Deciphering the mortgage process

For the first-time homebuyer, pursuing a home loan is a bit like visiting a foreign country where you don’t speak the language. Those who work in the industry tend to fling terms and acronyms around, expecting others to understand exactly what they’re talking about.

Have no fear, soon-to-be homeowner; we’ve created a handy glossary, of sorts, to help you out.

What exactly IS a mortgage?

“Mortgage” is an old French word that’s been in use since the turn of the 15th century. Once you learn the definition, we think you will never forget it:

“Mort” = “Dead”

“Gage” = “Pledge”

Sounds rather morbid, but the long-form definition is “… the deal dies either when the debt is paid or when payment fails,” according to the Online Etymology Dictionary.

We think it’s just a whole lot easier to think of it as a type of a loan, because, essentially, it is.

The people part of the mortgage

It’s easy to understand where all those mortgage fees to once you understand just how many people have their fingers in the pie.

Let’s get to know some of the players.

Mortagor/Mortgagee

When you borrow money for a mortgage, you become known as the “mortgagor.” The lender, on the other hand, is the “mortgagee.”

Mortgage Broker

This person is a middle-man or woman who shops among many lenders to help his or her clients find a mortgage that is right for them.

Loan Officer

Should you decide to go directly to a lender (your local bank, for instance), the first person you will be introduced to will most likely be the loan officer.

The loan officer will counsel you on the preapproval process and ensure that you turn over all the documents required to get moving on the loan.

Loan Processor

The loan officer will bundle up all that paperwork you completed and hand it over to the loan processor. This is the person who will check the paperwork for accuracy, verify your credit and make sure you aren’t fibbing about your income.

Once this process is complete, he or she will hand off the entire package to the underwriter.

Underwriter

The loan’s underwriter is the one person in the process that you’d like to be besties with.

This is the person who will determine how much of a risk the lender faces by lending money to you for a home.

The underwriter will do an analysis of everything, determining whether or not:

  • your application is complete and includes all documentation.
  • you are eligible for the loan.
  • you can afford to make the payments on the loan.
  • the home is worth what you’ve agreed to pay for it.

These are just some of the underwriter’s duties, but they are the most significant for you.

Appraiser

We mentioned above that the underwriter must ensure that the home is worth at least the amount you want to borrow. He or she does this by using a professional property appraiser.

Common mortgage terms

Amortization: “Mortgage amortization is a financial term that refers to your home loan pay off process,” according to the prose at Chase.com.

The payments on your loan will gradually change over the course of repayment to being those that pay for mostly interest to those that go toward primarily the principle.

You’ll find an easy explainer online at nerdwallet.com.

Closing Costs: Expenses incurred in financing the home. Closing costs vary and some are negotiable.

Escrow Impounds: You will be asked to prepay taxes and insurance when escrow closes. This money goes into an escrow account and is used to ensure the timely payment of these bills. The lender may require up to two months’ worth of payments to be impounded.

Principal: The amount you originally borrow.

PITI: An acronym for Principal, Interest, Taxes and Insurance. This is your monthly mortgage payment.

Point: What the lender charges for originating the loan. One point equals 1 percent of the loan amount.

Private Mortgage Insurance: Typically known as “PMI,” the borrower pays for this policy and the lender benefits if the borrower defaults on the mortgage.

With an FHA-backed mortgage, you’ll notice that this insurance is called “MPI,” short for mortgage insurance premium.

Mortgage insurance is required, generally, if the loan-to-value ratio is greater than 80%.

 

 

 

 

Could your dream home be the worst home in the neighborhood?

Times are tough for homebuyers with not enough homes on the market to absorb all of the folks who want to buy one. If you’re doing battle with the competition, and getting sick of it, have you considered buying a fixer?

Now. . .wait. . .don’t discard the notion until you hear what I have to say. You may just end up with the ideal home at an amazing price.

There is even a loan that will help you purchase and fix the home. So, basically, you can take that old beater of a home and customize it to your lifestyle. Before we get to that, though, let’s take a look at some of the other pros and cons of buying a fixer.

Advantages of buying a fixer

There’s an old saying in real estate that you should buy the worst home on the best street you can afford. The reason for this is that the market value of a particular home is based on the value of surrounding homes.

