Florida Mortgage
Basics
Today, buying or selling a
home is one of the largest projects many people
will take on in their lifetime. The complicated
process can be made easeir with the help from
our staff.
When shopping for a new home
we advise that you prepare yourself before starting
the search. Money and valuable time are not
to be wasted and following our guide will make
your home search experience more pleasurable.
You don’t need to spend any money until
you're ready, and some will find that home ownership
is not right for them.
Once you are informed, we suggest
implementing your real estate search, and eventually
the mortgage process, with the help of a professional
assistant. The small cost of working with professionals
will payoff in the end as you won’t suffer
the mistakes and errors of a first time home
buyer.
Should
You Rent or Buy a Home?
Finding
a Real Estate Agent
Factors
Beyond Price
Tactics
for Negotiating with the Seller
Basics
of Financing a New Home
Should
You Rent or Buy a Home?
The advantages of buying a
home compared to renting a home are abundant:
Owning a house, as opposed
to renting, is not only benefitting financially,
but it also gives you a place to really call
home. Obviously, it presents you with the responsibility
to maintain your own property, but it also gives
you the freedom to do as you wish with the property.
In most cases, the money a
landlord spends on rent can deferentiate depending
upon the amount a homeowner spends on a mortgage.
However these elements seem incomparable when
you consider tax deductions, the many benefits
you receive when owning your own home, and the
real savings offered.
A monthly mortgage payment
in many cases is fixed during the life of the
loan, while your monthly rent may increase at
your landlords will or at minimum along with
inflation.
New home buyers should also
consider appreciation (the dollar value increases
your home value over time). Over the life of
your home ownership, your new home may appreciate
tens of thousands of dollars which will eventually
become yours when you sell it!
Landlords take a percentage
of your monthly rent payment to pay for their
own mortgage along with the other expenses that
they incur while maintaining the rental. Don't
forget they rent the property in order to make
a profit, including eventual property appreciation
they will gain when they resell the home or
apartment.
If you purchase a home you
pay the expenses incurred to maintain your home,
and also gain the in tax savings and property
appreciation.
Whether to rent or to buy a
home is a difficult question. The rewards are
more benefitting if you are ready to own your
own home.
The Internal Revenue Service
allows home owners to deduct mortgage interests,
property taxes and some of the other expenses
incurred in owning your home when filling out
their annual tax returns. Home owners also have
a tax benefit when they sell their homes: the
current tax law allows, in certain cases, the
exclusion from taxable income of up to $250,000/person
in capital gained from the sale or exchange
of the property used as a primary residence.
If
you currently own a home you should consider
selling it first. When you get to the negotiating
table for your new home you will be in a stronger
position if the new purchase is not contingent
on the sale of your current home.
Relocating
your residency may become stressful, and in
order to avoid the pressure and the rush of
having to purchase a home you may want to consider
renting for a short period of time.
Know
were your down payment will be coming from.
Savings account, sale of current home, or a
gift as a source of payment. Don't forget that
conventional lenders will only allow you to
use 5% of the down payment from a gift. Lenders
verify the aging of your deposits to insure
that your down payment is not composed of more
than 5% gift funding.
Finally,
consider getting yourself pre-approved for a
mortgage. Most home sellers will take an offer
more seriously if they know you have already
been pre-approved for a mortgage. In fact many
realtors won't begin to show you homes until
you have a pre-qualification letter from a lender.
Finding
a Real Estate Agent
Real
estate agents can offer considerable amount
of advantages to your home search. They have
access to the Multiple Listing Service (MLS)
which lists all of the homes for sale in your
area. They may also have some homes available
in their agency which have not yet been added
to the MLS.
With time and money a factor,
a real estate agent's experience should be valuable
to both. Real estate agents knowing the local
market values of other homes that have been
recently sold in the area, and the advantages
and disadvantages of the home you're selecting
will improve your position when negotiating.
And
at no cost to you the real estate agents commission
is built in to the price of the home and paid
for from the eventual sale. In the event that
you search for a home without an agent, in most
cases, you will not save the cost of the agents
commission as normally since it's built in to
the selling price of the home.
Mistakes
can be costly and having your own real estate
agent can prevent them!
There
are three types of real estate agents:
1.
Seller's Agents - who represent the seller
2.
Buyer's Agents - who represent the buyer
3.
Dual Agents - represent both buyer and seller
Usually
real estate commissions range between 5% and
7% and perhaps higher for raw land and commercial
properties.
