Financing

Advantages of Homeownership

Equity

Owning a home builds home equity; renting does not. After paying rent for 30 years, a home renter would have a rather large box full of rent receipts. After paying a mortgage for 30 years, a home buyer would own the home “free and clear” and owe no more monthly mortgage payments. Housing expenses would be reduced to paying taxes, insurance and home maintenance.

Tax Advantages

There are some significant tax advantages associated with home ownership such as the ability to deduct property taxes and interest on the mortgage. You should contact your tax adviser for more details on tax deductibility.

Should I Buy now vs. Buy Later?

Many times home buyers debate about buying a home now or waiting to save more money in order to get a bigger home later. History has shown that those who wait will end up paying more money to purchase less of a home. The extra money that you are working toward will disappear with the increase in housing costs. There is no better time to buy than right now. Properties across the country are again appreciating along with the cost of homes inching upward. Mortgage interest rates are also expected to increase creating a higher mortgage payment.

The demand for affordable rental properties is also increasing and as the supply diminishes the rental rates go up.

Get pre-approved for financing

This is the absolute first step; figure out the financing and get approved for your mortgage. If your lender tells you not to worry, but go find a house first…unless you have deep pockets and can afford any payment…you need to find another lender. All reputable lenders will gladly start your loan process and we will be happy to recommend and introduce you to the best mortgage experts in the business.

Consider this scenario: A home seller gets two similar offers. One offer is accompanied by a letter that supports that the buyer has applied for financing and the application information has been verified, and approved. The other offer is waiting to “find the right house” first before they apply… which offer do you think the seller will consider?? The buyer that is pre-approved will always have the advantage during negotiations.

Pre-qualified vs. Pre-approved

Pre-qualified only means that based on what you told the lender you could probably qualify for the loan…a weak statement in today’s Real Estate market. Seller’s want to see “ready, willing and able” qualified buyers with the documentation to prove it.

Pre-approved means that you have actually made a true loan application, had your credit checked, income and debts verified and paid an appraisal fee deposit to have your loan processed so that you reach an approved status. Some sellers only want “approved” buyers submitting offers and will not even consider anything less. They know that serious buyers start by applying for financing. Pre-approved borrowers are almost equivalent to cash buyers.

How much can I afford?

Lenders today are not as flexible as in previous years and will scrutinize every facet of your qualifications. Sometimes what you want, what payments you are comfortable with and want you qualify for, may be three different amounts…another reason to figure out your financing first.

What you will qualify for will depend most on your credit score combined with your debt to income qualifying ratio, length and type of loan, amount borrowed, down payment available, job stability and secondary assets…in addition to the documentation you are willing to provide.

Credit and Debts

Credit is most important because it demonstrates that you have the ability and willingness to repay obligations responsibly. Lenders will be particularly interested in the preceding 12 to 24 months of your credit history.

Lenders will require a credit report to examine the condition of your credit. This credit information is collected by three major agencies; Equifax, Experian and Transunion. Each agency uses different software, so scores will vary and lender will look at more than one score.

Credit scores range from 350 to 830 and the higher the score, the better, as lenders view a higher score as less risky and will offer better terms. A credit report will provide an historical picture of your credit history; debts you owe, length of credit, timely payments, types of credit, and new credit, to determine if and how many times you have been delinquent in making payments on previous debts.

Even when a credit report is generally positive, many lenders require written explanations of any negative comments that may appear. Sometimes credit reports are inaccurate and doing your loan early will give you time to correct any mistakes on the report.

Interest rates

What interest rate you can get just depends upon many factors as individual as your fingerprint…they are no two borrowers alike, so do not compare your rate with what your friend got. The most important #1 ingredient is your credit score. That combined with your income to debt ratio, length and type of loan, amount borrowed, down payment available, job stability, secondary assets and what kind of documentation you are willing to provide…the less you provide, usually the higher the interest rate.

What types of loans are available?

Conventional

A conventional loan is a traditional loan that is not a government insured loan like FHA or VA. The down payment required depends upon if the property is a primary residence or investment, plus other qualifying requirements like credit score, loan to value, income stability and debt ratios.

Jumbo Loans

Conventional loans over the amount of $417,000 are jumbo loans or non-conforming loans. These loans usually have slightly higher interest rates than conforming mortgages due to the larger loan amount and different qualifying criteria.

FHA Loans

FHA loans are loans insured by the Department of Housing and Urban Development (HUD). The minimum down payment of 3.5% is available to all qualified buyers, but subject to a maximum loan amount which varies from county to county. The loan offers low down payment options and qualifying flexibility, however there is a charge for mortgage insurance premium (MIP).

VA Loans

VA loans are 100% financing loans insured by the Department of Veterans Affairs. No down payment is required, but buyers have to be qualified veterans of military service, or a widowed spouse. Credit scores and means of repayment will also be a determining factor. There are also additional closing costs associated with a VA loan.

Custom Mortgage Programs

There are also custom mortgage programs that can help meet the specific needs of individual buyers. Some may be portfolio loans, private lenders, or simply a creative loan.

Foreign National Program.

A Foreign National is defined as a citizen of a foreign country who can legally enter the United States and is buying a primary or secondary residence or investment property. The down payment requirement varies with each individual situation.

Choosing a lender

Choose a lender that is licensed in the State of Florida and regularly does business here. Lending laws vary from state to state and you need someone who understands Florida requirements and is experienced in the home financing market.

We can recommend a mortgage professional who will take the time to answer your questions and help find the best mortgage-financing package that meets your specific needs. There is more to a loan than just interest rate, as a good loan officer will shop the loan and place it where you can get the best terms. Knowing how to “package” your borrowing attributes will make you loan sail through smoothly with a better financing terms.

Last, but most important…
STAY OFF THE INTERNET!

There are too many internet lurkers waiting to take advantage of homebuyers that want to believe somewhere there is that miracle lower interest rate. They might not even be in the mortgage business and just trying to capture your personal information for identity theft. Florida is the #1 State for Mortgage Fraud, so don’t fall into that trap.

Anyone can give you an estimate (only a guess) to make you feel good, tell you everything you want to hear, while they could be thousands of miles away operating on their cell phone equipped with caller ID…if you don’t like the final cost, they simply will not take your calls anymore. You are stuck. Dozens of internet “unknowns” may pull your credit…yes, even without your permission.

Last year we had a client who with one inquiry had 63 investors pull his credit….as a result his credit score was lowered forcing him into a higher interest rate category. Until states tighten up and enforce regulations it is truly a gamble with your hard earned money.

It is your hard earned money, so don’t gamble…be smart and ask us for recommendations.