may want to build an addition later on.

  1. Look beyond the lipstick and rouge – or lack of it

Curb appeal: Savvy home sellers go to lengths to create “curb appeal” to draw you in and cause you to expect to love the house before you walk in the door. And it works, many buyers completely pass over homes with poor curb appeal.

So go against the norm and take a look. While it’s true that neglect outside might signal neglect inside, it’s also true that it might not. You don’t know that homeowner’s circumstances. They may be physically unable to do yard work and may not have the budget to pay for it. The interior may be impeccably maintained.

Take a close look – are YOU able to turn that yard into a thing of beauty? If so, you’ll immediately increase the value of your new home.

Décor: Ignore the gaudy paint colors and leopard-print carpet. Forget the ugly couch and the velvet art on the walls. Those things can be changed immediately. Meanwhile, they’ve sent other buyers scurrying out the door, so the price might more than compensate for the cost of getting fresh new paint and flooring.

Instead, look at how the home functions and flows. Check to see that the number of bedrooms and baths fit your household, and that the room sizes will accommodate your furnishings. Look at the closets and the other storage spaces, and then…

  1. Get an inspection.

So many hidden things can be wrong with a house, that it makes a home inspection just about the best insurance you can buy. The inspector checks everything from top to bottom and will give you a written report outlining any and all issues.

Some, of course, are small issues. The inspector may point out that they don’t even need to be addressed. Others, however, can be major. Structural problems, pest infestations, polybutylene piping, a failing septic tank, or foundation failures fall under that category. Repair of these items can come with huge price tags.

Once the inspection is finished, go over it with him or her and ask questions. Find out which issues are major and which are minor. Then talk it over with your real estate agent. He or she may be able to get repair estimates so you can get a true picture of costs.

  1. Don’t over-pay

Experts say the way to make money on a home is at the purchase, not the sale. That means – never over-pay. Your agent will help you compare prices and values so you don’t make a huge mistake. He or she may also be willing to do a comparative market analysis to give you a clear picture of the home’s value in the current market.

In addition, never pay all the bank allows.

Leave room in your budget for unexpected expenses and for things your lender didn’t consider – like the fact that your kids like to go to summer camp, you like a skiing vacation every winter, or you love dining out or attending concerts.

The First Step

When you’re ready to find that home, the first step is to get pre-approved for your loan. So call Homewood Mortgage, the Mike Clover Group, and let’s get started.

Reach us today at 469.621.8484.

 

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New Credit Reporting Rules Will Raise Scores for Some

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Consumer advocates have long been pushing for improvements in the accuracy of reports from the credit bureaus, and now they’ve met with success. Equifax, Experian, and TransUnion are applying new, stricter rules to the information they gather from public records.

The changes primarily affect two major sources of inaccuracies in credit reports – tax liens and civil judgments. These are two areas over which hundreds of lawsuits have been filed and thousands of individuals have vainly fought to have incorrect information removed from their files.

From now on, in order to be included on a credit report, records must include the subject’s name, address, and either their date of birth or their Social Security number. This move should eliminate the possibility that your credit report will contain information about some other person who happens to share your name.

Since nearly half of all tax lien records and nearly all civil judgments do not meet this requirement, they will be stricken from credit reports, raising credit scores for approximately fifteen and a half million people in the U.S.

Changes in credit bureau policies have been happening for the past two years, when 31 state attorneys general got together to crack down on the credit bureaus. Following a deal that was negotiated, credit bureaus had already ceased including traffic tickets and court fines in their files.

According to Fair Isaac, FICO scores will typically increase 20 points or less, but that could be just enough to allow some people to buy a home or a car, get a school loan, or obtain a credit card. For others, it could make a difference in the amount of interest they’ll be required to pay.

Those individuals who have been battling to get incorrect information removed from their files will now be spared the frustration and the endless hours of trying to prove they are NOT the Joe Jones or Suzie Smith with a tax lien or a civil judgment.

