How To Finance Your Mortgage Closing Costs

From our good friends at Credit.com and Yahoo! Homes, this article brings up some great options for your buyers who may be a bit short on cash or liquid assets this time of year.

Taking out a mortgage is only done a handful of times in one’s life, if that. Whether you’re buying a home or refinancing a mortgage, closing costs are an inevitable part of the transaction. And keep in mind, closing costs on purchase transactions cost more than they do for refinances. 

With that in mind, here are some little-known ways to absorb the fees necessary in taking out a mortgage loan.

Seller Credit

When buying a home, most mortgage loan programs allow for a certain percentage of the purchase price to be used for closing costs. In order to finance closing costs in a purchase transaction, the easiest way is to ask for a seller credit for closing costs. While lenders allow for a 3% credit, most need only 2.5% of the sales price. It’s based off of purchase price, rather than loan amount (like a refinance is) because the sale value of the home is what the transaction hinges on. A seller credit for closing costs means the seller receives a smaller ‘net’, and money literally comes out of their pocket.

Bigger Sales Price

As discussed above, in a seller credit situation the seller has to agree to a concession, giving up money for the greater good to make the deal happen. A buyer who can qualify for financing might be better served offering a higher purchase price, 2.5% over list price, for example, so the seller does not lose money and they still get the seller credit needed for reducing funds to close. Essentially, this means the buyer is financing the closing costs over 360 months (assuming a 30-year fixed rate) by virtue of a bigger loan against a bigger purchase price.

Bigger Loan

Let’s say you plan to purchase a house for $350,000 and have $21,000, which by the way is the total needed to purchase a house at this price. Rather than asking for a seller credit for closing costs, you pay your own closing costs, $8,750, and the remaining $12,250 (3.5% down on a FHA loan) gets your foot in the door. The bigger loan is due to extra cash going towards closing costs, rather than down payment. In a refinancing situation it’s simply a matter of inflating the loan amount and financing the fees over the term of the loan.

Inflate the Rate

This is also called a lender credit. It’s the same way a no-cost refinance works, you agree to a higher interest rate in exchange for some sort of monetary concession from the lender paying a portion of the closing costs. It’s not uncommon for a lender to be able to offer a credit anywhere from $2,000 to $4,000, taking a sizable chunk away from the fees. The risk to doing this is paying a higher interest rate over the term of the loan, which in the end, on an interest amortization schedule, can be pricier than coming up with the one-time monies needed for the loan to close.

The Cost of Financing
In short, when financing your closing costs, it’s an interest expense. Consider this, it’s an extra $37,703 more in interest over the life of 360 months (30-year fixed-rate) if you take a lender credit for $3,000 in exchange for a 4.875% interest rate, when 4.375% is otherwise currently available. It’s also not uncommon to see a spread of .5% in rate in exchange for $3,000 closing cost credit.

The higher interest rate and loan amount does translate to a larger interest expense over time, assuming the loan is not refinanced (which, by the way, most are). The higher sales price also generates a larger loan amount and also generates higher property taxes. Why? Property taxes are based on a portion of the sales price of the property, and the subsequent assessment with your local county is based upon that sales price.

While financing closing costs can solidify your ability to close the transaction, it may still make sense to cash finance the fees. Be sure to comparatively look at your individual advantages and disadvantages of financing the closing costs. Closing costs are assessed every time the property is encumbered (financed). Expect closing costs on purchase transactions around 2.5% of the sales price; on refinances, 1% of the loan amount.

Great information to share! 

Give us a call today at 903.200.4988, or visit either www.FindTexomaHomes.com or www.HomesByLainie.com for more information, and find out what it's like to have an ENTIRE TEAM working for YOU!

~Keller Williams Realty~ 

Ways to Buy a Home Without Cash!

Another great article from Yahoo! Homes.

 

Rachel Wolfinbarger knows it's just a myth that you need a 20% down payment to buy a home today. How does she know? Because the California blogger bought a $255,000 Rancho Cucamonga home last year, and she put down just 3.5% to get a mortgage backed by the Federal Housing Administration.

Even sweeter, her house has substantially appreciated in the hot Southern California housing market. Said Wolfinbarger: "I couldn't think of a better scenario--having over 20% worth of equity within about a year when we only put down about 3%."

She's not alone. Buyers in the tens of thousands are discovering that in 2013, there are plenty of ways to buy a home with little savings. Other buyers have cash in their pockets but are skimping on down payments anyway, because they'd rather borrow plenty at today's historically low rates.

