When Should You Get Prequalified?

If you are starting to look at homes, then your first step should be to get prequalified. Many homebuyers decide to wait until they are more serious about purchasing before they get prequalified. This is usually once they have found a property they are interested in seeing. This can be a costly mistake. Once you are interested in a property, there is very limited time to make improvements or corrections to your credit.

You probably have stellar credit. But as a former affiliate of Wells Fargo, I have seen more than a few clients be disappointed when they had their credit pulled for a mortgage. Many of these were using a credit monitoring service. What most people don’t realize is the algorithm used for a mortgage is more stringent than what is used by credit monitoring services.

You may be concerned about having your credit pulled now and then again when you are ready to purchase. Maybe you think this could lower your score. Credit agencies actually factor in that buyers will shop for a mortgage and might have their credit pulled multiple times. If done within reason, this should have little to no effect on your score.

If you are like most of us, you probably try to save money where you can. So if you try to save on groceries and fuel points, why would you not also do what is advised to save on your mortgage? With minimal effort and a little time, we might be able to help you boost your score to the next threshold. Even lowering your rate by a mere 1/8 or.125% will save you $22 a month on a $300,000 loan. This may not sound like a lot, but every month for 5 years equates to $1,320 and $7,920 over the life of a 30 year mortgage.

You are going to have to do it anyway, and you will need to know what you can borrow. So why not do it now while you still have time to potentially save some money? There could easily be an item that you are unaware of or something that simply needs to be corrected. Stop putting it off. Don’t let procrastination potentially cost you thousands.

Contact us today for a brief no obligation phone consultation with our preferred lender.

Buying a Home with Zero Down

There are several programs still available that allow certain buyers to purchase a home with little to no down payment. These are a great way for some buyers to get into the housing market. However, some buyers feel they should put off owning a home until they can save up for a more substantial down payment. Perhaps you feel it would be better to wait until you can avoid paying mortgage insurance.

The truth is it takes most people a while to save up 20% for a down payment. During this wait time, the home you could have purchased now should appreciate. If a home that cost $300,000 today appreciates at 5% per year in 3 years would cost $347,287. Also as a homeowner, you would be making payments toward your home and your future – not somebody else’s.

No one likes mortgage insurance, but what it does is enable you to get a hedge on inflation. It allows you to purchase at today’s value instead of years down the road. The good thing about mortgage insurance is it goes away once you pay down 20% of your note. You also could consider refinancing once your home appreciates to 20% more than you owe.

The good news is there are some great programs that offer reduced or no mortgage insurance. Stop letting opportunities to invest in your future pass you by, contact us today to see what programs might be available to you.

Comparing Mortgage Quotes

When shopping for a mortgage, you should ask for zero-zero quotes from the lenders you are trying to compare. This means their quote will not include buy down points or origination fees. This is a much easier way to compare who is providing the better quote. Mortgage buy down points and origination fees are mechanisms that lower your mortgage rate by paying upfront interest.

If you try to compare quotes with varying points or origination fees, it can get messy real quick. I’ve seen it confuse even the most seasoned real estate agents. Mortgage companies know this and some try to use it to their advantage making their quote seem better than it really is.

You also want to be sure you are comparing quotes on the same type of loan. It sounds obvious, but a mortgage officer might propose a different type of loan that might also work for you – as they should. But as you evaluate it, remember you are now comparing different mortgage programs. If you want to compare rates, you should obtain the same quote from another lender.

Mortgages can be confusing. If you need help deciphering mortgage quotes or have a question you wanted to ask but… Don’t hesitate to contact me. You should feel confident about your financial decisions. As a former mortgage professional, I am here to help you find clarity.

Prepaid Taxes and Homeowners Insurance

If you intend to finance your next home, you will be required to pay homeowner’s insurance as part of your mortgage note. You will select the insurance company and the policy details prior to closing. You will pay your lender the monthly premium, and they will pay your insurance company. You probably will also be required to escrow one year of premiums in advance.

They do this to ensure their interests are always protected and your policy never lapses. You can at a later date change policies or even insurance companies, but you will need to coordinate it with your lender. Also when you decide to sell your home, your mortgage servicer is required to pay you back what you have in escrow. If you put down enough of a down payment, some lenders may not require your homeowners insurance to be a part of your note. However, they probably will require proof that your property is insured.

Property taxes are usually paid in arrears and are due in December depending on the county. The current tax bill will be prorated to the day of closing. You will be required to pay from closing until the end of the fiscal year. If your down payment is less than 20% your property taxes will be collected as part of your note. You will also be required to escrow one year of property taxes at closing. Lenders require this to protect their interests by ensuring your property taxes are paid.

In some cases, a portion or all of your prepaid taxes and/or insurance can be paid for you as a part of a seller concession. This would need to be negotiated in the sales contract. If you choose this route, it is very important to get accurate figures because any money not used for seller concessions goes back to the seller. You do not want to leave money on the closing table.

