Everything you need to know about the down payment

Unless you have a big stash of cash, you’ll need to borrow money to buy a home. Oh, you’ll still need some cash (for the down payment and closing costs), so don’t stop socking it away just yet.

In fact, one of the things that confuses our clients most is the down payment they’ll pay when they get a home loan. So, today we’ll share some of the questions we most frequently field.

Why do I have to make a down payment?

Not all home loans (also known as “mortgages”) require a down payment, but most do. There are several reasons for the requirement. Primary among them is that the money helps protect the lender in case you default on the loan.

Secondary to that is the fact that lenders understand that borrowers with “skin in the game” are more apt to do whatever it takes to hang on to the home and not allow the loan to go into foreclosure.

Is the down payment the same as the earnest money I give the seller?

No. The earnest money’s purpose is to show the seller that you are earnest about buying the home. The amount varies and it is typically held in a broker’s trust account or in escrow until either the purchase is finalized or you or the seller back out of the transaction.

When the purchase is finalized, the earnest money deposit is credited toward your down payment or, in some instances, closing costs.

The purchase contract contains what are known as “contingencies.” For instance, your purchase may be contingent upon you obtaining final loan approval. Should this not come to pass, you can walk away from the purchase with a full refund of your earnest money deposit.

If, on the other hand, you get cold feet and walk away from the deal, the seller may have the right to keep the deposit.

I’ve heard that some sellers help pay the down payment. Is that true?

No, it is not true. Sellers cannot help the buyer with the down payment. On the other hand, they are allowed to contribute toward the buyer’s closing costs.

You can, however, use gifted funds, as long as the money doesn’t come from someone directly involved in the transaction. The person who gifts you the funds must be able to document where the money came from.

If the gift funds are undocumented, you’ll need to have them in your bank account for at least 60 days before the lender will consider them “seasoned.” In fact, even your own down payment funds must either be sourced or seasoned, so if you need to move money around, do it as soon as possible.

Can I use money from my retirement account to pay the down payment?

Yes, you can, but we urge you to speak with your financial advisor or accountant before doing so. There may be penalties or tax ramifications that you should consider.

You’ll find information on borrowing money from your 401k at smartasset.com and moneycrashers.com. You’ll also find an article about why it isn’t a good idea to withdraw retirement funds for a down payment at kiplinger.com.

Again, we urge you to speak with a financial advisor before making the decision.

How much will I need to pay for a down payment?

How much you’ll be required to pay for a down payment depends on the loan product you’re using. The U.S. Department of Veterans Affairs and U.S. Department of Agriculture loan programs require no down payment but each has specific eligibility requirements.

Other loan programs, such as those offered through FHA and Fannie Mae and Freddie Mac offer low down payments and the range is generally tied to credit scores. With a conventional loan, you’ll typically be expected to pay 20 percent of the loan amount for the down payment.

But, consider voluntarily paying a larger down payment, if it’s within your budget. The more you pay, the smaller the loan amount will be and, thus, the smaller your monthly loan payment will be.

Make a down payment that nets you 20 percent equity in the home and you won’t be required to purchase private mortgage insurance, which adds a hefty premium fee to your monthly house payment.

When is the down payment due?

While you will need to show the lender proof of your funds for the down payment, the actual monies aren’t due until closing.

The lender will send you a form, called the “Loan Estimate.” While it breaks down all of the costs associated with the loan, pay special attention to the “Costs at Closing” section, specifically the second line under that heading, “Estimated Cash to Close.”

You’ll find a sample Loan Estimate online at consumerfinance.gov.

This amount reflects how much you’ll need to provide to your lender before the transaction is closed. It includes the down payment and closing costs and the lender typically requires the funds be in the form of a cashier’s check or wire transfer.

Please don’t hesitate to reach out to us if you have additional down payment questions or to clear up any confusion on other real estate-related topics. We’re happy to help.