Across the country in East Harlem, banker Michael Germano just paid in the low seven figures for a four-family town home -- and he did it with around 10% down, not the traditional 20%. "Mortgage rates are so low, why not take advantage of it?" he said. "I can generate more of a return for my money in other investments."

"There are many options for buyers who want to put little or nothing down," said Michael Moskowitz, president of Equity Now, a New York City-based direct mortgage lender. His firm advice for house hunters who want to go this route: "Only work with mortgage brokers who can show you multiple options. Some sell only one product, and that won't be best for all buyers."

Moskowitz, for instance, is not a fan of FHA low-down loans ("too expensive"). But he very much likes Veterans Administration no-down-payment loans, which get even better for disabled vets.

VA loans, unlike many low-down-payment mortgages, can be obtained without private mortgage insurance. PMI costs as much as 1% to 2% of the mortgage per year (or $3,000 to $6,000 on a $300,000 loan).

An equally sweet deal for some buyers: mortgages backed by the U.S. Department of Agriculture. These loans can cover 100% of the cost of a home in a "rural area." Much of the country falls within that definition. USDA loans do require mortgage insurance, but the rates are dramatically lower than those imposed by FHA, experts said.

Don't think that the only place to find low-down loans is through the federal government. At Tropical Financial, a credit union in Miramar, Fla., mortgage sales manager Doug Leever said, "We have a first-time buyer program that we'll lend 97% of the home's value, and the 3% down can be gift money."

The program usually costs buyers less than a comparable FHA loan would, he said.
Even more aggressive lending is offered by the nation's biggest credit union, Navy Federal in Vienna, Va.: a homebuyer's choice program that provides 100% financing. Dana DeSarno, lending spokesperson for Navy Federal, said that "it's a great program for members who aren't eligible for a VA loan or who have already used theirs." Most borrowers are first-time homebuyers, she said, and "we do not charge PMI."

Many other credit unions, and some banks, offer similar programs to help customers who have good credit scores but little or no savings nonetheless take advantage of today's comparatively low housing prices.

Some states also offer assistance. In Colorado, for instance, there's CHFA. In New York, it's SONYMA. In California, there's CalHFA. Programs come with many restrictions - some are only for first-time buyers, others support loans only in certain areas, many have income caps - but all are there to help homebuyers who lack the 20% needed to buy under many conventional mortgage programs.

"Now is the time to take advantage of leverage," said New York associate broker Ray Schmitz with Rutenberg Realty. He's seeing an increasing number of deals involving small down payments, and economics is on the side of those buyers, he said. "This is a great time to borrow."

Share this information with your clients, especially your first-time buyers!

Call 903.200.4988 or visit www.HomesByLainie.com!

Why have an agent when you can have an entire team?  Homes By Lainie offers real estate, mortgage lending, credit repair solutions, and insurance, all in one stop for your home buying convenience! Visit us to see why Lainie Ramsey is the Lake Texoma property local expert!   

~Keller Williams Realty~

Five reasons why your insurance bill is so high!

From Chris Kyle at Yahoo! Homes

Do you hate writing out that home insurance check every month? We know - it's not a fun feeling.

But, do you know why you're paying so much to protect your home? More importantly, have you considered the different ways you could reduce your home insurance rate?

The factors that contribute to what you pay for your home insurance are all over the map. 

Some factors may surprise you (trampoline, anyone?) while others are fairly obvious. And while some factors may be out of your control, others are definitely within your control - and thus, allow you to play a big part in the cost your policy.
Want to know what factors contribute to the price of your home insurance policy? Here are five…

#1 - Your Home's Age and Construction Type

When you bought your home or condo, you probably peppered the realtor with all kinds of questions: When was it built? What materials were used? How many bedrooms? What's the square footage? What kind of flooring and windows does it have? How about the roofing?

Insurance companies ask the same kinds of questions and they'll use the answers to determine the price of your home insurance policy, according to Jim Whittle, assistant general counsel and chief claims counsel at the American Insurance Association (AIA). 

The Insurance Information Institute (III) also notes the condition of your home's plumbing, heating and electrical system as factors that determine your rate. Whittle recommends working with insurance companies to craft the kind of coverage you want and personalize it to meet your home's needs.
"You might say, okay, I've got an older house, but I'm willing to accept more risk personally," Whittle explains. "So I'm going to have a higher deductible and, as a result, you'll pay a lower premium."