Naturally there are those who fear that the result of this change will be loans granted to individuals who are not credit-worthy.

If you’ve been plagued by an inaccurate credit report and are ready to see how these changes have affected your own ability to purchase a home, call us at Homewood Mortgage, the Mike Clover Group.

Whether you’re ready for pre-approval or simply have questions, just call.  Reach us today at 800-223-7409.

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Should you purchase your own vacation home?

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If you’ve just had a wonderful family vacation at the beach or in a mountain cabin, you may be thinking how nice it would be to own your own vacation home.

You’d have all your own things right there. You wouldn’t have a hassle with booking a rental for the days you want. And, in addition to taking your annual 2 week vacation, you could steal away for long week-ends throughout the year.

It sounds ideal, but before you begin searching the Internet for vacation homes, stop and ask yourself two important questions.

First, of course, is “Can we afford it?”

The expense of a vacation home comes in two parts: The purchase and the upkeep. If you can answer “yes” to these 5 questions, you’re good to go on the purchase end:

  1. Is my primary residence already paid for?
  2. Am I putting away 15% of my income each month for retirement?
  3. Am I saving for my kids’ college expenses?
  4. Do I have an emergency fund equal to 3 to 6 months’ income?
  5. Do I have the cash to purchase a vacation home?

Question #5 is all-important. We believe no one should ever go into debt to buy vacation property.

It also a terrible idea to dip into retirement funds, especially if they’re in an IRA.

Be aware that withdrawing funds before the agent of 59 ½ means you’ll take a 10% penalty hit. Then you’ll owe taxes to the IRS – and possibly to the state. What that means in real numbers is that if you withdraw $100,000 from your IRA you’ll only receive about $70,000.

At the same time, you’ll be forfeiting the compound interest on that account.

Sure, that vacation home will likely grow in value – but as we’ve seen in recent years, that’s not guaranteed, and even in the best of economies it will dependent upon how well you maintain the house during your ownership.

Now consider upkeep.

You’ll need to maintain that home just the way you maintain your primary home, and some of the expenses may be higher.

Homeowner’s Insurance, for instance, costs more for a home that is virtually unoccupied. And, if you’ve chosen a beach home, you’ll probably be required to have flood insurance.

Property taxes may be higher because it isn’t your primary residence.

Monthly expenses – Depending upon the kind of home you choose, you’ll be responsible for utilities, internet/cable TV, garbage service, HOA fees, or lawn maintenance. It’s never good for a house to have utilities and heating/cooling turned off for extended periods of time, so don’t plan on just turning everything off while you’re gone. (The exception would be your cabin in mountains with snowy/cold winters – do pay to have the water system drained and winterized during the months it won’t be in use.)

Property management. Yes, this is an added expense, but it will give you peace of mind to have someone keeping an eye on your property on a regular basis.

Yes – you can use your vacation home as a rental. However, if you do, you run the risk of it being destroyed by tenants. You also have to adhere to rules set down by the IRS. If this is your plan, be sure to talk seriously with your tax accountant before making the move. And finally – check with your REALTOR® to make sure that using your second home as a rental doesn’t violate any subdivision or HOA regulations.

Second – “Do we really want to be locked in to the same vacation spot for the foreseeable future?”

When you own your own vacation home and you’re paying for it all year long, you’re pretty well committed to returning to it each year. That might be fine for the first year or two, but after that some other destination might catch your eye, and you’ll be sorry that you’ve made such a commitment.

Consider renting someone else’s vacation home. This is a short-term commitment that will cost you far less than owning your own. If you really love it, you can book ahead for the next year. If not, you can begin researching other destinations that might be even more fun.

You may have gasped when you read that a former President paid $7,000 per week for use of a vacation home in Hawaii. Many did. However, if you think about it, that’s a drop in the bucket compared to owning such a home for a full year.

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Avoid costly mistakes by understanding the home buying process

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The house and the neighborhood you choose are important, but even more important is buying it correctly. You want that house to be a joy. If you make mistakes in buying, it will be a burden.

