Mistakes for First Time Homebuyers to Avoid
Buying your first home is an exciting time. Your mind may
drift away at what color to paint the walls or where to put the sofa. You may
fantasize about holidays and events you will share with your family in your new
home. However, the process from signing the sales agreement to actually closing
the home may be a confusing time for the first time homebuyer. Below you will
find a few mistakes to avoid along the journey into home ownership.
Assuming you will not be approved for a home loan tops our
list of mistakes. Even if you do not have a perfect credit score, you may still
get approval. There are options out there like Federal Housing Authority loans
that are meant to help low-income and first time buyers. Talk to a loan
specialist to weigh all your options before giving up on the dream of owning
your own home.
Not getting Pre-Appoval is number two on our list.
Pre-Approval gives you a realistic understanding of how much money you can
spend on your new home. It also shows sellers that you are serious when it
comes to making an offer on the home.
Do not allow your credit score to change before closing.
Pre-Approval is not a guarantee of getting your loan. If your credit score or
income changes drastically before the closing the lender may change, terms or
worse completely rescind their offer. So in the mean time pay all your bills on
time, steer clear of new credit accounts and do not switch jobs.
Lastly, avoid maxing out your mortgage limit. Just because
the lender says you can borrow a certain amount of money does not mean you
have. Being cautious is never a bad thing. Try to stay below to give yourself a
little more financial flexibility. Make sure to have enough money to cover the
added expenses that come along with buying a home. Create a budget to figure
out how much money you can spend on housing costs each month and be realistic.
Buying your first home does not have to be a scary thing.
Keep calm and follow the tips above and
be in your new home in no time.
Real Estate Terminology
Some of the terminology used in a Real Estate transaction
may be somewhat confusing to a first time home-buyer. If you find yourself in
the midst of closing on your first home or just starting the process read below
for some definitions several commonly used terms used during this process.
Amortization- a system of paying off the mortgage combining
interest and principal for your payments.
Assessed Value- the dollar value assigned to your home by
the Assessment office for the purpose of property taxes.
Cash Reserves- monies the buyer has left over after the down
payment and closing costs.
Closing Costs- fees paid buy at closing. These fees may
include commissions, mortgage fees, recording fees, title insurance, taxes, and
Contingency- a clause in an agreement that keeps things from
being legally binding unless a requirement is met.
Earnest Money Deposit- is a payment to a seller to show them
that you are serious about purchasing the property. The deposit is counted
toward the offer and refundable if the offer is not accepted.
Equity- increasing over the life of a mortgage, this is the
difference between the home’s fair market value and the unpaid balance on the
Escrow- an account arranged by the lender that receives monthly
payments from the borrower to pay for things like insurance and taxes.
*Click on the link below for a printable list of these terms*
Preparation is Key to Fast Loan Approval
Closing on your new home in 30 days or less is a
possibility. This may even help to lower your interest rates a bit. However to
do this you must be prepared.
The longest part of the home buying process is when the
mortgage lender requests documentation and you provide. This process may take
two weeks or more but knowing what you will need beforehand can shorten astronomically.
Typical paperwork requested is W-2 statements, Federal Tax returns from the
past two years, your two most recent paystubs, last two bank statements, copy
of your driver’s license and social security numbers for anyone who will be on
the mortgage. If you have a unique credit situation, i.e. a recent short sale,
mortgage foreclosure, child support payments, or alimony payments, then you
will want to obtain the necessary documents pertaining to these situations. Pre-gathering
required documents can get your loan approved ASAP.
Always be honest with your lender. The number one reason to
do so is withholding information can constitute in loan fraud. Secondly, the
lender is going to find out any info you are trying to hide. Lenders do a
comprehensive check on credit, occupancy, and employment. Any discrepancy the
lender may find must be explained and may lead to the loan being denied.
The most under used tool available is mortgage preapprovals.
The lender will take a complete loan application just without a property. A
mortgage preapproval can save seven days or more from the approval process almost
guaranteeing a fast closing on your new home.
