1st time home buyers
Considering being a first time homeowner - Consider all the factors
Imagining grassy lawns, picket fences and friendly neighbors? Dreaming of good schools for your kids and a comfortable home to retire in and pass on to your family? Homeownership is the hallmark of the American dream. Owning your own home can act as a 30-year savings investment plan and provide financial stability for your monthly budget and the foundation for your retirement plan. There really are a myriad of reasons why homeownership massively outweighs renting year to year.
Homeownership does also come with a few realities that dreamers like you don’t consider; which is fair! You don’t know what you don’t know quite yet. Owning your own home comes with a new list of responsibilities that you need to consider before purchasing that home and the maximum end of the amount your lender has approved you for. There are a bunch of new expenses to factor in both monthly and yearly that renters simply don’t have to deal with.
As the ink is still drying on your purchase contract you may be faced with a bunch of expenses you’ll have to dump right away into your new home. Consider the cost of having to replace a dishwasher, a leaky toilet or a bad showerhead. Don’t forget you may need to purchase your own appliances such as a refrigerator, washer, dryer or stove. For bigger repairs like a new air conditioner or a burst water heater you may want to consider purchasing a home warranty policy either through your title company at closing or through another company of your choosing.
That new home have a beautifully sparkling pool and the green lawn you were dreaming of? Well both take consistent effort to keep them as pristine as sale condition! Either plan on spending your weekends out doors or setting aside a couple hundred a month for landscapers and pool maintenance, not to mention higher monthly water bills for both.
A lot of the time when you move into that exciting new home people want to start fresh with new plates, rugs, drapes and furniture that may suit your home better than your last rental. These things will add up more quickly than you think. Rather than racking up credit cards to cover these costs, you may want to put off buying that home a couple more months than you had planned to sock away some extra cash for these move in expenses.
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So you need to refinance an FHA Mortgage?
Let’s look at the positives; at least you’re not trying to refinance a conventional mortgage! FHA loans have been made more easy to qualify for than they were a few years ago thanks to recent legislation. Typically one of the largest disqualifying factors is the homeowners credit score. The Federal Housing Administration (FHA) requires a minimum credit score of 620 but good luck finding a lender willing to extend you a loan. Currently you’ll need a score anywhere north of 640.
In the past a low credit score plainly meant that you’d need to pay a higher interest rate, but these days it could mean facing the possibility of losing your home. If you find yourself struggling or unable to make your monthly mortgage, there is help out there. There are a handful of programs for struggling FHA homeowners. Check out www.HUD.gov for a comprehensive list as well as pertinent information.
By improving your credit rating you could qualify for a streamline refinance of your home. Yes, it is called a streamline because it is way more simplistic than a conventional refinance. It would be in your best interest to speak with a licensed mortgage professional to have your credit analyzed within the framework of the mortgage world. One piece of advice, avoid missing your mortgage payments if at all possible.
When refinancing, consider the various loan options available:
Fixed Rate Mortgages – The interest rate will never changed no matter what
• 15 Year Mortgage – You will have a higher monthly mortgage payment but can save tens of thousands on interest.
• 30 Year Mortgage – The most widely used loan.
• 40 Year Mortgage – You’ll have a low monthly payment but will pay a lot more in interest in the long run.
Adjustable Rate Mortgages (ARM’s) – The interest rate will stay fixed for an established amount of time and then adjust to the interest rate available at the time of adjustment, typically every year
• 1 and 3 year loans – These are great for homeowners who know they will be able to pay a higher mortgage payment in 1 to 3 years; say someone about to graduate from college into a stable career field.
• 5 to 7 year loans – These will give you a bit more time to save up cash or qualify for a non-ARM loan. But there is no telling where interest rates will be 5 to 7 years down the road and can be a bit of a gamble.
Few last tips: Keep in mind; adjustable rate mortgages almost never build equity in a home. Also remember, the credit score of each and every person on the current mortgage needs to be able to qualify for the refinance. Rules are rules.
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How serious is a lien on my home?
Liens are serious business. Not only do liens of all kinds affect your credit score for years and years, but they also have a lasting impact on all aspects of your financial life. Here is the basic lay out of the types of liens:
• Tax Liens – These are imposed by the U.S. Government for unpaid taxes of all kinds, not just property taxes. A lien may be placed on your home for unpaid personal or business taxes. The best ways to avoid these are to set up a payment plan with the IRS when the threatening letters begin to show up.
• Property & Mechanics Liens – These can be placed upon your home for various reasons such as lawsuit or unpaid contractual invoices.
Tax liens are priority number one. Literally, you must pay on your tax lien before you are allowed to pay anything else. Trust me, the IRS doesn’t mess around. Not only will a tax lien be placed on your home but also they can garnish your wages and essentially make your life miserable.
All liens - tax, property and mechanics make it impossible to sell or refinance your home. Liens are a surefire way to stop the sale or refinance of a home dead in its tracks. No matter the type of lien, it must be paid in full before it may be sold or refinanced.