Home inspections aren’t just for older homes

A few years ago, RealtorMag put out a list of the “Top 10 Most Common Home Inspection Problems.” They range from faulty wiring to roof problems to foundation flaws.

Whether caused by deferred maintenance or just the aging of the home, the older a home is, the more likely it is to have issues.

Most buyers of newly-built homes breathe a sigh of relief over their assumption that they’ll be escaping having to fork over large chunks of money for someone else’s problems. And, they typically decide to forego a home inspection.

Yes, new homes don’t have deferred maintenance. Yes, all the components in these homes are new. That doesn’t mean, however, that the home is without an entirely different set of problems.

And that Certificate of Occupancy issued by the local municipality only guarantees that the home is livable, not that everything is in working order.

New doesn’t equal perfect

Not everyone who works on new homes during the construction phase is a master craftsperson. Laborers and contractors have varying sets of skills and experience. While most are conscientious, others cut corners.

Additionally, most of the construction tasks, such as framing, plumbing, foundation and electrical, are subcontracted out – usually to the lowest bidder. Speed, not quality of work, is the most important consideration for the builder.

Errors and omissions in construction, while not overly common, do occur. Bruce E. Holmes, an engineer based in Florida, tells Bankrate.com that he looks for fit and finish problems, such as crooked walls, connections that aren’t tightened and reversed hot and cold water lines.

Municipal inspectors aren’t enough

Don’t assume that county inspectors will find all problems that may exist. Bankrate relates the story of a private inspector that went through a custom-built home during construction, but after the county inspector performed his inspection.

He found cracked floor joists, missing fireblocks and what he describes as “tons of stuff” wrong with the construction.

Reuben Salzman, with Structure Tech in the Minneapolis/Saint Paul area of Minnesota, wrote a five-part series, with photos, of problems he has found in newly constructed homes. It’s well worth a visit to his blog, if only to view the eye-opening photos.

Too late?

Because some problems require seasonally-unique conditions to become apparent, most builders offer their buyers a warranty. For example, water intrusion into a basement won’t be apparent until the first big rain.

Warranty terms vary, but most offer terms for different types of work. For instance, you may receive a one-year warranty for faulty labor and materials, two years for mechanical defects and ten for structural problems, according to Ilona Bray, legal editor for Nolo.com.

“The result is that the best parts of the warranty expire quickly — your carpeting, tiles, paint, and roofing, for example, may not be covered after the first year,” she said. Bray also suggests that you obtain an independent, professional home inspection before each warranty expiration date.

Since homeowner insurance typically doesn’t cover construction defects, get to know the warranty. Consult with your attorney, if you must, but ensure that you understand all aspects of it.

Whether you have a home inspection during construction (do so before the drywall goes up) or upon completion, the peace of mind it offers is worth the price.

Do Open Houses Work?

“In my experience, there is no correlation between houses we hold open a lot and houses we do not hold open at all and how fast or at what prices they ultimately sell for,” claims an unnamed real estate broker at zillow.com.

Then, there is real estate “scientist” Tim Ellis’ analysis of a study performed by a large real estate conglomerate. In San Francisco, he claims, “holding an open house is so expected there that homes that don’t hold an open house are a full seven percentage points less likely to sell than those that do.”

So, which is it? Do open houses help sell homes or are they a waste of time? Let’s take a look at both sides of the question.

Opposing Goals

Home sellers and their listing agents often hold opposing views on whether or not to hold an open house. The homeowner believes that holding the home open to the public exposes it to a broader pool of potential buyers.

The real estate agent, on the other hand, will typically hold an open house not only to lure in potential buyers but to attract more clients as well. In fact, skeptics of open houses will say that the real purpose of the guest register by the front door is part of the agent’s attempt to pick up new clients.

Then, there are others who claim that busy agents with lots of clients generally feel that open houses are a waste of time.