#2 - Home's Vulnerability to Criminal Activity

If you live in a high-crime area that's more prone to theft, this may concern your home insurance company and cause your premiums to go up, Whittle says. That's because the more crime there is in your neighborhood, the more at risk you and your home are, and as a result, there's a higher likelihood you'll file a claim due to theft. As you can probably imagine, insurers don't like those chances.

And while the criminal activity in your neighborhood may be out of your control, there are steps you can take to alleviate some of the concern your home insurance company may have.
For starters, the III notes that "Most insurance companies provide 2 percent to 15 percent discounts for devices that make a home safer - dead-bolt locks, window grates, bars and smoke/fire/burglar alarms."
Of course, discounts will vary depending on your insurer, so you'll want to do some research to find out what type of security devices your home insurance company offers discounts for.

#3 - Firefighting Response Time

As strange as this may sound, the distance between your home and a fire station is a factor that insurers mull over when figuring out your home insurance rate.
"The proximity of your home to a fire hydrant (or other source of water) and to a fire station, whether your community has a professional or volunteer fire service and other factors that can affect the time it takes to put out fires," are all considered when determining how much you'll be charged on insurance, according to the III.

This factor also ties together with the materials used to construct your home, since some are more fire-resistant than others. "In wildfire areas, brick beats cedar," Whittle says. 

Looking for ways to get a red-hot, fire-related discount?

"You can usually get discounts of at least 5 percent for a smoke detector, burglar alarm, or dead-bolt locks," according to the III. "Some companies may cut your premiums by as much as 15 or 20 percent if you install a sophisticated sprinkler system and a fire and burglar alarm that rings at the police, fire or other monitoring stations."

#4 - Your Credit Score

Your credit score, as you may know, is a three-digit number that essentially predicts the likelihood of you paying your bills. The higher your number, the better your reputation among financial companies.

"As allowed by law, many insurance companies use a credit-based 'insurance score' when evaluating insurance applications or policies," writes the American Insurance Association in its report on credit-based insurance scores. 

It adds that "The way you handle your credit says a lot about how responsible you are. Insurance companies want to reward responsible people by making sure you don't pay more than you should. That's why insurance scores are so useful."

If you talk to your insurer and find out that a poor credit score is what's causing you to have such a high bill, Whittle recommends shopping around because not every company uses your credit score when calculating risk.

#5 - Your Dog's Breed

Thinking about getting a family pooch? It could affect what you pay for homeowner's insurance.

"Your dog's breed could affect your premium since some studies have demonstrated that certain breeds are more susceptible to biting than others," Whittle says.  "You have to remember: homeowner's policies don't only cover repairing the home," Whittle says. "You're also paying for liability insurance in the event that someone gets hurt on your property."

These injuries could include dog bites, which accounted for more than one-third of all homeowners insurance liability claims paid out in 2012, costing nearly $489 million, according to the III.

Based on this statistic, it's not a surprise that insurers view dog owners as a risk.

However, as Whittle mentioned, the affect your dog has on your home insurance premium will depend on how aggressive your dog's breed is. For example, the III adds that some insurers may charge more for homeowners who have pit bulls or Rottweilers.

Once again, great information that we wanted to share! Give this to those inexperienced clients who have tons of insurance questions...these 5 might be on their list!

Call 903.200.4988 or visit www.HomesByLainie.com!

Why have an agent when you can have an entire team?  Homes By Lainie offers real estate, mortgage lending, credit repair solutions, and insurance, all in one stop for your home buying convenience! Visit us to see why Lainie Ramsey is the Lake Texoma property local expert!   

~Keller Williams Realty~

 

The Hardest and Easiest Home Loans to Get

From our friend Chris Burk at Credit.com, this article explains three loans we've all heard about, but might not understand some of the inner-workings of to explain to our clients, rather, leaving that to a lender. It's always a good idea to be THE well-rounded expert who can at least point them in the right direction.

It seems the Great Thaw may be upon us.

Credit score requirements have loosened in recent months, a sign that at least some mortgage lenders are starting to take a softer approach after years of tight lending.

Nearly a third of all successful mortgage applications in August featured FICO scores below 700, according to mortgage technology behemoth Ellie Mae.  In August 2012, only about 15% of green-lighted borrowers had a sub-700 score.

That surprising uptick may signal a promising shift for prospective homebuyers. But let's not call it a comeback quite yet. Plenty of consumers with and without great credit are still struggling to secure home financing. Before you start shopping for a home, it's important to get familiar with your credit reports and credit scores. You're entitled to your free credit reports, as mandated by the government, once a year from each of the three credit reporting agencies. There are tools on the market that allow you to check your credit score for free (Credit.com offers a tool like this). The score — whether you get it for free or purchase it — may not be identical to the credit score your lender will see, but it will give you a good range to work with when you apply for a mortgage.

