Tuesday, 15 March 2016

Do you ever walk by a For Sale sign and just wish you could buy it right then?

You've been renting forever and it would be great to have your own place—no landlords, no deposits, and no urgency to nab the perfect unit when your lease is up. The reality just might be that home ownership is perfectly attainable for you—you just don't realize it.

What's a typical required down payment?

Different loan programs require different down payments and minimum contributions. There are many products and options for first-time home buyers (FTHB) to choose from.

For example, Fannie Mae allows for FTHBs to purchase one-unit primary residences with as little as 3 percent down on conventional fixed-rate loans—including lender-paid mortgage insurance (LPMI) options—whereas FHA financing requires a slightly larger down payment at 3.5 percent.

Other government financing options, such as the U.S. Department of Veteran Affairs (VA) and the United States Department of Agriculture (USDA), may not require a down payment at all, if you're eligible. Some lenders have begun offering 100 percent financing options to low-to-moderate income (LMI) borrowers—which is no more than 80 percent of HUD Median Income—and/or on properties located in LMI census tracts.

Additionally, some products allow for the borrower to use down payment assistance (DPA) programs, community second mortgages, and/or gift funds.

What types of mortgage programs are available? 

First-time home buyers typically have access to the same mortgage products that seasoned homeowners do. However, there are some special product features or products unique to these new buyers.

For example, in some programs first-time home buyers are allowed to finance up to 97 percent loan-to-value (LTV) using a conventional fixed rate loan, whereas non-first-time home buyers are required to put at least 5 percent down.

Also, some lenders offer portfolio products specifically designed for those new to homeownership.

How would you compare costs of renting and owning?

Buying versus renting is one of the toughest financial decisions many adults will make, and it's just as much a lifestyle decision as it is an economic decision. Ask yourself if you can purchase and rent comparable properties for similar monthly payments, or if one is much more expensive than the other?

Then, there are less obvious variables involved in the decision, such as:

  • Homeowner's insurance (HOI) versus renter's insurance
  • Property taxes versus large up-front pet and security deposits
  • Homeowners' association (HOA) dues (if applicable)
  • Mortgage insurance (if applicable)

Renters also typically enjoy the convenience of a landlord maintaining the property, whereas recurring expenses, such as pest inspection/treatment, lawn care, and other routine upkeep and repair are the responsibility of the homeowner.

Of course, renters also have the freedom of shorter contracts (for example, a one-year lease versus a 30-year mortgage), allowing them to be mobile regarding employment, but not protecting them from rising rental rates.

Homeowners build equity over time as the principal mortgage balance is paid down and the property's value appreciates. This equity may be borrowed against down the road to make home improvements and further increase the property's value, or to consolidate higher interest rate revolving or term debt and save money each month. In fact, in most cases, residential real estate is used to store wealth that will be liquidated or passed down at retirement or death. The risk is that property appreciation is not a guarantee.

Additionally, home ownership may reduce the amount of personal income tax liability the owner has annually because mortgage interest paid and property taxes are generally tax deductible.

How does a mortgage professional help start the process?

The mortgage industry is complex and ever-changing, so it always helps to have an industry veteran by your side. It's recommended, especially for first-time buyers, that you work with a loan officer to get pre-qualified first. This will allow your loan officer to discuss the different product and pricing options available to you, answer any questions you have, walk you through the entire process (such as application, processing, underwriting, and closing), including required documentation (like paycheck stubs, W-2s, and bank statements), what to expect (contract, inspection, disclosures, appraisal, and title), and probable timelines for completion (usually 30 to 90 days). This also lets you know how much house you're going to be comfortable purchasing (e.g. up to $250,000), so you may search with a real estate professional with confidence.

Now you're armed with the facts. It doesn't necessarily take a lot of cash to become a home buyer, and you may even have that in the bank right now. It just might be time to talk to both a mortgage and real estate professional about your local market—and see if that For Sale sign you keep walking past can turn into a Sold sign.



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