The stats

A hunt for research into the effectiveness of the open house as a home sales tool highlights the lack of available information. The National Association of REALTORS® finds that 45 percent of buyers use the open house as an “information source,” but fails to mention the percentage of these folks who actually purchased the home.

The study that Ellis analyzed finds that geographic location has a lot to do with whether an open house will sell a home. As mentioned earlier, San Francisco homes that are held open are more likely to sell than those that don’t have an open house.

In Las Vegas, on the other hand, only 3 percent of homes are held open, so naturally, homes here are more likely to sell without an open house.

“Everywhere else, the picture gets a little more fuzzy. In the other eight markets we examined, there was virtually no difference in the percentage of homes that sold, whether they had an open house or not,” Ellis claims.

One additional finding is worth noting: Homes that are held open during the first week of the listing period are 13 percent more likely to sell than homes not held open at all.

Furthermore, the likelihood of a sale doubles if the agent skips the first week and holds an open house later during the listing period.

Overall, this particular study shows that an open house is a must if you live in San Francisco and it’s a waste of time for Las Vegas homeowners. What about everywhere else? “It likely doesn’t really matter. . .” says Ellis.

The reality

Just as some hair stylists cut hair better than others and some lawyers are brilliant in front of a judge while others fall apart at the thought of it, some real estate agents are better at holding open houses than others.

Therefore, whether an open house “works” or not depends not only on the agent’s skill set, but on geography, seasonality and a host of other conditions.

Overall, it is effective marketing that sells a home and the most potent weapon in your marketing arsenal is your real estate agent. Whether or not he or she lists open houses in the marketing plan should have less to do with the agent’s effectiveness than their overall marketing chops.

How to stage your home’s closets to make buyers swoon

Ah, to be a fly on the wall as potential buyers traipse through your home for sale. You could watch them peer into your cupboards and closets and peek into the drawers in the kitchens and bathrooms.

Don’t worry – most of them aren’t being snoopy; they are merely trying to figure out where they can store their “stuff” if they decide to buy the home.

If you are like a lot of Americans, your closets don’t represent your best foot forward. If shoes are spread across the floor and clothing randomly crammed in any available space, the chances are good that your closet looks smaller than it is.

The good news is that with a small amount of money and a couple of organizational hacks, the closets in your home will be screaming “Buy Me!” to every potential buyer who peers within them.

Start with the walls

Staging a closet involves changing your mind-set about it. Don’t consider it a place to hide junk, store items you no longer use or even it’s true purpose – to keep your clothing.

Instead, think of it as an additional room in your home, at least for staging purposes. This means, removing the clutter and organizing it.

It also means creating the illusion of spaciousness, regardless of how tiny the space is.

Paint color and sheen can go a long way in creating this illusion. The most common advice is to choose the whitest shade of white you can find and slap it on the closet’s walls and ceiling.

Many architects and professional designers claim that’s hogwash – that white actually makes a room seem smaller. And, really, when you think about it, isn’t it better to get color advice from a professional than from a freelance writer who specializes in crafts or personal finance?

More important than paint color is sheen. “Painting in a flat, matte or satin finishes [sic] will soak up light, while semi-gloss, high-gloss and lacquer finishes tend to reflect light, which make a darker room feel brighter and lighter,” Edith Gregson, partner in a Washington D.C. design firm, tells the Chicago Tribune’s Danielle Braff.

No doors on the closet? Debbie Zimmer, spokesperson for the Paint Quality Institute suggests painting the closet’s interior the same color as the room or, perhaps a lighter shade of the same color

Give the paint something to reflect

Closet lighting seems to be an afterthought for most home builders. Unless you own a luxury home with a super-sized walk-in closet, you most likely are greeted by a lone, bare bulb when you go to hang your clothes up after work.

You also know how frustrating it is to have to drag two pairs of pants into the light of day to determine which is black and which is Navy blue.

So, the next task in the closet makeover is to get more light in there so the paint can do its job.

