Finance a Home, Creatively

Investigate local, state, and national down payment assistance programs.

These programs give qualified applicants loans or grants to cover all or part of your required down payment. National programs include the Nehemiah program, Getdownpayment.com, and the American Dream Down Payment Fund from the Department of Housing and Urban Development.

Explore seller financing.

In some cases, sellers may be willing to finance all or part of the purchase price of the home and let you repay them gradually, just as you would do with a mortgage. A similar option is the assumable mortgage, where a home buyer takes over the seller’s existing loan (with bank approval). This can be especially helpful when interest rates are on the rise.

Ask your family for help.

Perhaps a family member will loan you money for the down payment or act as a cosigner for the mortgage. Lenders often like to have a cosigner if you have minimal credit history.

Consider a shared-appreciation or shared-equity arrangement.

Under this agreement, your family, friends, or even a third party may buy a portion of the home and share in any appreciation when the home is sold. The owner-occupant usually pays the mortgage, property taxes, and maintenance costs, but all the investors’ names are usually on the mortgage.

Lease with the option to buy.

Renting the home for a year or more will give you the chance to save more toward your down payment. And in many cases, owners will apply some of the rental amount toward the purchase price.

Consider a short-term second mortgage.

If you can qualify for a short-term second mortgage, this would give you money to make a larger down payment. This may be possible if you’re in good financial standing, with a strong income and little debt. Such arrangements may also help you avoid jumbo loan restrictions and/or minimize the amount of private mortgage insurance you have to pay.

Source: National Association of REALTORS®

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Questions to Ask When Choosing a Lender

Loan terms, rates, and products can vary significantly from one company to the next. When shopping around, these are a few things you should ask about.

General questions:

What are the most popular mortgages you offer? Why are they so popular?

Are your rates, terms, fees, and closing costs negotiable?

Do you offer discounts for inspections, home ownership classes, or automatic payment set-up?

Will I have to buy private mortgage insurance? If so, how much will it cost, and how long will it be required?

What escrow requirements do you have?

What kind of bill-pay options do you offer?

Loan-specific questions:

What would be included in my mortgage payment (homeowners insurance, property taxes, etc.)?

Which type of mortgage plan would you recommend for my situation?

Who will service this loan—your bank or another company?

How long will the rate on this loan be in a lock-in period? Will I be able to obtain a lower rate if the market rate drops during this period?

How long will the loan approval process take?

How long will it take to close the loan?

Are there any charges or penalties for prepaying this loan?

How much will I be paying total over the life of this loan?

Source: National Association of REALTORS®

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Vocabulary: Agency & Agency Relationships

The term “agency” is used in real estate to help determine what legal responsibilities your real estate professional owes to you and other parties in the transaction.

The seller’s representative (also known as a listing agent or seller’s agent) is hired by and represents the seller. All fiduciary duties are owed to the seller, meaning this person’s job is to get the best price and terms for the seller. The agency relationship usually is created by a signed listing contract.

The buyer’s representative (also known as a buyer’s agent) is hired by prospective buyers to and works in the buyer’s best interest throughout the transaction. The buyer can pay the agent directly through a negotiated fee, or the buyer’s rep may be paid by the seller or through a commission split with the seller’s agent.

A subagent owes the same fiduciary duties to the agent’s customer as the agent does. Subagency usually arises when a cooperating sales associate from another brokerage, who is not the buyer’s agent, shows property to a buyer. The subagent works with the buyer to show the property but owes fiduciary duties to the listing broker and the seller. Although a subagent cannot assist the buyer in any way that would be detrimental to the seller, a buyer customer can expect to be treated honestly by the subagent.

A disclosed dual agent represents both the buyer and the seller in the same real estate transaction. In such relationships, dual agents owe limited fiduciary duties to both buyer and seller clients. Because of the potential for conflicts of interest in a dual-agency relationship, all parties must give their informed consent. Disclosed dual agency is legal in most states, but often requires written consent from all parties.

Designated agents (also called appointed agents) are chosen by a managing broker to act as an exclusive agent of the seller or buyer. This allows the brokerage to avoid problems arising from dual-agency relationships for licensees at the brokerage. The designated agents give their clients full representation, with all of the attendant fiduciary duties.

A transaction broker (sometimes referred to as a facilitator) is permitted in states where nonagency relationships are allowed. These relationships vary considerably from state to state. Generally, the duties owed to the consumer in a nonagency relationship are less than the complete, traditional fiduciary duties of an agency relationship.