The bottom line is some home loans are still generally easier to obtain than others. Here's a brief survey of the field.

Conventional Loans 

Conventional home loans are "conventional" because they don't come with a government backing and generally conform to requirements set by Fannie Mae and Freddie Mac, the biggest purchasers of home loans issued by private lenders.

Conventional loans are traditionally tougher to obtain than government-backed mortgages, and that's still pretty much the case today. Conventional lenders are generally looking for a credit score of at least 740, which is higher than the typical minimum score required for government-backed loans. The average credit score for conventional borrowers in August was 758, according to the Ellie Mae report.

You'll typically need a down payment of at least 5% to secure a conventional loan. Usually anything shy of 20% will require the added expense of monthly mortgage insurance, which you'll pay until you reach a loan-to-value ratio of 80%. The exact amount will vary based on your down payment, your credit score and other factors, but 0.5% to 1% of the loan amount is a decent rule of thumb.

Consumers with sterling credit and the assets necessary to put down 20% will often be hard-pressed to find a more competitive loan product than this one.

FHA Loans
The government doesn't make home loans. Rather, it insures them. Federal backing tends to mean less stringent requirements, and that's a big reason why loans guaranteed by the government represented nearly half of all mortgages last year, as recorded by the Federal Reserve.
This loan program was created to help improve access to homeownership for lower-income buyers. FHA loans require only a 3.5 % down payment, but they do come with both an upfront mortgage insurance premium and a monthly version, the latter of which you now pay for the life of the loan. That potentially decades-long expense is essentially the price for getting into a home today.
 FHA lenders are considerably more forgiving to consumers with bruised and battered credit. Successful FHA homebuyers in August this year had an average 691 FICO score. The Ellie Mae report showed that applicants who failed to land an FHA loan had an average score of 667.
Previous homeowners who lost theirs to foreclosure also have a friend in FHA loans. The program recently altered its three-year "seasoning" policy to allow qualified homeowners to purchase just one year removed from a foreclosure.
In comparison, some conventional borrowers may face a four- to seven-year wait.

VA Loans

The other major government-backed loan program is also booming. VA loan volume has more than tripled since 2007, and that's in no small way because of how difficult it's become for many veterans and service members to qualify for conventional financing.

These loans don't require a down payment or private mortgage insurance. The minimum 620 credit score most VA lenders are looking for falls into a "Fair" score range, which is a step below "Good" (and that's a step below "Excellent").

VA borrowers without a service-connected disability pay a funding fee on both purchase and refinance loans. The fee is typically 2.15% of the loan amount and helps keep the self-funded program running. It's also a cost veterans are able to finance.
Perhaps surprisingly, in the face of all this flexibility, VA loans have had the lowest foreclosure rate out there for nearly all of the past five years.

In some respects, VA loans are both the easiest and most difficult loans to land. Nine in 10 come with no down payment, and the typical VA borrower has less than $7,000 in assets.

But just becoming eligible for this program requires a level of service and sacrifice to which few Americans commit. Less than 1% of the population currently serves in the U.S. military.

GREAT INFORMATION!  

Call 903.200.4988 or visit www.HomesByLainie.com!

Why have an agent when you can have an entire team?  Homes By Lainie offers real estate, mortgage lending, credit repair solutions, and insurance, all in one stop for your home buying convenience! Visit us to see why Lainie Ramsey is the Lake Texoma property local expert! 

 ~Keller Williams Realty~

Top 5 mistakes homebuyers make

From our friends at Zillowblog, a great real estate blog by the way, are 5 top mistakes homebuyers make, according to realtor Brendan DeSimone.  Let's read on...

From the beginning of your home search through closing escrow, there’s an awful lot to think about and do. It’s not unusual to make a mistake along the way. But with the financial stakes so high, a false move can end up costing you a lot of money.

Here are five common home buyer mistakes, with tips on how to avoid them.

1. You expect to get the price down after making an offer

The real estate market is heating up across the country. In many markets, homes are selling for more than asking price. Some buyers win the bidding war by going over asking — only to try to negotiate the price down by asking for credits during escrow.

This strategy may work sometimes, especially in a weak seller’s market. But we’re in a competitive market for buyers now, so don’t count on it. The seller most likely will have a backup offer from another buyer who really wants the home — and who is hoping your deal falls through. If you start asking for unwarranted credits, the seller may simply go with the backup offer, leaving you out in the cold.