Lighting solutions don’t necessarily require rewiring. Check out some of the LED lighting options at large home improvement stores or online at lighting retailers.

Add storage items

One rod with a shelf above it – that’s the layout of the typical American bedroom closet. Sure, some are blessed with larger closets, but even those typically contain the lone-rod-and-shelf setup.

Adding additional rods below the current rod is always an option, as is adding additional shelves.

Find shelving and other storage ideas online at Houzz, Remodelaholic and Apartment Therapy.

Declutter and organize

Removing overly large and bulky items from the closet is winning half the battle when it comes to making it appear larger. Winter coats, blankets and anything non-clothing related should be moved to the appropriate area within the home or, better yet, to a storage facility.

Then, pare down what’s left to only those items of clothing and accessories that you actually wear. The jeans you’re saving for that day when you finally lose enough weight to fit into them? Get them out of the closet.

Purchase enough hangers so that they all match. Whether you choose metal or plastic, the most effective way to appear organized is by having them all match. Then, group your clothing along the rod, hanging all pants together, all shirts and blouses in one spot and so on.

If you really want to go for the “I’m the greatest housekeeper” award, follow this grouping by sorting everything in each category by color.

Finally, get the shoes off the floor by storing them in a rack or shoe bag.

A well-lit and organized closet not only offers the buyer the perception of additional storage space but gives him or her the impression that the entire home has been equally as impeccably maintained.

 

Busting the 3 biggest private mortgage insurance myths

One of the most frustrating issues we’ve dealt with over the past few years is the confusion over private mortgage insurance (PMI). Folks on the internet aren’t helping clear the confusion; instead, many are feeding it with misinformation.

The truth is, the average down payment on a mortgage is around 11 percent, according to the National Association of Realtors. That’s a whole lot of homebuyers who are required to purchase PMI. Because of that, we’ve decided to help smash the prevailing myths about this despised yet necessary program.

What is PMI?

Private mortgage insurance protects the lender if the buyer defaults on the loan and it is generally required of borrowers who pay less than 20 percent as a down payment.

There are exceptions to this that we’ll explore, below.

PMI typically costs between 0.5 percent to 1 percent of the loan amount, each year. “At 5 percent down, private mortgage insurance (PMI) costs $150 per month on a $250,000 home,” according to the U.S. Department of Veterans Affairs.

 

Myth Number 1: “Government-backed loans don’t require PMI”

This one is partially true. The VA loan doesn’t require PMI. However, the loan does require most borrowers to pay what is known as a “funding fee” which helps mitigate the burden on the taxpayer should the borrower default on the loan.

FHA does require that borrowers purchase mortgage insurance, although theirs is called MIP, for Mortgage Insurance Premium. There is both an upfront fee and a monthly premium payment required.

The former is typically the same for all borrowers (1.75% of the base loan amount), while the latter depends on a number of factors, including the loan amount, the term and the loan-to-value ratio. The premium amount changes annually, so check with your lender to learn about current MIP rates.

Myth Number 2: “You cancel PMI when you reach 20% loan-to-value”

This myth is partially true. If you have a conventional loan you can cancel the PMI premium when you reach the 20 percent equity level.

By law (Homeowners Protection Act of 1998), however, your lender must cancel the policy when you accumulate 22 percent of the home’s original purchase price in equity.

If, on the other hand, you have an FHA-backed loan, you can’t cancel the MIP unless you sell or refinance the loan.

Myth Number 3: “PMI is tax deductible”

This was true a year ago, but for 2018 tax returns, at least as of September 2018, this deduction is no longer available.

The ability to deduct PMI is one of those tax code provisions that expire every December 31st. Since its inception in 2007, Congress has renewed the deduction every year, sometimes at the last minute.

Hopefully, it will be again, but most tax specialists aren’t holding out hope. So, for now at least, “PMI is tax deductible” is a myth.