Location has a lot to do with the equation so if you buy the nicest home on a rundown street or neighborhood, your home will set the bar for the area’s market value. Buy the worst home in a desirable area, however, and its value is being propped up by the better homes and it has nowhere to go but up.

Deciding to buy a fixer also allows you to purchase in a better neighborhood than you could were you looking at turnkey homes for sale. These neighborhoods have homes that hold their value better than shabby or unpopular neighborhoods so your resale value will be better.

Then, because fixers are more challenging to sell, you may find a homeowner desperately seeking to get rid of one and more willing to negotiate on price.

Finally, there’s something to be said for not having to conform to a home that doesn’t have all the features you need. Buying and renovating a fixer allows the home to conform to you.

Disadvantages of buying a fixer home

The biggest and most obvious disadvantage in buying a home that needs repairs is all the work that will need to be done before you can live in it comfortably. Workers, dust, noise ― it’s all a hassle. But, in the end, most folks we’ve spoken with say that it’s worth it.

Additionally, the renovation process, especially if you use the loan program we suggest, is complicated, with lots of other people that you’ll need to coordinate.

Get your red-hot fixer loan here!

You have several financing options available when you decide to buy a fixer. All of them wrap the cost of fixing the home into the mortgage to purchase the property so you’ll have only one payment every month.

FHA 203(k) Rehab Mortgage – This program is restricted to borrowers who intend on living in the home.

Fannie Mae HomeStyle® Renovation Mortgage – This program is less restrictive, offering rehab loans to those who purchase a fixer as a second home or an investment to use as a rental (as long as it’s only one unit).

Freddie Mac CHOICERenovation® Mortgage – Like Fannie’s program, this one is less restrictive than the FHA program.

Not all lenders provide these loans, so give me a call and I’ll point you in the right direction.

 

3 home selling myths BUSTED!

Have you noticed that since you put the word out that you’re thinking of selling your home, everyone becomes a real estate expert? From your aunt Martha (who last sold a home in 1973) to your next-door neighbor, everyone has advice.

Read on for some of the biggest home selling myths perpetrated by these “experts,” and watch us bust them!

1. The online estimates of my home’s value are accurate

Nothing could be further from the truth. In fact, former Zillow CEO Spencer Rascoff once called their Zestimates merely “a good starting point,” according to the Los Angeles Times’ Kenneth R. Harney.

Rascoff went on to admit that Zestimates are off by about 8 percent, on average, but in some parts of the country the site’s error rate is drastically higher.

The only reliable method of determining a home’s true market value is by using local MLS statistics and only an appraiser or local real estate agent has access to these.

And, no, your home is not worth what you need to get out of it.

2. When pricing your home, price it high to start with

There’s a strange dichotomy in the real estate industry when it comes to overpricing a home: the seller very often ends up netting a lower-than-hoped-for price.

Sellers that overprice their homes aren’t fooling anyone. Buyers and their agents are fully aware of the price points in various neighborhoods and won’t waste their time on a home that is obviously overpriced.

What happens to these homes? They languish on the market, the listing becomes “stale,” and by the time the seller becomes realistic it is, sadly, too late.

Pricing a home appropriately for the market at the outset is critical to getting the home sold for the amount you want.

3. You don’t need a real estate agent to help you sell your home

This is partially true – you may be able to sell your home on your own. But, why would you want to?

If you think you’ll save money, think again. In 2020, the average sales price nationwide for a for-sale-by-owner (FSBO) home was $217,900, according to the National Association of Realtors.

The average sales price for a home sold with a real estate agent’s assistance sold for $242,300. That’s $24,400 more than a home sold by owner.

Additionally, selling a home requires marketing skills and, more importantly, a hefty marketing budget. It requires an understanding of contracts and the ability to negotiate. Plus, it will take a lot of your time – how much is that worth to you?

Old myths die hard, but we’re doing our best to help them along. Feel free to reach out to us with any questions about selling your home.

A new roof is expensive. Take care of the one you have

As a roof ages, problems with it are inevitable. Even new roofs, however, are susceptible to the forces of nature, whether they include high winds that send trees crashing down, ice dams or pelting hail.