With a little preparation, your loan can be approved and you
will be in your new home in no time.
Home Staging can Yield Better Returns
With more than 6 million homes sold in 2016 and the price of
a home being up more than 5% than last year, 2017 is looking good for potential
home sellers. However, there are some ways to bring an even better price than
what you were expecting. Home staging is an inexpensive but very effective way
to bring in a huge return.
When you home stage you aim to improve the flow of your home
by making some small repairs and decluttering to make the home feel bigger and
brighter. Painting will mask odors and brighten a room. While new carpet, even
inexpensive, makes the home look clean and new. Give your home the illusion of
more space by removing useless items sitting around and in closets. Make
repairs to and replace broken and worn out items. Homebuyers will look at the
small things. If they notice a broken light fixture, they may wonder what other
big items are in disrepair. Most buyers begin their home searches online now. A
staged home will appear better in a photo while a non-staged home will appear
There is some professional help out there too. A
professional Home-Stager will evaluate your home, telling what and where needs
some sprucing up. The charges vary some professionals charge by the hour while
others will set a flat rate fee. All will charge for materials. On average, the
cost to have your home professionally staged is $675. Depending on the size of
your home, this fee may be less or more. Shop around for the best deal but
remember a good home stager does a cost benefit analysis to help you understand
With some careful planning and inexpensive staging, you can
yield big results on selling your home.
High Interest Rates Can Be a Good Thing?
On March 15, the interest rate for a 30 year fixed rate
mortgage was 4.44%. That is up a bit from January 18 when it was only 4.18%. Don’t
despair though high interest rates have many unknowing benefits that could make
them actually a good thing.
High Interest rates signal an economic improvement. The Fed
raises short-term interest when there is inflation. Inflation is the price of
goods and services is rising and the purchasing power of money is decreasing.
Typically, inflation is not a concern when the economy is in poor condition. In
fact, inflation brings more consumer activity. This consumer activity brings
more jobs and higher wages. Therefore, when you see interest rates go up just
remember the economy is getting better.
If you are considering purchasing real estate during a time
that interest rates are on the rise there are some good factors to consider.
Sellers will be more likely to give a decent deal for their property because
they will be worried about the interest hikes themselves. This could potentially
save you a lot of money. Additionally you may be able to get government loans
at a better deal than before. FHA, VA, and USDA loans are assumable under their
original terms so a homebuyer can take over the sellers existing mortgage at a
below market rate.
High interest rates cause a drop in home refinancing. This
leaves lenders with a decision. Should they relax guidelines for applicants? If
they do, a “top drawer” applicant may be given the best offer and an applicant
who they might have turned away last year lenders would be more willing to
approve. Remember get several bids from competing lenders to save the most
Passing on a Bit of
As we approach midway, of the
second month, of the New Year we realize it is that time again. Yes, Tax Season
is upon us. While you gather up your W-2’s, receipts and all the necessary
paperwork do not despair. If you happen to be a homeowner there are many
surprising and helpful deductions that you are able to use to lessen the burden
Appliances purchased and home
improvements made within the year may be deducted on your tax return. Anything
that makes use of green energy, including solar, geo-thermal and wind
improvements are deductible. When purchasing appliances, windows, doors,
heating and cooling units look for the Energy Star seal. These items may be
deducted from the tax year in which they are bought. They may also be eligible
for local and state credits. Just make sure to keep all receipts of all items. Check
out Energystar.gov to see if the items you purchased or are about to purchase
will help to lower your tax bill.
Homeowners can deduct real estate
taxes in the year that they are paid. These taxes are usually paid twice a
year. Owners that don’t have a Mortgage or Escrow keep track of your taxes paid
and claim that amount on your tax return. Owners that escrow taxes and
insurance pay 1/12 of the annual tax bill monthly. For these homeowners the
lender makes it simple for you to itemize real estate taxes on your return. In January,
you will receive a 1098 form. On this form, it lists mortgage interest paid,
detailed amount paid into escrow and amount disbursed to the local tax
authority. Then claim the disbursed amount on your Federal Income Tax return.