We aren’t mortgage professionals so we urge you to contact your lender or financial advisor if you have questions about private mortgage insurance.

DIY staging tips that won’t break the bank

OK, so you don’t have a warehouse full of designer furniture, accessories and home décor items or a degree from an interior design school. Don’t let that stop you from fashionably staging your home before you put it on the market.

Staging isn’t merely the act of decorating a home; it is primarily an appeal to emotions. A lot of psychology goes into determining colors, textures and furniture arrangement.

You can see this psychology in action in model homes. Every element of each room is thoughtfully chosen to evoke an emotional response from the potential homebuyer.

Overall, the designers hope to create desire – they want to create a sense of longing for the home. How they get there is by making homebuyers see themselves living in the home.

The first rule of home staging

There’s a reason that most articles you read about home staging start with the admonishment to “clean the home.” Studies show that clean homes sell faster and for more money than dirty homes.

And, by “dirty,” we don’t necessarily mean slovenly. Something as everyday as a pile of laundry, dishes in the sink or children’s toys scattered about can turn off a potential buyer.

“You’re asking people to forgive the mess and still pay top dollar,” stager and interior decorator Darrow Samberg tells Lena Katz at forbes.com.

By “clean,” we mean from-the-ceilings-to-the-baseboards immaculate. Yes, it’s challenging to keep it that way while the home is on the market. But, it will help the home sell quicker than it would if you don’t take the time to clean.

Another hot topic among those who write about staging is “depersonalizing” the home. Most will advise you to remove family photos, certificates, diplomas, kids’ artwork, collections and anything else of a personal nature from the shelves, walls and surfaces of every room.

By doing so, you not only allow potential buyers to more readily see themselves living in the space, but you’ll also be taking steps toward decluttering the home (the third step in the pre-staging process).

Get rid of clutter. This includes the aforementioned collection of items on countertops in the kitchen and bathroom, stacks of newspapers and magazines and anything else that isn’t decorative. 

DIY staging on the cheap: Start with your furniture

The best way to make a small room appear larger is to remove overly-large furniture. Then, rearrange what’s left so that it advertises the purpose of each room.

In other words, move the baby’s changing table out of the master bedroom and ditch that exercise equipment that clutters the family room.

Next, arrange the furniture that’s left to maximize space and create a cozy feeling. Pull the living room and family room furniture away from the walls and reposition chairs, sofas and coffee tables to create a conversation area.

The pros at Better Homes & Gardens suggest “arranging the seating pieces to face each other over a shared coffee table …”

Spiff up kitchens and bathrooms

For years, surveys of homebuyers have shown that the most important rooms in a home are the kitchen and the bathroom. It only makes sense, then, that your attention should be focused on these two rooms.

Thankfully, there are easy, inexpensive DIY projects that require nothing more than a bit of energy. Start by removing everything from the drawers and cupboards, thoroughly cleaning the interior of all of them and then returning to them only what is absolutely necessary.

Arranging the contents neatly gives the impression of roominess and storage space is a hot button for many buyers.

“Turn all coffee cup handles facing the same direction,” suggests Elizabeth Weintraub at the balance.com. “Buyers will notice and think you are meticulous about the rest of the home, too.”

Speaking of cupboards and drawers, consider purchasing new hardware for them if yours are dated.

Bathrooms are easy to update on the cheap. A fresh coat of paint (even on the cabinets, if needed), new lighting and fresh, matching linens will help add a wow factor to a dated bathroom.

Additional ideas

Here are some inexpensive ideas to get your creative juices flowing:

  • Tour model homes to get staging ideas. Don’t forget to take your camera to snap photos so you can copy the décor.
  • Go through the attic, basement and garage, looking for anything you can use in staging.
  • Shop for decorative pieces, if necessary. Craigslist.org, flea markets, garage sales and second-hand stores are great places to find inexpensive decorative items. Look for art work, vases, baskets, rugs, mirrors, pillows and any other items you need to stage the home.
  • Create focal points by adding colorful accents.