So start at the beginning – with getting your finances in order.

We know, looking at homes is more fun than doing math, but the math does need to come first. Become financially ready for this giant step by putting your credit in the best possible shape, paying off old debt, and saving at least 3 months’ worth of living expenses in an emergency fund.

Remember that when you become a homeowner, responsibility for repairs and maintenance are all yours. If the furnace goes out on a cold winter’s night, you can’t ignore it and you can’t postpone it – you’ll have to get it fixed. And unless you took out a good home warranty plan, you’ll have to pay for it.

The emergency fund is also good insurance in the event that you should become ill or injured and be without income for a short time.

Next, save money for your down payment, closing costs, moving expenses, and any updates you’ll want to make before you occupy a new home.

How much money does that take?

Save at least 10% of your eventual purchase price for a down payment – 20% if you can. Paying 20% down means you won’t be paying mortgage insurance, and that can save you thousands each year.

On average, closing costs will cost about 3% of the price of the home. These are the fees charged by the title company, your lender, and the “prepaids” that cover property taxes and homeowners’ insurance reserves.

Moving costs can range from just enough to cover gasoline to several thousand dollars. It depends on how far you’re moving and whether you hire a professional.

What about updates? Can you move in now and make improvements later, or do you really need to repaint and install new flooring first? Allow for that cost.

Next, get preapproved for a mortgage loan.

This is the step that will show you just what you can spend and what it will cost you to borrow the money. It’s completely different from a loan pre-qualification, so don’t get the two confused.

To obtain pre-approval you’ll go to your lender with the same documents and verifications that you would take if you’d already found the home and were ready to get the loan. He or she will verify everything, then send the file to preliminary underwriting.

At the end you’ll be better off in two ways: You’ll know your limit, so you won’t spend starry-eyed days looking at homes that are beyond your reach. (Once you’ve looked at homes you can’t afford, the ones you can afford don’t look very appealing.) Second, when you have a pre-approval letter in hand, your home offer will be taken seriously, and will probably be accepted over any offers that come without a letter.

After all, no seller wants to take a house off the market and wait to see if the buyer will qualify for a loan. They’d much rather see it there in writing that “Yes, you can buy this house.”

Choose the loan option that’s right for you.

For many people, a fixed-rate loan is the best option. It gives you the security of knowing your payment will never increase due to fluctuations in interest rates. However, there are times when it’s wise to choose a Lender Paid Mortgage Insurance loan.This is an issue to discuss with your lender.

Most borrowers also choose a 30-year loan, but for those who can afford it, a 15-year term is better. You’ll own the house in half the time while spending many thousands less on interest. The difference between 30 years and 15 years at 4% is $262 per $100,000 loan. ($477.72 at 30 years, and $739.69 at 15 years.)

Once you’re pre-approved and know what you CAN spend, consider what you WANT to spend.  

Remember that your lender doesn’t have any idea what you like to do in your spare time. He or she doesn’t know of your passions or your future goals. You probably do have a few ways you like to spend money – whether it’s sending your kids to a fantastic summer camp, attending concerts, or collecting antique cars.

Leave room in your budget for those things that matter only to you and yours.

Choose a real estate agent to help in the home-buying process.

Sure, you can search on line and get an idea of what’s available, but when it’s time to actually locate the home of your dreams, you need professional assistance.

First, they know how to sort through the listings to find homes in the neighborhood that’s right for you. Remember that the neighborhood is the one thing you can’t change once you’ve purchased a home.

Next, they sometimes know of homes that are just coming on the market. In a competitive market, that will give you an edge.

After that, they know how to write the offer to protect your interests, and to present the offer in the best light. After that, they employ negotiation skills to help you get the most favorable price and terms.

How to choose the right agent.

Look for an agent who has knowledge and experience in the area where you wish to purchase a home. You want someone who is familiar with values and trends in the area and who can answer your questions about services and neighborhood amenities. This is not the time to choose someone from another part of the city, or worse – from another city.