Being the largest break available,
mortgage interest is also deductible on your tax return. Interest is paid along
with your mortgage payment and can be found on your mortgage statement. These
deductions aren’t just for your first mortgage. They apply for your second
mortgage too. Home Equity Loans and Home Equity Lines of Credit interest may
also be deducted. However, owners who raise their Mortgage Debt beyond their
property’s Fair Market Value are ineligible to deduct their interest paid. Good
news this only applies to a few and the majority of homeowners are eligible for
deduction of their interest paid.
Tax years run from January thru December;
however, a home is usually bought or sold at anytime of the year. When this happens,
taxes are usually divided between the two parties. The buyer and seller pay for
the period in which they owned the home. The buyers share at tax time is fully
deductible. The seller may however be subject to different types of
liabilities. Profits on a sale not exceeding $250,000 ($500,000 if married and
filing jointly) are exempt from capital gain taxes. Profits exceeding are
subject to these taxes unfortunately. The seller may have additional taxes if
they used the Federal Tax Credit or Down Payment Assistance Program at time of
their closing on the home they are now selling. These programs require a
minimum number of years of occupancy on the property. If the home is sold
before the time then the seller may be required for repayment on the initial
tax credit or tax upon the gains. Help is in sight though, if the reason is
change in health, employment or unforeseen circumstances than the IRS may
With the deductions stated above
the actual cost of owning a home is a lot lower than what is seen paid on your
bank statement each month. As always consult an accountant or tax professional before
filing your income tax return. Happy Tax Season!
Why is Title Insurance is so Important?
Protecting your investment and safeguarding the title to your home. With few exceptions, a home represents the largest single investment most people make in their lifetime. Thus it is only natural that an owner will want to make that investment secure by protecting the basic proof of ownership. Title Insurance is the most effective and lowest cost way of doing just that.
What is a title? A title is the evidence or right which a person have to the ownership and possession of land. A defect in that title can be any legal right held by someone other than the owner to claim property or to make demands on the owner of that property.
What can make a Title defective? There are many possible causes of title defects that no examination can disclose. That is because they have never been recorded and thus to not appear in the abstract. A Title Insurance Policy protects the owner against all these hidden risks; those listed below and many more:
- Fraud. False claims of ownership, forged deeds, wills, signatures, conveyances, instruments, false representations, false records of all sorts, illegal acts of trustees, guardians, administrators and attorneys.
- Human Error. Errors in copying, indexing, recording; errors by administrators, executors, trustees, guardians and attorney; destruction of records.
- Improper Deed and Wills. Deeds by persons of unsound mind, minors; deeds delivered after death or without the grantor's consent; invalid, suppressed, erroneous wills, missing heirs, unsettled estates.
- Liens and Other Rights. Liens for unpaid estate inheritance, income, property and gift taxes; homestead rights, community property rights, irregular court proceedings, court opinion reversals, lack of court jurisdiction, defective foreclosures.
What is Title Insurance? Title Insurance is a contract to protect the owner against losses arising through defects in the title to real estate owned. If the title is insuraable, the company guarantees the owner against loss due to any defect in title or expenses in legal defense of the title pursuant to the terms of the policy.
Owner's Policies and Lender's Policies. A lender will often require a title policy for their protection alone. Such a policy does not protect the owner. To protect themselves against poissible title defected, an owner should purchase an Owner's Title Insurance Policy on the property.
Why Buy Title Insurance? When a person buys a car or consumer goods, they seldom need to know whether the formerly owner is married, single or divorced; whether they have paid their taxes or are involved in a lawsuit. But when a person buys a home it is necessary to have all that information and much more. For a while he or she may own the property, others may also have rights in that same real estate.
A competent investigation can uncover such items as unpaid taxes, easements, restrictions and more. However, all items affecting the title are not contained in a single book, in a single office or even in the same city. Then, add to this possibility of human error at a multiplicity of points. Yet what is not in the public records often causes title problems. For all these reasons and many more, a property owner needs the protection afforded by Title Insurance.