Some additional tricks of the trade include painting, which gives every room and instant makeover,  and replacing faucets in the kitchen and bathrooms.

Use the internet for more ideas: HGTV’s “Designed to Sell,” Better Homes and Gardens and A&E’s “Sell this House.”

Tips for House Hunting when Relocating to a New Area

The best part of moving to a new town or city is the newness of the whole thing. Getting to know the amenities, finding a new favorite eatery, new parks, new people and a new lifestyle is exciting stuff.

The most challenging aspect of relocating to a new area is finding a place to live, especially if your new town is a significant distance from where you now live. It is a challenge that is, thankfully, not insurmountable.

Secure the Services of a Real Estate Agent

Your number one source of neighborhood information should be your real estate agent. Have you chosen one yet? Let’s take a look at some quick tips for finding an agent in a new area.

Check real estate agents’ websites

Be aware that when you do an online search for “real estate agents in” whatever city you’ll be moving to, the first page of results may be filled with the big real estate aggregator sites, which are useless for your purposes.

Scroll down until the actual agents’ sites start appearing in the search results. You may have to view several pages of search engine results to find a handful of agents to consider.

Take a deep dive into the websites, looking for someone who offers lots of local and neighborhood information. Since you’re new in town, this information is vital in helping you find your ideal neighborhood.

Call the agents

Calling the agent for the first time is an important step in the process as it presents the first “test” of whether or not to work with the agent. You’ll find that most of the time you’ll get an agent’s voicemail.

Very few of them answer their phones and if you find one that does, give him or her extra points. Leave a concise voicemail telling the agent that you will be relocating to his or her area and need help finding a house. Don’t forget to leave your phone number and the best time to reach you.

Deduct points for any agent that takes over three hours to return your call and disregard any agent that doesn’t get back to you within 24 hours of your initial call.

Get to Know the Area

The problem with being an “outsider” is that it’s difficult to know which neighborhoods suit your lifestyle.

Sure, you can go online, do a Google Earth search and check out the surrounding areas, but that really tells you little about what it’s like to actually live in the different areas of any town or city. That type of information is best obtained by asking folks who actually live in the area.

Visits to the area before moving present the best opportunity to get a feel for what it will be like to live there. Even if you can’t visit, however, you should use the Internet and your real estate agent to research the following items, if they are important to you:

  • Cost of living
  • Home prices
  • Schools
  • Transportation
  • Crime rates

Don’t forget to determine commute times from the neighborhoods you’re interested in and the cost of parking if you’ll work in a downtown building. These outlays can add significantly to the cost of living in a new area.

While most people will tell you that finding a house when relocating to a new area is stressful, don’t believe it. With the right real estate agent to guide you, it should be adventurous and exciting.

Call us if you’d like a referral to an agent in your new hometown. We’re happy to help.

3 Reasons your Home isn’t Selling

A home languishing on the real estate market is one of life’s more frustrating ordeals. Especially if you’ve owned the home for some time, there’s that emotional attachment that tells you, “Hey, this is an incredible house. It should sell really fast!”

If you’re under contract on another home or if you need to relocate there is also the need for speed.

There is no reason, at least not in the current market, that a home in good condition and in a desirable area shouldn’t sell. Homebuyers are clamoring for these homes.

There are several common reasons that homes don’t sell and one of these may just be the solution to your problem.

1. The home is overpriced

The most common reason a home sits on the market is because it’s overpriced. Asking too much for the home could be a result of you ignoring your real estate agent’s pricing advice,  an error on the part of your real estate agent or because the market corrected and your agent didn’t notice.

Regardless of the reason why, you’ll need to drop your price, as soon as possible, to renew interest in it and get it sold.