You also want someone who is enthusiastic about helping you and who answers or returns your phone calls or emails promptly. Don’t settle for someone who calls back in a day or two.

Next, choose an agent who takes the time to answer every one of your questions to your satisfaction.

Once you have your loan nailed down and have found a spectacular agent…

It’s time to find that house.

Before you begin looking at homes, create two lists. One is “Must have,” and the other is “Would like to have.” Share these lists with your agent, who will then pare down the list to include only homes that offer the features and amenities you must have. From there, he or she will attempt to put homes with your “Would likes” at the top of the viewing list.

The location is all-important.

Choose a neighborhood or neighborhoods that will put you in close proximity to your workplace, your school, your favorite recreational spots, or possibly to your friends and family members. In addition, choose a “good” neighborhood. That means one where the homes are well-kept, adding to the value of every house nearby. In fact, it’s wise to buy the least expensive home in the best neighborhood you can afford.

The location is the one thing that can’t be changed once you’ve made the purchase, so don’t compromise.

Have your agent look at market trends in the neighborhood. Are homes increasing or decreasing in value? Is there new development planned that will affect home values?

Investigate the school district. Even if you don’t have children, buying in a neighborhood served by a top school district is wise, because it will affect your future resale value.

Choose a layout and floor plan that works for your family and your lifestyle. For instance, if you love to cook, don’t settle for an apartment-sized kitchen. While it’s true that walls can usually be moved, it’s expensive. So choose a pleasing floor plan from the start.

Look beyond the surface. Things like paint color and floor coverings are easily changed, and since most people can’t see beyond that surface, you just might get a great bargain buying a home with a lime-green shag carpet.

Once you’ve chosen the house, it’s time to submit an offer.

Your real estate agent will help you submit a solid offer – which entails a whole lot more than just the purchase price.

An offer consists of many pages, outlining everything from the type of financing and your down payment to the closing date and the contingencies your agent will recommend.

If yours is a good offer and you have no competition, it may be accepted as is. However, do be prepared for a counter-offer. Your agent will help you analyze that counter-offer and decide how to respond. Remember it is sometimes best to give a little on small things in order to obtain the prize: the house you want.

After you and the seller come to agreement, you’ll need a home inspection, an appraisal, and final mortgage approval.

You’ll also need a little patience. Here at Homewood Mortgage, the Mike Clover Group, we strive to complete each purchase loan within 30 days. However, some lenders routinely take 45 to 60 days.

Your contingencies will probably include a home inspection, so get that out of the way first. You may have included a repair allowance in your offer, and if any called-for repairs come within that amount, you can proceed. If more money will be needed, it’s time for more negotiation. Again, your agent will help you.

This contingency is important to you, because if repairs are extensive and the seller won’t agree to have them done, you can back out without losing your earnest money deposit.

Your offer may have called for other inspections, such as checking for insect infestation or determining the condition of a well or septic tank. These are equally important.

The Appraisal.

Your lender will order the appraisal just as soon as you’ve approved the condition of the house and the underwriter has approved your loan. This is to ensure that the bank does not lend more than the value of the house. If the appraisal comes in too low, you have three choices:

  • You can pay the difference out of your own pocket.
  • You can have your agent challenge the appraisal.
  • You can cancel the transaction and retrieve your earnest money.

The final mortgage approval.

Within a day or so of closing, the bank will take one more look at your financial picture – and here is where far too many buyers destroy their own dreams of home ownership.

How? By doing something to change their credit scores or their overall financial picture. At this time it is crucial that you do not:

  • Apply for a new credit card or credit at a retail store.
  • Buy a new car.
  • Co-sign a loan.
  • Increase the balance on an existing credit card or retail account.
  • Use your credit card to make a reservation of any kind.
  • Quit a job.
  • Change jobs.
  • Drain your savings or checking account.

Doing any one of those things could cause your loan to be denied, so don’t do them!

Finally – the closing!

Prior to the big day you should receive a copy of the closing documents for your review. These documents will outline the terms and conditions of your loan and will itemize the costs you are paying.