Of course, these roof repair emergencies are unavoidable, but routine maintenance can help stop smaller problems from becoming catastrophic. The experts at HomeAdvisor.com suggest that most roof leaks stem from these common problems:

  • Inadequate roof pitch – low-slope or flat roofs are a bad choice in areas with lots of rain
  • Missing shingles – even heavy material can lift and blow away
  • Ice dams – Snow that melts and refreezes can build up, damming all the water behind it
  • Faulty step flashing – common in older roofs
  • Faulty pipe flashing – rain and snow can corrode the sealant, allowing moisture into the home
  • Valleys – these are the channels that carry rainwater and if they’re damaged, the water won’t flow

“Minor repairs range between $150 and $1,500,” according to Chauncey Crail and Lexie Pelchen at Forbes.com.

Bigger jobs, they go on to say, may cost anywhere from $1,500 and $7,000 and this cost doesn’t include that of any permits you may be required to obtain.

If the roof is beyond repair, plan on forking out “… between $5,434 and $11,151,” for a new one according to Meghan Wentland at Bobvilla.com.

Roof Emergency Prevention

No, you can’t prevent wicked weather, but take certain steps and you’ll prevent ancillary damage.

Roof maintenance is the “single most important factor (after proper installation) for determining the life span and cost of a roof system,” according to the National Roofing Contractors Association (NRCA). William Good, the group’s executive vice president adds that “too often, roofs are ignored until they leak — and often, at that point, they have to be completely replaced.”

Professional roofers offer these maintenance tips:

  • Inspect your roof twice a year, in fall and spring. Look closely at the shingles to ensure none are buckled, curled, cracked or missing. These need to be replaced immediately.

Then, inspect the area around the chimney, pipes and anything else that is attached to and extends from the roof. Look for looseness or wear.

Finally, when you clean the gutters, look for large amounts of shingle granules that have been blown off or worn away from the shingles. These granules add weight to the shingles and finding large amounts in the gutters is a sign that some of the shingles may need to be replaced.

  • Inspect the ceiling in the attic, looking for signs of moisture intrusion. These include a musty odor, mold and damp insulation.
  • Cut back tree branches that extend to within 6 feet of your roof.
  • Routinely remove leaves that fall on the roof. These trap moisture and may rot the roofing material beneath them, according to Werner & Sons Roofing in Grand Haven, MI.

No, the inspection doesn’t sound like fun. But, trust us, it’s a lot more fun than writing a check for the cost of a new roof.

Why is my smoke detector making noise?

Did you know that your chance of dying in a home fire is cut by 55% if the home contains working smoke alarms? According to the National Fire Protection Agency, maintaining the smoke alarm in your home is critical.

Pay attention if the unit beeps or chirps for no apparent reason. Typically, the batteries are dead and need to be replaced. When it’s a hardwired alarm that’s driving you nuts with noises, you’ll need to investigate the cause.

How old is the smoke detector?

The average life span of a smoke alarm is 10 years. If yours is older, it may be chirping to let you know it’s time to replace the entire unit.

There should be a date stamped on it somewhere, sometimes on the back of the unit so you may need to remove it from the ceiling. If it’s older than 10 years, buy a new one.

Dirt and grime are the enemies

Smoke detectors require routine cleaning to remain reliably operable. As well, “Most people don’t realize that the batteries should be replaced TWICE a year,” according to the cleaning pros at maidbrigade.com.

They go on to suggest that an easy way to remind yourself to perform this task is to plan on doing it when “… we change to daylight savings time and daylight standard time.”

You’ll not only want to change the batteries, but clean and test the smoke detector unit as well.

If the detector’s sensor is covered in dust or grime, the noise it’s emitting may be trying to alert you that it needs to be cleaned.

The best way to do this, if it’s just a film of dust, is with compressed air such as that you use to clean your computer.

If it’s grime that is causing the problem, use a microfiber cloth to wipe it clean.

You’ll find a walkthrough of how to clean a smoke alarm online at kidde.com.

Power outage

Even a momentary power outage can cause the smoke detector to chirp. It may also be chirping in response to a power surge. A professional electrician is required to remedy this problem.