In a nutshell, homes sell for what buyers are willing to pay, not what sellers hope to get. The only way to know what a buyer is willing to pay for a home like yours is to check the sale prices (not the asking price of active listings) of homes similar to yours.

If it’s less than what you’re currently asking, I urge you to drop the price. The price reduction may just be the key to getting more buyers through the front door and, thus, to the home selling. 

2. Your home needs work

We’ve noticed that the homes that sell the fastest are priced right and they’re in good condition. What do I mean by “good?” They have curb appeal – the exterior reflects pride of ownership, not necessarily opulence. The trim is painted, the siding is in good condition and the landscaping is tidy.

Inside, the paint is fresh, the carpets clean and the house is neat. The buyer has the impression that he or she can move right in and not have to work to make the home livable.

Because we tend to be “married” to our homes and don’t notice their flaws, the ideal way to get feedback on its condition is for your agent to solicit it from the buyers’ agents who’ve brought their clients to the home.

If your agent isn’t doing this, he or she is doing you a disservice. Ask your agent to do the follow-up – you are, after all, paying him or her. Which leads us to reason number 3 that your home isn’t selling.

3. You have a lousy real estate agent

Your real estate agent’s primary job is to market your home. If it’s priced right and in good condition, the next biggest reason it’s not selling is because you have an agent who is failing at the marketing game.

Get together with your agent and find out what is being done to market the home. If the only marketing that’s been done is a sign in the front yard and an MLS listing and, perhaps, a blurb on the freebie websites, consider finding another agent.

It’s a lesson many homeowners learn the hard way: Never hire an agent that doesn’t consistently make enough money to offer a powerful marketing plan. It’s the essence of what you’re paying for and you should demand the service you deserve.

If you follow numbers one and two, above, and you are convinced your agent is doing a stellar job, ask yourself if you’re flexible enough in showing the home.

We know from our own listing clients that the worst part of selling the home is having to keep it in model-home condition despite life continuing to happen – kids, pets, guests and all of that.

Buyers work too, and often the only time they have to look at homes is in the evening or on weekends. Accommodating last-minute requests to see the home earns bonus points (at least with us!) and gets you even closer to selling the home.

Even in the hottest sellers’ markets there are slow periods, so if you’ve done all you can to ensure that your home is competitive, relax and give it more time.

My mortgage application was turned down. Now what?

Sure, the results of an appraisal and the home inspection can stop a real estate deal dead in its tracks, but what if you never get that far in the process?

What if the lender turns down your loan application – is there anything you can do to buy a home?

That depends on why the lender denied your application, and there are several possible reasons.

Let’s take a look at them and see if we can’t get you back on track to buying a home.

Low or insufficient credit score

Pulling your credit report will be one of the lender’s first tasks and low or spotty credit records are the most common reason that someone is denied a mortgage.

If you applied for a conventional loan and were turned down for this reason, consider applying for a loan using an FHA-backed mortgage.

The score requirements are a lot more relaxed and lenders are more likely to take a chance on you when the government is promising to repay them should you default on the loan.

Another way to approach the credit score problem is by paying a larger down payment, if you can afford it. Lenders take large down payments quite seriously and are willing to overlook other problems with the application when the borrower has some “skin” in the game.

Plus, the larger down payment will bring down the amount you need to borrow.

If none of these alternatives work, take a break from house hunting while you work on your credit score.

The experts at Fair, Isaac and Company, or FICO as they are known, remind consumers that “repairing bad credit is a bit like losing weight: It takes time and there is no quick way to fix a credit score.”

Get current on any bills you’re behind on and pay all bills on time going forward. Reduce your debt as much as possible and keep the balances low on your credit cards.

Lower your ratios

One of the aspects of your finances that the lender’s underwriter scrutinizes is your debt-to-income ratio (DTI). If they turned you down because yours is too high, get to work lowering it. There are three ways to do this:

  • Increase your income
  • Lower your debt
  • Do a combination of both

Unacceptable employment history

The days of the so-called “liar loans” are long gone and today, lenders look for at least two years of consistent job history, either with the same employer or in the same industry. Even the self-employed applicant will need to meet this two-year benchmark.