Take
some time in selecting your real estate agent.
Visiting open houses or, asking your friends
and relatives if they know of someone they would
refer you to are all ways to seek a suitable
agent. If you have already selected the area
you prefer, you may find that one realtor has
a stronger presence in this area compared to
another realtor.
Once
you have targeted a specific agent, ask the
real estate agent what area of town they specialize
in? How much experience do they have? How many
homes they have sold in the last year in your
price range? Are they a Realtor? Realtors are
members of the National Association of Realtors
and have agreed to conform to their code of
ethics. Try to find someone you can be open
with, as you will need to tell them all of your
likes and dislikes when viewing prospective
homes.
When
& Where To Search for Your New Home
Homes
look their best in the spring and summer therefore
prices may be a bit higher. However in the fall
and winter when leaves have fallen and gardens
are no longer in bloom sellers are generally
more flexible when negotiating since they know
they will have to wait until spring for their
home to look its best.
Some
think they should wait for mortgage interest
rates to drop. However, this plan doesn't always
work because home sellers also follow the interest
rates and may ask a higher price when they know
the lending market is advantageous to the buyer.
Remember the more open you are to the areas
and plans in a given town this will better your
chances to find what you're looking for.
Have
your agent research the Multiple Listing Service
(MLS) based on the specifications you've outlined
for your new home. Take a look in real estate
books found at the supermarket, the classified
ads of the local newspaper, and the internet
as many realtors list homes for sale on their
websites.
House
Hunting Strategy
Get
a map and select your preferred area of town
you're interested in. Look in these areas first
and then expand these areas in the event you
don't find what you want.
Save
time by speaking to your agent or the seller
before visiting prospective homes. Simple conversation
may save you a visit to an inappropriate home.
Have your agent give you the addresses of the
prospective homes they have found on the MLS
and do a drive by. A visual is worth a thousand
words and you may save time once you've seen
the outside. Viewing the outside may decide
whether you are interested enough to tour the
inside along with your real estate agent.
Express your likes and dislikes to your real
estate agent that way they can focus better
on your real desires before going forward.
If you pay multiple visits
to the same home try to go at different times
of the day. Things may seem different in the
daylight then they would in the evening and
vise versa. Try to visit during the week and
again on the weekend to see the changing character
of the neighborhood. Pay particular attention
to noise in the area and don't forget traffic
on the street front.
Before
And After Negotiating
Before
beginning negotiations you need to know the
local market. Know the selling price for every
comparable home in the area over the preceding
year, and ask your realtor to prepare a list
for you.
Don't
tell the seller more than you have to! Why you're
looking and when you need to move in by can
be big negotiating advantages to the seller.
This information can be easily given away to
the seller by casual friendly conversation.
Find out why the home is for sale. How long
has it been on the market? How long has the
current owner owned the home? How much did they
pay for the home? Have they made any improvements?
How much does the current owner owe on their
mortgage? Who built the home and what
is their reputation?
Make note of any flaws the home may have and
have your realtor insure that they will be remedied.
Once the purchase process begins appraisers
will visit the home and may point out anything
that you may have missed which the seller must
remedy prior to the actual sale.
Price
of The Home
Housing
prices are different from prices of almost everything
else. Many things are factored into the eventual
selling price, and the final price is determined
by the home seller and buyer. Appraisers can
give an estimate of a homes value however, the
final price can only be determined by you and
the seller.
The
sellers asking price may not be a good indicator
of a homes real value. Some sellers are realistic
about the value of their homes and others are
not. Some need to sell quickly while others
can wait
You
can make a low offer if you think the selling
price is out of line, however you should be
prepared to site examples of similar homes which
sold for the price you're offering to support
your bid.
On
the other hand if the home is priced low, move
quickly before another buyer has an opportunity
to put a sales agreement in place.
Once
you have a sales contract for the home in place
the seller is legally bound to sell you the
property for the contracted price. However,
you aren't bound to pay this price until all
of the contract contingencies have been removed.
The seller isn't obligated to reduce the price
if problems are found during subsequent inspections
but you are free to walk away from the deal.
Have as many professional inspections
done as reasonably possible. The cost of inspections
is relatively inexpensive when compared to the
savings you may realize by having problems corrected
prior to the sale or by reducing the selling
price.
Factors
Beyond Price
When buying a home you can negotiate more
than just the price. You can include any conditions
you consider important, these conditions are
called contingencies. Be careful to be reasonable.