When your smoke detector begins chirping, don’t ignore it and don’t put off investigating the cause. The detector is an important safety feature in the home so its maintenance requires immediate attention. If you can’t determine the reason for the chirping, call the manufacturer for assistance.

Additional smoke detector considerations

Safety experts suggest (and some state laws demand) that homes have working smoke detectors on each level of the home and in each hallway and bedroom.

Ceiling mounted detectors should be placed 4 inches from the wall and, “If your alarms are on the wall, they should be 4 to 12 inches from the ceiling,” according to the experts at the Texas Department of Insurance.

They also caution against placement near windows and vents and in areas with lots of drafts.

It may be challenging to figure out why a smoke alarm is all of a sudden making noise. If all else fails, replace the alarm. They aren’t terribly expensive and the peace of mind it will provide is well-worth the price.

You’ll find more help in figuring out why your alarm is chirping online at bobvilla.com.

 

Do I have to include my appliances in the home sale?

This is a question we hear frequently and the answer is: it depends.

On what?

On whether or not the appliance is considered personal property or a fixture.

What’s the difference between personal property and a fixtures?

The former includes anything that is not permanently affixed to the home and can be removed without damaging the structure. Examples of personal property include:

  • Most refrigerators, washers and dryers
  • A range that isn’t built in to the cabinetry
  • Outdoor potted plants
  • Furniture
  • Tools
  • Curtains and draperies

A fixture, on the other hand, is anything that is permanently attached to the property or structures on the property and to remove them would cause damage to the home. Fixtures include:

  • A built-in microwave, dishwasher or range.
  • Toilet
  • Chandelier that is hardwired into the ceiling
  • In-ground plants
  • Ceiling fan
  • Plantation shutters and blinds on the windows

What is and what is not a fixture confuses many homebuyers and sellers. There are several “tests” you can perform to separate personal property from fixtures.

  • How is the item attached to the home? “Use of nails, bolts, cement or glue indicates permanent attachment,” according to Robert J. Bruss at com.
  • The item was installed explicitly for the property. Wall-to-wall carpet is an example.

If in doubt about anything, however, ask your listing agent.

There is a way to get around this

You and the buyer can agree to include or exclude a fixture from the sale as long as the wishes are stated in the agreement and agreed to by both parties.

For instance, the seller wants to remove the dining room chandelier, as it belonged to his grandmother and he has a sentimental attachment to it. He can either remove and replace it before the home goes on the market (the smartest move) or try to get the buyer to agree to exclude it from his or her purchase of the home.

As mentioned earlier, the best course of action is to remove and replace any fixtures you want to take with you when you move.

Before you put your home on the market, take a tour of the interior and the exterior and remove anything that you don’t want to sell with the home that might be considered a fixture.

It is important to do this before buyers visit the home.

Consider each fixture carefully and, should you decide to take it with you, consider the cost to replace and install another. For example, expensive ceiling fans are often removed and replaced with another.

Another common fixture that sellers remove are certain landscape plants that they value. Since they’re fixtures when planted in the ground, get them dug up and into a pot before showing the home to buyers.

Again, removing and replacing items must be done before showing the home to potential buyers. If you have any doubts as to whether or not an item is a fixture, please ask. We’re happy to help.

The home shopping wish list for families

If money wasn’t a part of the equation, what’s the one feature you absolutely have to have in your new home?

What is the one feature of your current home that you can’t wait to dump?

Finding the answers to these questions is the best place to start when creating a home wish list.

And, yes, you most certainly should make a list. Just as it isn’t wise to go grocery shopping without a list, shopping for a home without understanding your priorities is a waste of time and, down the line, you may be very sorry.

The problem families run into, as opposed to couples and singles, is that very often priorities differ. That’s when compromise comes into play.

Let’s take a look at the wish list, how to compile it and how to approach compromises.

The perks of having a home shopping wish list

As you’ve no doubt heard, the real estate market is moving fast. Knowing how to eliminate a particular home or to jump on one, is key.

The wish list will accomplish this and keep you on track and ready to make an offer when the right home comes along.