Source: National Association of REALTORS®

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Checklist: Your Final Walk-Through

Closing time is hectic, but you should always make time for a final walk-through to make sure that your home is in the same condition you expected it would be.  Here’s a detailed list of
what to check for on your final walk-through.

  • Basement, attic, and every room, closet, and crawl space have been checked.
  • Requested repairs have been made.
  • Copies of paid bills and warranties are in hand.
  • No major, unexpected changes have been made to the property since last viewed.
  • All items included in the sale price—draperies, lighting fixtures, etc.—are still on site.
  • Screens and storm windows are in place or stored onsite.
  • All appliances are operating (dishwasher, washer/dryer, oven, etc.).
  • Intercom, doorbell, and alarm are operational.
  • Hot water heater is working.
  • Heating and air conditioning systems are working.
  • No plants or shrubs have been removed from the yard.
  • Garage door opener and other remotes are available.
  • Instruction books and warranties on appliances and fixtures are available.
  • All debris and personal items of the sellers have been removed.

Source: National Association of REALTORS®

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What to Know About Credit Scores

Credit scores range between 200 and 850, with scores above 620 considered desirable for obtaining a mortgage. The following factors affect your score:

Your payment history.

Did you pay your credit card bills on time? Bankruptcy filing, liens, and collection activity also affect your history.

How much you owe and where.

If you owe a great deal of money on numerous accounts, it can indicate that you are overextended. However, spreading debt among several accounts can help you avoid approaching the maximum on any individual credit line.

The length of your credit history.

In general, the longer an account has been open, the better.

How much new credit you have.

New credit—whether in the form of installment plans or new credit cards—is considered more risky, even if you pay down the debt promptly.

The types of credit you use.

Generally, it’s desirable to have more than one type of credit—such as installment loans, credit cards, and a mortgage.

Source: National Association of REALTORS®

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How To Prepare to Buy a Home

Talk to mortgage brokers.

Many first-time home buyers don’t take the time to get prequalified. They also often don’t take the time to shop around to find the best mortgage for their particular situation. It’s important to ask plenty of questions and make sure you understand the home loan process completely.

Be ready to move.

This is especially true in markets with a low inventory of homes for sale. It’s very common for home buyers to miss out on the first home they wish to purchase because they don’t act quickly enough. By the time they’ve made their decision, they may find that someone else has already purchased the house.

Find a trusted partner.

It’s absolutely vital that you find a real estate professional who understands your goals and who is ready and able to guide you through the home buying process.

Make a good offer.

Remember that your offer is very unlikely to be the only one on the table. Do what you can to ensure it’s appealing to a seller.

Factor maintenance and repair costs into your buying budget.

Even brand-new homes will require some work. Don’t leave yourself short and let your home deteriorate.

Think ahead.

It’s easy to get wrapped up in your present needs, but you should also think about reselling the home before you buy. The average first-time buyer expects to stay in a home for around 10 years, according to the National Association of REALTORS®’ 2013 Profile of Home Buyers and Sellers.

Develop your home/neighborhood wish list.

Prioritize these items from most important to least.

Select where you want to live.

Compile a list of three or four neighborhoods you’d like to live in, taking into account nearby schools, recreational facilities, area expansion plans, and safety.

Source: National Association of REALTORS®

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The Tax Benefits of Owning

The tax deductions you’re eligible to take for mortgage interest* and property taxes greatly increase the financial benefits of home ownership. Let’s work through a hypothetical situation to see how it works.

If we assume the following:

$9,877 Mortgage interest paid (a loan of $150,000 for 30 years, at 7 percent, using year-five interest)

+$2,700  Property taxes (at 1.5 percent on $180,000 assessed value)

 $12,577 Total deduction

Then, multiply your total deduction by your tax rate.**

For example, at a 28 percent tax rate: $12,577 x 0.28 = $3,521.56

$3,521.56 = Amount by which you have lowered your federal income tax

*Mortgage interest may not be deductible on loans over $1.1 million. In addition, deductions are decreased when total income reaches a certain level.

**The rate at which you’re taxed is determined by your tax bracket, which in turn is determined by how much you earned in a given year along with your filing status (single, married filing jointly, married filing separately, or head of household). IRS Publication 501 will help you determine your rate.

Source: National Association of REALTORS®

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