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Mortgage Mistakes Responsible for Foreclosure

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Foreclosure mistakes to avoidWith foreclosures occurring in record numbers across America over the past few years, many borrowers wonder what they can do to avoid ending up in a similar situation. The recent housing crisis can be in part attributed to lender mistakes and in part due to the mistakes of borrowers, these include the following:

Foreclosure Mistakes by Borrowers

Common borrower mistakes that can lead them to foreclosure include:

  • Not Checking the Interest Rate – Some buyers do not pay attention to the interest rate that they’ve signed up for. They may calculate their affordable mortgage amount based on an online approval amount or calculator. If they’re a higher risk borrower, they may end up with a higher interest rate by the time they actually have a mortgage commitment.
  • Not Understanding What an Adjustable Interest Rate Means – Buyers often get caught up in the idea of a adjustable interest rate when interest rates are low and don’t think about the fact that rates could go up again. They can also end up in an adjustable loan with an inappropriate time frame for their needs. When this occurs, home owners may no longer be able to afford their mortgage.
  • Buyers Have To Borrow Their Down Payment – Individuals that require a down payment, but don’t have the cash may choose to borrow the funds. This means that they will struggle to pay back a loan as they pay a mortgage they can only just afford.

Foreclosure Mistakes by Lenders

There have been times when lending criteria has been too flexible, especially when sub-prime loans are concerned. Lenders may not pay appropriate attention to debt ratios, the source of cash that home buyers use for a deposit, or they may not thoroughly explore a buyer’s credit history. As the wave of foreclosures has hit in the past couple of years, many lenders have also been overwhelmed with the amount of work and paperwork associated with the foreclosure process, this has led to lender mistakes which often create a lose / lose scenario for lenders and borrowers alike.

Buyers cannot control the actions of their lenders, but they can inform themselves and make smart decisions to insure that they protect their investments. If you have questions about how to avoid foreclosure or which type of loan is the best for your scenario, we can help inform you so that you make the right decision armed with the knowledge you need.

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Is a Home Warranty Worthwhile?

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Home WarrantiesThe addition of a home warranty in a home buying contract can be a very attractive thing. To buyers it means they’re protected if something happens to their appliances within the time frame of the warranty. For sellers, this investment might save thousands of dollars. However, tricky fine print and the age and functionality of the appliances in the home often leave people questioning if a home warranty is worth the price.

Home Warranties: If It’s Not Broken…

For new houses or homes with new appliances, heating and air conditioning systems, or with other recent repairs, the probability of a catastrophic failure occurring is very low. In these cases if something does need repair or replacing, it’s usually covered by a manufacturer or installer’s warranty. If this is the case, a secondary home warranty might not be necessary.

On the other hand, if there is less than a year on any particular warranty when you purchase the house, it might be a good investment. At the very lease it would be something to consider asking the seller to pay for as part of the purchase price. Should you decide to take the home warranty though, understand the process of making claims and what exactly the policy covers.

Read the Fine Print of a Home Warranty

Like all insurance policies, there are stipulations as to how you can use a home warranty. Some policies will only cover repairs versus full replacements, and some policies will only pay for replacements that fall in a certain price point. Find out if your policy allows you to choose the repair service, or requires you to go through the warranty company.

A home warranty can have its benefits for both buyer and seller, as long as you’ve done the research and know what to expect.

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Should You Try to Pay Off Your Mortgage Early?

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Whether or not to pay off your mortgage early is a highly debated subject, some mortgage professionals say “no” while others in the industry say “why not?”.

The correct answer really depends upon a number of different factors. You need to evaluate what is most important to you before making a decision. Ensure that you consider the following first:

Factors to Consider When Deciding to Pay off Your Mortgage Early

  • You Have Other Debt – Your mortgage is one of the lowest interest debts that you can possibly have. If you have other debts or loans outstanding then the logical thing to do is pay off those first.
  • You Could Increase Your Retirement Contributions – Ideally, you want to get to a place where you are contributing the maximum amount possible to your retirement savings plan. If paying off your mortgage would allow you to do that, then it is something to consider.
  • You Lack Liquid Assets – In today’s economy, having at least 24 months worth of living expenses saved is recommended. It is much easier to reach that goal when your home is fully paid for. However, you do not want to put all of your cash into your home to pay it off if you don’t have other assets available.
  • The Debt Bothers You – Some people are okay with having the debt of a mortgage for the rest of their lives. They are happy to continue to upgrade to larger homes, even if it means never making significant strides with paying off the mortgage.

At the end of the day, paying off the mortgage on your home could be a smart choice, but you have to decide whether it’s the right choice for you as there truly is no right or wrong answer. We can help you look at your own financial goals and consider the above to make your decision.

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Making a Smart Home Purchase

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Many dream of owning their own home. With the proper preparation, you’ll be able to start your home search and find your perfect place with as little stress as possible. This is by no means a comprehensive list of ways to prepare for home buying, but it can be a step in the right direction.