Another advantage of taking the time to compile a list is that it will help the family hammer out comprises before entering the market. Again, speed is king right now, so prioritizing what you can’t live without and making compromises before shopping will help immeasurably.

The wish list roundtable

Gather the family, however large or small, to brainstorm what each considers the perfect home.

Ask each person to make a list of what they don’t like about your current home. What will they be grateful to leave behind?

If anyone is having trouble with this, do an actual walk-through of the home, starting at the front door. You’d be surprised at the ‘aha moments’ you’ll encounter in this exercise.

Even small annoyances should go on the list as they will be whittled down during later steps in the process.

Next, ask each family member what aspects of your current home they will miss the most.

For instance, the backyard is the family gathering spot all summer long, something they look forward to all year. A suitable backyard would therefore be something they don’t want to forego in a new home.

Time to compromise

We suggest that you refine your lists by using a scale of one to five or one to 10 to rank each item.

Those scored with a one or two ranking are considered as “would-be-nice-to-have,” whereas something ranked nine or 10 are must-haves and therefore “deal-killers” if not present in the new home, according to Tara-Nicholle Nelson at businessinsider.com.

Everything ranking in between the two extremes is negotiable.

For example, your partner longs for a walk-in pantry, yet ranks it at three on the scale. The longing is obviously not deep and is something he or she may be willing to compromise on.

Naturally, what Mom and Dad need in a home will trump what small children think they need. But it’s important to get buy-in from all family members.

The biggest challenges come up when the two adults want wildly different things in a new home. This is where the prioritization method, mentioned previously, comes into play.

Although a wish list isn’t set in stone and may change along the way, it’s important to get clear on what each family member is willing to subject to compromise and what items are must-haves.

 

How long will it take to sell my home?

The national average time that a home spends on the market (as of January 2022) is 19 days, according to Anna Bahney at CNN.com.

Since no two homes and no two real estate markets are identical, the speed at which your home sells will vary, depending on a number of factors.

For instance, one recent study finds that the average home in the 50 largest housing markets sold within 39 days.

Taking a closer look at these metros, you’ll find that homes in one region sold within 9 days.

The simple answer to how long it will take to sell your home, then, is “it depends on where you live and market conditions in that area.” There are, however, other impacts to how long your home may remain on the market.

Let’s take a look at what else influences the speed of a home sale.

Your home’s architectural style

Some of the factors that determine how quickly your home will sell include those over which you have no control, such as its architectural style.

Ranch-style homes are the most popular in the U.S. right now. They typically sell quickly and for more than list price, according to a national real estate research platform.

Since many homebuyers are first-timers, small starter homes, in any architectural style, in decent neighborhoods, tend to sell the quickest.

Condition

It’s rather obvious that a home in decent condition will sell faster than a fixer, yet often we see homeowners unwilling to do the repairs required to sell a home quickly.

In these cases (an as-is sale), expect your home to sit on the market significantly longer than homes around you that are in more of a move-in condition.

We’re happy to share our knowledge of which repairs to undertake to speed up the sale of your property, so don’t hesitate to give us a call.

Amenities

A home’s amenities can include anything from a guard-gated entry, view, home theater or wine cooler to the types of appliances included in the sale.

The latter, specifically stainless steel appliances, help to sell a home 15 percent faster than homes with other types of appliances, according to an older realestate.com study. Add granite countertops to the equation and you’ve hit the exacta of home-sale speed.

Your real estate agent

While it may seem that all real estate agents are alike, it’s simply not true. There are listing agents and buyers’ agents and agents who do both.

The listing agent’s job requires experience in determining appropriate listing prices, massive marketing chops and the ability to multi-task while paying close attention to each detail.

Not all listing agents have the budget required to properly market a home. Hire one of those and your home will take longer than it should to sell.

Finally, how the home is priced will impact the number of days it spends on the market. Price it too high and it will linger far longer than if it’s priced attractively out of the gate.

Reach out to us to get an idea of your home’s current market value. It’s a service we provide free of charge and with no obligation.

 

 

Renting vs Buying a Home

When Americans consider whether to rent or buy a home, affordability is top-of-mind. Perceptions of affordability, however, don’t meet reality, according to a recent survey by Freddie Mac.