If you have questions about anything, don’t hesitate to contact your agent and your lender to get an explanation and clarification.

When you go to closing, remember to take along your ID and the cashier’s check for your down payment and closing costs, and be prepared to spend an hour or so. You’ll have pages and pages to sign, and the closer will explain each of them to you one more time as you go through the stack.

Here at the Mike Clover Group, we enjoy helping future homeowners take that first step by getting them pre-approved for a mortgage loan.

Whether you’re ready for pre-approval or simply have questions, just call.  Reach us today at 469.621.8484.

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Should YOU choose a 30-year fixed rate mortgage? Maybe not.

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While the most common home loan is the 30-year fixed rate mortgage, it may not be for you.

This loan was first established as #1 when the Federal Housing Administration embraced it back in 1954. It gave homeowners a longer time to pay, so their payments could be lower than they would have been with a 15-year loan.

In addition, people were happy with the predictability. They knew that the principal and interest portion of their mortgage payment couldn’t change for the duration of the loan.

It’s the most popular loan today for the same reasons. But that doesn’t mean it’s the right loan for you.

Here are 4 good reasons why you may want to choose a different loan:

You don’t have 20% to put down. Yes, you can get FHA loans and even some conventional loans with far less down payment, but then you’ll pay a steep mortgage insurance premium for the life of the loan.

Most conventional 30-year fixed-rate mortgages will require 20% down to avoid mortgage insurance premium.

You have the 20%, but you don’t want to spend it. You might prefer to put the money into a retirement account or keep it on hand for a business opportunity. You may want to consider a lender paid mortgage insurance loan. You pay a little higher rate to avoid mortgage insurance premium fees. This loan is ideal if you are going to be in the house for a minimum of 4 –  5 years.

You want to build equity quickly. If you can afford a higher monthly payment and want to build equity in a hurry, a 15-year fixed-rate loan could be best for you. The 15-year loan offers two advantages: Faster equity build-up and lower interest rates. Thus, each payment will go more toward principal and less toward interest.

You’re planning to sell the home within a few years. Perhaps this is a starter home and you plan to “move up” within a few years. Maybe you’re making giant strides climbing a corporate ladder and expect to be transferred to another city before too long. Or, perhaps you plan to retire to a different climate in just a few years.

In this case, a lender paid mortgage insurance loan is ideal, you can just right off the interest being paid. Also in most cases the payment is less even though the rate is higher because no mortgage insurance premium is required.

Do keep in mind, however, that in order to recoup your purchase price, you need to own a home for 3 to 5 years before selling. We realize that wasn’t true during the boom years before the crash, but in a normal market, such as we have now, that’s the rule of thumb.

Why? Because you’ll have selling costs. Plan on those taking at least 10% off the top of your eventual selling price.

If you plan to move within just a year or two… don’t get any loan at all! You’ll be financially and emotionally better off just renting. Remember that selling a house is a lot of work – not just for the real estate agents, but for the homeowners who need to keep everything in “show-ready” condition, be ready to vacate for showings at inconvenient times, and endure the stress of negotiating, waiting for appraisal and inspection results, etc.

 

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What is a mortgage and how does it work?

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Unless you have the ability to pay all cash for your new home, you’ll need a mortgage.

What is a mortgage? It’s a loan from a financial institution used to pay off the home’s sellers. It comes with a lien against your new home, and with your promise to the lender to make timely payments of both principal and interest, and to keep property tax and homeowner’s insurance payments up to date. In many cases, taxes and insurance are added to your monthly payment and held in escrow for the bank to make those payments.

Unless you made a down payment of 20% or more of the purchase price, your payments will also include mortgage insurance – which does not protect you, but protects the bank in the event of your default on the loan.

When planning to buy, first take a look at your credit score and debt-to-income ratio.

Low credit scores and high debt to income ratios can either destroy your chances of getting a mortgage loan, or put you into a high interest bracket. So get a copy of your credit report and scores.