If you have questions about property taxes or just want to know what is reasonable to pay for insurance in the area, please contact us. We also can help negotiate and properly structure seller concessions that lower your upfront cost.

What is Title Insurance & How Much is it?

A title search is performed to investigate past transfers of title and claims on a property. If there is an issue, it typically shows up here. However, title insurance is issued for the rare chance it does not. You might think we live in a day where all claims on land titles have been resolved, but unfortunately this is not the case. They are however few and far between.

Do not be worried. This is what title insurance is for. It protects you and the lender against these types of claims. If there ever was a dispute of title, the title insurance would kick in and pay for damages. Also, the chances of a claimant obtaining a judgment to move you off of your property are almost unheard of. Almost all real estate transactions require a title search and title insurance (99.9% that have a mortgage).

Title search and insurance rate do vary somewhat by county. You should expect to pay $350-$750 depending on the complexity of the title search. Title insurance should be .05% to .07% of the purchase price ($500-$700 per $100,000).

If you have title questions or would like a free preliminary report for a property, please contact us.

Should You Buy Mortgage Points?

Mortgage buy down points are a way to lower your interest rate by paying for interest upfront. Origination fees are a similar instrument used for the same purpose. You pay an upfront fee to lower your interest rate. Some lenders even include these in their quote without properly explaining them to borrowers which essentially makes their quote seem better than it really is.

Do not be confused as some loan products such as VA and USDA mortgages have a funding fee built in. These are not the same as buy down points or origination fees. So if you are comparing one of these types of mortgages, you will have a different type of funding fee that will be the same regardless of the lender you choose. However, a lender may still be allowed to include a separate funding fee or buy down points.

The cost for buy down points and origination fees can vary. However, a general rule of thumb is 1 point buys down the rate 1/8 (or .125%) and costs 1% of the mortgage balance. To put that in perspective, on a $300,000 mortgage .125% would lower your month payments by $22 and cost $3,000 upfront. So it would take 136 payments to make back up the cost.

If you are payment sensitive or plan to be in a home for a long time, this might make sense. Builders are also sometimes known to offer rate lowering promotions such as these. You could also have this paid for you part of a negotiated seller concession. Also, some lenders might let you roll this back into mortgage.

It is worth noting, that sometimes the price difference between rates is minimal. In such a case, a buy down point might cost a lot less. Using the same example, if you could buy a 1 point buy down for .5% of the balance and get it rolled back into your mortgage it might make a lot more sense. Your payment would be $22 lower, no upfront cost, and you would make up the $1500 difference added to your note in only 5 ½ years.

A good loan officer will check into these sorts of savings opportunities for you. If you have questions about points or would like to as discuss other creative financing options, please contact us.

One or Two Story Floor Plan?

This is a question many homebuyers contend with. On a practical note, split level homes are great for growing families and those who are looking get the most square foot for their money. They usually have a smaller building footprint which equates to more usable yard space. They also tend to provide more separation in the home for perhaps a home office or second living space.

You do however lose some usable square footage for the stairs as well entry and exit landings. Split level homes also tend to feel a little more broken up when compared to the open feeling of a one level. Many feel they do not offer the same curb appeal as a single level home. Split level homes also do not appeal as much to the aging population.

This is often a question that boils down to cost specifically, cost per square foot. Generally speaking, split level offers considerable more square footage for the money, but why is that? When considering which option best suits your needs, it is important to consider where the savings is coming from.

The most obvious savings are in the foundation and in the roof. For a true split level, you only need half the roofing materials as you would for a comparable sized ranch. You can likewise expect to up save up to 35% on materials for the foundation. Another difference many buyers do not appreciate is the less evident savings are in lumber.

Single level homes, especially newer designs tend to be more open style floor plans. These tend to include larger rooms with fewer walls than a two story home. This generally means the span or overall length of the wood beams must be longer. This means they will probably have to be thicker to be able to support the same weight for a shorter distance.

If you’ve ever been to your local hardware store to buy lumber, you know the price goes up exponentially. While a common stud 2”x4”x8’ might only cost $3, a double in length 2”x4”x16’ might cost you $10 where as 2”x12”x24’ might be $60 or more. In addition, building codes may require specific more costly grades of lumber for certain larger applications.

Sometimes it feels as if you are trying to compare apples to oranges because in a lot of ways you are. Throw in a variation such as a single level with a bonus, and it gets even more confusing. So how do you accurately compare the pricing on these different style homes? Even if you know the style you want, you still need to be able to compare its value to other sometimes dissimilar homes in the area.

As a former new home representative and sales manager, I know comparing value for different style homes can sometimes be challenging, but we are here to help. If you would like assistance evaluating a prospective home or homes, please contact us.

Home Valuation by Roof Styles?

Most homebuyers do not spend too much time contemplating the roof. Unless it is unique or has something wrong with it, many buyers do not give it much thought. They simply inquire about the age and possibly have it inspected.