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You’re not alone. I’ve heard from hundreds of people about their interest rates coming up for adjustment on their 3, 5, 7 or 15 year interest only loans. The lower mortgage payments on these loans made them oh so tempting back when you were signing the note and deed on your home, but now the payment is about to, or already has, get or gotten really ugly. If you’ve tried to refinance in the past couple of years you’ve probably come across a problem or two, which leaves you unqualified for a much-needed refinance.
I’m sure a short sale or strategic foreclosure has crossed your mind but these should be done at an absolutely last resort. You may want to see if you can qualify for protection under the Housing and Mortgage Protection Act (HAMP). It’s a bit of a long shot but worth the try. If you qualify you could have a principle reduction or temporary lower mortgage payment applied to your mortgage. More than likely you are facing a lack of equity in your home or an ugly credit score.
Most of the recent legislation offering help to homeowners has applied to those with FHA home loans. With a conventional loan you are left out in the cold and facing a harder time qualifying for a refinance. You’re credit score as well as your credit history is two of the top few requirements to qualifying you for a refinance. Lenders are bumping their requirements on minimum credit scores thanks to incredibly low interest rates. It’s time to do everything you can to boost that score in the realm of the 700’s.
What to do:
1. Make all of your monthly mortgage payments on time - These types of late payments will not be received well by prospective lenders and are weighted more heavily than other types of late payments. If you are considering a short sale or foreclosure, WAIT! Let’s exhaust all other options first.
2. Save as much cash as possible – Hopefully you have equity in your home, but if not you may be required to pay down the principle on your current mortgage.
3. Have honest conversations – Sit down with a licensed mortgage professional and have an honest conversation about your situation. They know what the lenders are looking for and can help guide you to give lenders what they want to see.
What not to do:
1. Accumulate more debt – Try not to acquire more debt while you are shopping for a mortgage. This can be perceived as desperation for credit and that you may be in an unstable place for a refinance (which is likely the case but keep your poker face!).
2. Changes jobs - Try to stay at the same or simular style work for 2 years or more.
When refinancing, consider the various loan options available:
Fixed Rate Mortgages – The interest rate will never change no matter what
• 15 Year Mortgage – You will have a higher monthly mortgage payment but can save tens of thousands on interest.
• 30 Year Mortgage – The most widely used loan.
• 40 Year Mortgage – You’ll have a low monthly payment but will pay a lot more in interest in the long run.
Adjustable Rate Mortgages (ARM’s) – The interest rate will stay fixed for an established amount of time and then adjust to the interest rate available at the time of adjustment, typically every year
• 1 and 3 year loans – These are great for homeowners who know they will be able to pay a higher mortgage payment in 1 to 3 years; say someone about to graduate from college into a stable career field.
• 5 to 7 year loans – These will give you a bit more time to save up cash or qualify for a non-ARM loan. But there is no telling where interest rates will be 5 to 7 years down the road and can be a bit of a gamble.
Few last tips: Keep in mind; adjustable rate mortgages almost never build equity in a home. Also the credit score of each and every person on the current mortgage needs to be able to qualify for the refinance. Rules are rules.
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Mortgage interest rates are so crazy low that it seems like lenders are practically begging you to come and take their money to buy a home. Interest rates are hovering at levels that rival the lowest rates over the past 50 years. All indications from the powers that be (the Federal Reserve) indicate that rates probably won’t be jumping anytime too soon either? If this is the case then, why is the housing market still so lousy?
It is true that mortgage lenders really do want to loan you their money for a new home, they are just being really picky about it! The housing crash shed light on bad lending practices that brought down behemoth Wall Street banks and now the few left standing are being really careful. So how can you actually qualify for these fantastically low rates? Review this quick checklist:
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Do you have great credit? I’m talking a score in the 700’s here.
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Are you looking for a single-family residence or something like a condominium? Would this be your primary residence, a vacation home or something you will be renting out?
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What type of loan do you want? Fixed, adjustable, a government loan or one backed by a private lender?
If you know you have a stellar credit score you are on the fast track to buying a home with a low interest rate. If not, there may still be hope! FHA (Federal Housing Administration) may be interested in lending you the funds still at a low rate as long as you make up for a lower credit score in other areas such as a ton of money in the bank or a really great explanation why your credit is so low.
A single-family home is your best bet to purchase these days. Lenders feel safer doling out cash to people who will depend on the home as their shelter. Second homes and rental properties are pretty low on the list of homes banks are willing to lend to as they run a higher risk of foreclosure. They’ll likely ask you for a huge down payment or hike the rate.
Your interest rate is always tied to the type of loan you are looking for. A licensed loan originator can help you figure out what would be the best type of loan for you. Fixed rate loans are typically easier to qualify for, as there is no risk for a jump in your payment down the road. An adjustable rate loan appeals to many because payments start out low for the first few years (typically 3, 5, or 7) but this is also where many run into trouble when the rates adjust at those intervals which means a possibly higher payment.
If you’re not able to qualify at the moment for a low rate loan you likely still have a decent window of time to recoup the factors holding you back. Being proactive is the key to buying a home and taking advantage of low interest rates. Rates as low as they are now could end up saving you tens of thousands of dollars down the road in interest. Why pay extra interest if you don’t have to?
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