If your loan denial is the result of unacceptable work history, consider waiting until you have the required amount of time on the job before reapplying.

Otherwise, keep shopping around for a loan but chances are, most lenders will deny your application for this reason.

Last minute denial

Just when the purchase seems to have overcome the most common obstacles and you’re mentally moving in to the home, the lender sends you a message that your loan has been denied.

How can this happen?

Two reasons come to mind: the appraiser said the home isn’t worth the amount of money you want to borrow or your financial situation has changed since you first applied for the loan.

Lenders will perform one last pull of your credit information just before closing, so it’s important that your financial situation remains consistent from the time escrow opens until it closes.

Don’t make major purchases on credit, don’t apply for new credit, don’t switch jobs or banks

We aren’t mortgage professionals but are happy to refer you to one should you have any questions about getting a loan, or about the mortgage process in general.

An important thing about your new home that your real estate agent is forbidden to tell you

“What’s the crime rate in this area?”

It’s a common question and we understand completely why homebuyers want the answer. Unfortunately, real estate professionals are forbidden from answering it.

So, when your question is met with silence, or you’re directed to the local police station or a website or two, please don’t think we’re brushing you off.

The Fair Housing Act

Passed into law in the late 1960s, the Fair Housing Act’s aim was to end housing discrimination. In our case, it prevents us from answering certain questions because our answers may be construed as “steering.”

Steering is when a real estate agent tries to discourage a client from buying a home in a certain area. Even if we don’t intend to steer you, crime statistics, racial demographics and even which churches are in the area are topics that are off-limits to us.

The law applies to listing agents as well. For instance, advertising a home as “within walking distance,” could be a violation of the law in that it appears we are discriminating against the handicapped.

Agents get around this by saying that a home is “within close proximity to” or “near” an amenity.

Back to safe neighborhoods

There are several ways to check crime statistics or the general safety of a community.

Crime mapping services

Crime mapping services collect data from police. In addition to gathering data from the local sheriff and police departments, some, such as crimereports.com, enlist the help of homeowners with security cameras, allowing them to register their cameras with the site.

My local police department uses crimemapping.com to get the word out. Other sites to visit include spotcrime.com and mylocalcrime.com.

City review sites

Other sites, such as areavibes.com, encourage residents to give a general overview of their cities and these reviews will often contain community-level crime information.

Neighborhoodscout.com’s Crime Risk Reports “provide an instant, objective assessment of property and violent crime risks and rates for every U.S. address and neighborhood,” according to its website. They also offer lots of informative lists, such as Murder Capitals of America, Most Dangerous Cities, Most Dangerous Neighborhoods, Safest Cities in America and more.

Social networks

NextDoor.com is growing in popularity, which please us to no end. NextDoor is a social network at the neighborhood level. It’s neighbors talking to other neighbors, sharing information on local service people, lost and found pets and, yes, crime.

You’ll get a deeper insight into a particular neighborhood here than you will on a national site.

Nextdoor is a private platform so ask your agent if he or she knows anyone who lives in the neighborhood who may be a member. Perhaps the home seller is and you can log in with his credentials.

Sex offender databases

Familywatchdog.us is probably the most popular database of the nation’s sexual predators. The site also offers a list of state registries, facts and statistics and safety tips.

The U.S. Department of Justice offers the National Sex Offender Public Website with a “regularly updated database that allows you to enter an address and map sex offenders nearby.”

Talk to the neighbors

Nobody is more in touch with local crime than residents of the community. Drive the neighborhood at different times of the day and when you see neighbors outside, stop and chat with them.

Not only will you most likely get information on how safe the neighborhood is but you may learn other valuable things about it as well. So, open your ears and soak up the gossip.