A brief moment examining the roof can tell you a lot about a home. This is not to simply look at the quality or condition of the shingles. It is more to get you to step back and see the quality of the build. If you are comparing homes with different roof styles and do not assign this a value, it could end up costing you thousands when it comes time to sell.

An Open Gable is a common and inexpensive style roof.

A Hip roof is more labor intensive and requires more skill to build.

Now place either of these next to a Hip and Valley roof you easily see a big difference not only in the roof but also the structure of the home.

There really is no comparison when it comes to curb appeal of this home.  Also notice how some of the more appealing building features come at cost – namely the loss of potential square footage.  Even if you are not familiar with construction, you can see why this style of home is more attractive and why it cost more to build.

On a 2500 square foot home, an upgrade from a gable to a hip roof might add an additional $10,000 in value. A similar upgrade to hip and valley roof could add $25,000 or more depending on the detail and added cost to the structure.

Looking at homes from the top down may not seem exciting. But it should help you see beyond the décor and price per square foot into the real craftsmanship it took to build a home. Hopefully, this will help you see things from a different perspective and perhaps slow you down where you can pick up on things that other buyers miss.

This is one of the techniques I was taught as a sales manager in the home building industry. We used this as a tool to help better evaluate the competition. If you have other questions about home construction or would like assistance evaluating a prospective home or homes, please contact us.

Which Lot Should You Choose?

When looking for a home, many buyers set out to find the perfect home on the perfect lot, but as you might imagine it doesn’t always work out like that. Oftentimes buyers fall in love with a home and compromise on the home site. This is quite understandable as for most prospective homeowners the home itself comes first and the lot while important is a farther down on the list.

Even if a view or premium home site is not at the top of your list, you should still consider it in your selection process. While the benefits are often aesthetic, they are tangible as well. Studies have shown people who live in a home with a view are generally happier and are less stressed. Also homes with a view typically appreciate faster and sell quicker than comparable homes without.

For many homebuyers, this decision comes down to cost. Are these benefits worth the additional cost? For example, let’s say a home that backs up to a preserve would cost you an additional $10,000. Although it might sound like too much, at 4% on a 30 term that is only $48 a month. Similarly, a stunning vista that is $25,000 more actually only cost an additional $119 a month.

Common types of home sites:

Cul-de-sac: These are situated at the end of the street so they usually have less traffic and no through traffic. Also many of these lots are pie shaped.

Corner: These usually come with more land, a side entry, and are great for showing off your curb appeal. Obviously, you may have more traffic.

Interior: These are simply lots between the corner and cul-de-sac lots. Often many of the better views are on the interior lots. This is typically due to the lay of the land and because developers want to maximize profits by having more than just a few premium lots at the ends of the streets.

In the curb: These are homes on the bend of a curb. They can be great lots but you need to pay attention to traffic flow. You don’t want to always be nervous pulling out of your driveway. Some of these are inverted pie shaped lots which often have larger backyards.

Funky: These might seem like a deal, but they are usually discounted for a reason. They have an irregular shape, a view of the side of the neighbor’s house, are steep, or something else undesirable. Be very wary of these because when it comes time to sell, it might take a special buyer and/or a special price to sell one of these.

If you can afford it and it is not overvalued, most experts would agree it is a good idea to purchase a premium home site. It can be a view of anything; mountains, the ocean, a lake, river, a pond, or one that backup to preserve. Almost anything is better than a view of the neighbors. Future buyers will appreciate this added benefit as they always have. The added monthly cost should be minimal and will pay you back dividends when it comes time to sell.

If you would like assistance evaluating the cost and benefits of prospective home sites, please contact us.

How Much Acreage do You Need?

This is somewhat of a double edged question. If you do not purchase enough, you may be forever wishing you had. But if you buy more than you need, you will not only pay more but also continue to pay more for maintenance, taxes, and insurance.

The truth is many buyers have a hard time conceptualizing the size of land. You really should walk or drive a few parcels of land. You need to see the difference between a five, ten, or even fifty acre parcel before deciding.

Think about your plans for the land. How does adding one, two, or ten more acres help you achieve your goals? There is no right or wrong answer, but it is something you should consider.

Also is this dream for both or just one of you? If you both are not 100% on board for a larger parcel, you may need to compromise. Maybe you promise your partner the home they want so you can get the land that you want.

Perhaps just as important is what shape is the property? Parcels come in all different shapes and sizes. Do you need a more square shaped parcel? Sometimes a narrower or odd shaped parcel might offer you more property for less.

You also need to consider the cost of utilities. How long of a power run do you need? Can you run a trench or do you need to clear a right of way. If you plan on putting in a septic now or in the future, you need to do a percolation test before closing. If you plan drilling a well, you should verify the depths and output of nearby properties.

You also should consider the cost of excavation. Is there a lot of large stumps that will need to be removed or grinded down? Is there presence of larger boulders on your property? Do you plan on putting in a road?

Buying a parcel of land can be intimidating but also very rewarding. There are many things you should consider, but we are here to help guide you through the process. If you have questions or need help with estimates for these and/or other associated costs, please contact us.