A better strategy: Make your best offer, and don’t assume you can negotiate it down later.

2. You wait until the eleventh hour to ask for credits
In Houston, a seller had put his house on the market with full disclosure that it had termites. A buyer made an offer and went into contract with the seller. After further inspections, and at the eleventh hour, the buyer demanded an unreasonable amount be deducted from the sale price. The buyer assumed that the seller, not wanting to put the house on the market again, would agree, just to close the deal. But that’s not what happened.

The seller agreed to reduce the price, but not by the full amount the buyer wanted.
The buyer ended up walking away from the deal. The house sold soon after at a higher price than what was negotiated with the first buyer.

Of course, you should ask for credits if an inspection turns up potentially costly repair work you didn’t know about when you made your offer. But even in a buyer’s market, don’t assume you can get sellers to cave in to unreasonable demands at the last minute.

3. You chase a deal at all costs

Everyone wants to save money, especially on a high-ticket item such as real estate. Unfortunately, this causes some would-be buyers to make lowball offers in hopes of getting a “deal.” Or, potential buyers lose out on homes they might have been able to get otherwise, which ends up costing money in the long run.

For example, a renter in San Francisco spent three years looking for the best “deal” she could possibly get, passing up many good opportunities. Eventually, her landlord wanted to sell the place she was renting. This forced her to finally buy, but under pressure. She ended up buying at the top of the market. If she hadn’t held out for so long in hopes of scoring an amazing deal, she’d have saved herself a lot of money and time. She’d even have built up some equity in a home over those three years.

In a strong real estate market, the deals are in homes that have been overpriced and haven’t sold as a result, and/or properties that don’t show well because they need work. If the home you want is well-priced, in a good neighborhood and doesn’t need much work, the best strategy is to make a solid offer and be prepared to go over asking if necessary.

4. You think you can do it all yourself
With so much information about homes available online today, many people, such as tech-savvy Gen X and Gen Y home buyers, may assume they can buy a home without a real estate agent’s help.
But this strategy often backfires. First of all, the real estate agent’s role isn’t just about finding listings. With Internet access, buyers can easily find listings themselves. The agent’s role today is more about presenting your offer to the seller’s agent in a way that will help get it accepted and making sure it sticks through an escrow.

A savvy agent knows the ins and outs of the local market better than an uninformed buyer with a full-time job and family. A good agent will know the back-stories behind the comps, for example. He or she will know that a comparable home sold for 5 percent less (than the home you’re considering) only because the sellers were divorcing, or the property had a retaining wall problem. Without an agent, you’d simply see that the comparable home sold for 5 percent less. You might ask the seller of the home to match that 5 percent reduction — and you’d be surprised when the seller says, “No thanks.”

Also, experienced agents have a strong network in the local market, which can give you an added edge. Good agents like to work with other good agents. And if nothing else, keep in mind that a listing agent might not even consider working with an unrepresented buyer.

Finally, the seller pays the buyer’s real estate commission, so having an agent for your home search costs you nothing anyway. Most importantly, there’s bound to come a time during the complicated real estate transaction when you have serious doubts or big questions. Your agent can be the trusted adviser you need to walk you through the maze.

5. You don’t think like a seller
Most likely, at some point in the future you’ll need to sell the home you’re about to buy. That’s why it’s important to think like a potential seller as well as a buyer.

Case in point: In 2005, a buyer in San Francisco bought a home with no garage. The house was on multiple transit lines, he used his bicycle to get around and he knew he’d have access to a leased garage space if he needed it. So he felt he didn’t need a garage.
Three years later, the market was slower, but the owner had to sell. He didn’t feel his home should be priced less than a comparable property with a deeded garage because his house was so centrally located. Plus, he had that leased garage space to offer. The problem was, many buyers drive to work, and they don’t want to risk losing a leased garage space. The result was that many buyers wouldn’t even look at his home’s photos online, let alone go to the open house — because it lacked a garage.

So when you’re buying a home, put yourself in a potential seller’s shoes. The last thing you want is to buy a dream home that becomes a nightmare when it’s time to sell.

Call 903.200.4988 or visit www.HomesByLainie.com!

Why have an agent when you can have an entire team?  Homes By Lainie offers real estate, mortgage lending, credit repair solutions, and insurance, all in one stop for your home buying convenience! Visit us to see why Lainie Ramsey is the Lake Texoma property local expert!  ~Keller Williams Realty~