If your not, the seller may decide not to
sell you the home.
In your offer you should
specify exactly what is being purchased, the
home, the fixtures, and the appliances should
all be documented in the offer. Specify the
amount of your deposit, which is normally
refundable if your conditions are not met
and the sale does not go through.
A financing contingency must be included if
you will be getting a loan. Also you should
specify that you have the right to perform
all reasonable inspections and finally the
closing date.
A
liquidated damages clause allows the seller
to keep your deposit in the event you default
on the purchase agreement. It doesn't mean
the seller can keep your deposit in the event
inspections find something that you want corrected,
but the seller is unwilling to pay for the
correction.
The
duration of your offer should be for one day
maximum two. This prevents the seller from
shopping your offer to other potential buyers.
Include
a home warranty in order to cover any problems
you may find after the fact. It's worth the
money so you can sleep soundly.
Avoid
unusual conditions that make your offer less
attractive. Often sellers will be accepting
of your conditions in the beginning of negotiations,
however after the agreement is made they tend
to fight over small issue.
Tactics
for Negotiating with the Seller
Buying
your home will exercise your patience and
will often payoff if you can muster it. If
you sense the seller needs to move quickly
don't rush. Allow the house to be on the market
for a while.
The
longer the home goes unsold the more pleased
the seller will be to finally receive an offer.
Be aware though if the house is a great deal
it may not stay on the market long and you
risk potentially losing the home to another
buyer.
You
can also make your offer immediately. If you
move quickly the seller may not have been
made other offers that they would consider
in conjunction with yours.
Your
negotiating strength lies in how long the
home has been on the market, how quickly the
seller needs to sell, and how willing you
are to walk away from the home if your offer
is not accepted.
Don't
forget that the seller may likely make a counter
offer to your offer if they consider it unacceptable.
You can always challenge their counter offer
with what you think would be another suitable
price. For example, you could ask to have
some appliances included if you accept their
new price.
Have
a signed agreement prior to performing any
of your inspections in order to avoid spending
money on a house you may never purchase.
The
Basics of Financing a New Home
The
funds used to purchase a home come from two
sources, you and your lender
Conventional
lenders have two limits on the amount of money
they will provide.
Loan-To-Value
(LTV) limit. This is the amount of money
the investor will lend expressed as a percentage
of the house's value. LTV varies depending
on your credit and employment history, the
loan program.
Loan
Amount Limit. Conforming loans can not be
higher than $417,000. Loans higher than
this amount are called Jumbo loans and have
different programs available than conforming
loans. Conforming loans are favored by lenders
as they are easily sold on the secondary
mortgage market.
Mortgage
interest rates usually follow the bond market
and you should not find large variances
in interest rates between one lender and
another. Variances appear in the total cost
of the loan which includes all of the fees
added to the closing cost of the loan. Fees
like origination fees, document review fees,
and processing fees may vary widely from
one lender to the next. In order to properly
compare one loan offer to another you will
need to have "Good Faith Estimates"
from both lenders. This is the only way
to compare apples to apples.
Lenders prefer borrowers that have a large
down payment, income sufficient to make
the monthly mortgage payments, a good credit
history and credit score, and sufficient
cash reserves in the event you fall on hard
times.
Lenders
use two ratios to evaluate your borrowing
power. Your front end ratio and your back
end ratio.
Your
front end ratio is the percentage of your
income to be used for housing expenses.
Your
back end ratio is the percentage of your income
used to pay all of you monthly reoccurring
debts (like car loans, credit cards) including
housing expenses.
Every lender has different
ratios which they consider acceptable.
Conforming loans have the guidelines of 28%
front end ratio and 36% back end ratio. These
ratios are only exceeded when the individual
lender considers other factors which may outweigh
the exceeded ratio and they believe the loan
will be able to be sold on the secondary mortgage
market.
Lenders
can make money from borrowers in three different
ways. Origination fees are fees lenders charge
to setup the loan. Interest rate spread is
the difference between the interest rate the
lender offers you, the borrower, and the actual
cost of the funds. The lender may also service
the loan, in which case they earn a fixed
monthly fee for sending notices and collecting
payments related to the mortgage.
With
many lenders you may be able to negotiate
on the origination fee and interest rate spread.
For example, you may be able get a loan with
a 6% interest rate and pay one percentage
point origination fee or get a 5.5% loan for
two percentage points origination fee.
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