If you need to do some work to get those scores up, get started right away. If you’re not sure where to start, please feel free to call us at the Mike Clover Group. We’ll be happy to give you tips and advice. Meanwhile, be sure to make every payment on time, and don’t take on any new debt.

Look at your debt to income ratio. You’ll find it by dividing your monthly debt by your gross monthly income. If the number is more than 43%, you need to begin paying off some obligations and reducing your debt.

Next, get mortgage pre-approval.

The maximum amount of your loan and the interest you will pay on that loan will depend upon your financial picture at the time of application. So before you begin to shop, it’s wise to get pre-approved for your mortgage loan.

You may have already been pre-qualified, and that can be helpful to you in your planning, but note that pre-qualification is not the same as pre-approval, and it carries no weight with banks or will home sellers. It is based only on a conversation between you and the lender, with no verifications.

Pre-approval consists of a lender getting the same information from you and doing the same verifications that he or she would do if you were making the actual loan application. Your income, your employment history, your assets, your debts and obligations, and your credit scores will all come into consideration.

Pre-approval, which should take no more than 2 or 3 days, gives you two advantages:

  1. You’ll know what you can afford, so you’ll look at the right houses. Beginning the search with homes that are out of your range is disheartening. Once you’ve seen, and fallen in love with, a home you can’t afford, the houses you can afford will have little appeal.
  2. You’ll have a far greater chance of having your offer accepted, or at least considered, than you would with no letter of pre-approval. Sellers aren’t interested in waiting to see if you can get a loan.

Don’t jump at the first mortgage loan you see – shop around.

Research the different types of mortgages and the programs offered by different mortgage brokers and banks before you decide.

First, there are two basic types of mortgage loans – fixed rate and adjustable. With a fixed rate loan, the interest rate will not change for the duration of the loan. The only time your payment will change is when your taxes and insurance change. This is a good loan for a borrower who likes the security of knowing the amount of their payment for the next 15, 20, or 30 years.

An adjustable rate mortgage generally starts out with a lower interest, but is subject to change after a pre-set number of years. (Usually 5 years) The interest rate will have a ceiling, or cap, but can still rise substantially. The difference between a 4% and a 5% interest is about $60 per month per $100,000 owed.

Next, different lenders have different programs and fees. Some, like the Mike Clover Group, can close your loan in 30 days, while others might take 45, 60, or even 90 days.

Apply for your mortgage loan

A common misconception is that once you’ve gotten a pre-approval and/or made a loan application, you’re stuck with that lender. Not so.

Once you’ve made application, you should receive a loan estimate that includes closing costs, the interest rate, and the monthly payment, including principal, interest, taxes, homeowners insurance, and mortgage insurance.

You have every right to take the same information to another lender in order to compare offerings and fees. We at the Mike Clover Group are proud of the fact that our interest rates and loan fees are among the lowest available in Texas.

Note that while letting a retailer check your credit at this time can harm your credit score, making multiple mortgage loan applications will not. The credit bureaus recognize that you’re not trying to take out two or three home loans – you’re shopping.

After you approve the loan estimate…

Your file will go to the underwriter for final approval, and as long as there are no mishaps, you’ll be on your way to closing.

Mishaps? What can happen after the loan is approved?

Your financial picture can change. You can apply for credit at a retail store or get a new credit card. You can co-sign a loan for a friend. You can change jobs or quit your job. You can buy a car or furniture for your new house. You can book a vacation, using a credit card as security. You can be late paying a bill.

The time between your loan approval and closing is critical. Do nothing to change your financial picture, and make no purchases beyond ordinary living expenses.

If you have questions, just call. Here at Homewood Mortgage, the Mike Clover Group, we’re always happy to answer. Reach us today at 800-223-7409.

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Homewood Mortgage,LLC

O: 469.621.8484

C: 469.438.5587

F: 972.767.4370

18170 Dallas Parkway

Ste. 304

Dallas, TX 75287

NMLS# 234770

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