“More than 80% of renters now view renting as more affordable than homeownership,” according to the survey.

They’re wrong

“Owning the median-priced home is more affordable than the average rent on a three-bedroom home in 58% of the country,” says CNBC’s Michelle Fox, citing an ATTOM Data report from January.

The Freddie Mac survey finds that nearly 35% of renters reported that their rent payment consumes more than one-third of their income. Homeowners? Only 25% of them spend that much of their income on their mortgage.

Then why don’t they ditch the landlord and buy a home?

The quick answer to that one is, again, a perception that doesn’t jive with reality.

Nearly 90% of renters named the down payment and closing costs as major obstacles in their path to homeownership.

This perception is based, no doubt, on the many online articles erroneously claiming that a homebuyer needs 20% of the loan amount as a down payment.

While it’s financially better to have a large down payment, it is by no means a hard and fast rule set by lenders. Many offer mortgages with as little as 3.5 percent down and, believe it or not, there are zero-down options as well.

Still seems like too much money?

There are more than 2,000 down payment/closing cost assistance programs, nationwide. Some offer the help as a grant while others offer no-to-low-interest loans. Your lender can help you find the ideal program to fit your needs.

You’ll be glad you did it

“There is a reason so many Americans choose to develop their net worth through homeownership,” according to Matthew Desmond of the New York Times Magazine. “It is a proven wealth builder and savings compeller.”

When renters write their rent check every month, they’re helping their landlord to build wealth. The mortgage check that homeowners write each month? It goes toward building their own wealth.

And the proof is in the numbers. Not only do homeowners spend a smaller percentage of their income on housing each month, their net worth is, on average, $195,400 which is 36 times that of the average renter’s net worth ($5,400).

Yes, there are challenges for many renters who would like to buy a home. But they are far from insurmountable. You may be surprised what is possible with the right mortgage/real estate team to back you up.

 

 

How much can I borrow for a loan on a house?

In a perfect world, we could walk into a mortgage lender’s office and tell the folks there how much we think we can afford to pay for a home each month and they’d hand over the money to buy the home.

Ah, if only.

In reality, lenders have their own criteria for determining who they’ll lend money to and a system by which they make that decision.

Today we’ll look at how that decision is made so that you better understand what it takes to get a mortgage.

There’s this thing called a “DTI”

It’s a shortened version of “debt-to-income,” expressed as a ratio. All that paperwork you’re asked to submit with your loan application helps the lender determine exactly what yours is.

In other words, they’ll learn how much income you have left after paying your debts every month.

There are two types of DTIs, known as “front-end” and “back-end.”

The front-end ratio, should be no higher than 28 percent of your pre-tax income (31% for FHA-backed loans). Calculate yours:

  • Add up your monthly expenses for housing. Examples include rent or mortgage, second mortgage payment, HOA fees and insurance (if not included in your mortgage payment).
  • Take the sum of the above and divide it by your gross monthly income.
  • Multiply that result by 100.

The back-end DTI ratio lets the lender know how much of your income is spent on debt. This figure should be no more than 36% of your income (43% for FHA loans).

Calculate your back-end ratio:

  • Add up all of your monthly bill payments. This includes mortgage or rent payment, credit card minimum payments, student loan payments, personal loan payments, auto loan payments, alimony and child support payments. Don’t include utilities, groceries and other living expenses.
  • Divide the sum by your monthly gross income.
  • Multiply the result by 100

The lowest acceptable ratio isn’t set in stone, but you’ll most likely struggle to find a lender if yours is well under that number.

The good news is that you can raise your DTI by paying off debt or bringing in additional income.

How’s your credit score?

The amount of money you can borrow is based primarily on how risky it is to lend to you. The lender can glean this information from your credit score.

The dreaded FICO score – it has a lot to do with not only how much you can borrow for a house but for a car, a consumer loan and even has an impact on how much you will pay for insurance.

If your credit score is too low (typically below 580) you may not even qualify for even a government-insured loan. Borrowers with the best scores, 740 or higher, not only qualify more easily for a mortgage but get better interest rates as well.

We aren’t mortgage professionals but we’re happy to connect you with a trusted pro to answer any additional questions you may have. Feel free to reach out!