Get Your Finances in Order

As gung-ho as you may be to start the home search, if you don’t know your budget, you’ll likely waste time looking in the wrong price point. A good first step in home buying is to talk to a lender about financing, and decide if it’s the right time for you to buy. Getting pre-approved for a home loan isn’t mandatory, but it allows you to not only know your budget, but can also help show you’re a serious buyer when the time comes to purchase. In other words, getting pre-approved is highly recommended.

Identify the Extra Costs Affecting Your Possible Home Purchase

Extra costs are a major part of the home buying process. It’s important to factor the possible costs of insurance, closing fees, and taxes into your budget. If you choose a house in a neighborhood that’s governed by a homeowners association, there will likely be extra HOA fees each month. Even extra costs for repairs should be factored into your budget, especially if you choose a home that needs a lot of work. Ask questions to be sure you are fully understanding the costs involved with a possibly transaction.

Home Inspections Are Mandatory!

Even if your seller makes it clear that they will not foot the cost of repairs, getting a home inspection is vital. You’ll be able to see if there are health and safety issues with the house, and you’ll know what needs to be fixed immediately instead of leaving it to chance. A home inspection is one of the smartest choices you can make in the home buying process.

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Preparing Your House for Sale on a Budget

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When you are putting your house up for sale in this tough economy, you are wise to not spend anymore than you have to when you are getting it ready to sell. However, to increase the chances of success for selling your home, it does still need to be in showing condition to impress potential buyers.

Budget-Friendly Home Improvements

Real estate professionals emphasize the importance of focusing on the following when preparing your home to show:

  • De-clutter – With too many of your personal belongings in the home, potential buyers may struggle to picture themselves in it. They may also have trouble seeing some of the positive details with all of the distracting clutter.
  • Fix the Visual Problems – Touch up paint that is chipping and fill in holes. If there are screens that are broken they should either be removed or replaced. Clean up grout in the bathrooms and re-caulk where necessary. These tasks will help ensure that your home doesn’t automatically create a red flag that there is work that needs to be done.
  • Correct Issues that Will Audibly Tell buyers There Are Issues – This means that you need to lubricate squeaky doors and fix leaky faucets and running toilets.
  • Modernize Cabinets – You don’t need to fully refinish cabinets, you can simply replace the hardware in your kitchen and bathrooms to spruce up their look.
  • Clean Up Your Lawn – Make sure your lawn is well-manicured by cutting the grass, pulling out the weeds and pruning the trees.

When your potential profit may already be affected due to the current state of the market, you want to keep as much money in your pocket as possible. These changes can be made with a minimal investment and give you a better chance at a strong sale because appearances will help you win over prospective buyers.

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Remaining on Good Terms with Your Agent

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When buying a home using a real estate agent, you need to remain on the same team despite the stresses that can occur during the home purchase process. The agent you are working with can be your greatest asset as you go through the process and it is important that you keep all channels of communication open with them. It is rare that a real estate agent will fire a prospective buyer, but there are things that you can do that will insure your agent stays on your team and works hard for you.

Annoy your agent, and he or she may want to wash their hands of you as quickly as possible. Work with them and they will be happy to help place you in the right home.

Buyer Actions That Realtors Don’t Appreciate

Real estate professionals do not appreciate it when buyers do the following:

  • Keep Them in the Dark – If you have a strategy as a buyer, tell them. Don’t spring any surprises on your agent as you want them to be able to appropriately advocate for you the whole time.
  • Waste Their Time – If buying a home is not in your immediate future, do not monopolize your agent’s time. If you just want to get a feel for homes in a certain area, for example, let your agent know that is your intention. Most will be more than happy to show you a few properties, but they won’t spend additional time doing too much in-depth research and work if buying may not happen for a couple of years.
  • Never Make an Offer – An agent can only spend so much time with you exploring the option of a home before an offer needs to be made. If you have a longer time frame in which you plan to make an offer, communicate this to the agent. Agents will be much more willing to work with you if they consider you an legitimate candidate to purchase a home. They can help you with questions you may have but it is important that you don’t misrepresent yourself as a potential buyer in the long run if that is not in fact the case and you don’t intend to make an offer.

Following these simple steps can help you negotiate for your potential future home more smoothly with a stronger advocate for your offer in your agent.

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Try Before You Buy: Learning About Your Home Before You Move In

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In the ideal world, it would be possible to spend a few days or even a few weeks living in the home that you intend to buy before you close the deal. This would allow you to learn all of the pros and cons of the home as it pertains to your lifestyle. In reality, this is not an option in a conventional real estate transaction, but that does not mean you cannot get to know your prospective home before putting in an offer to buy.

Doing Your Homework is A Must

Do your due diligence before you purchase so you know if you and your family are truly well-suited for the home. The following will help you ensure you make the right decision:

  • Scout Out the Neighborhood – To get a feel for the neighborhood, you can tour the area and take advantage of new technology that can give you more information to work with. Google Maps now offers a ‘street view’ feature that allows you to see satellite images up close. By looking at the street view you will be able to see how well the neighbors take care of their homes (which can affect your property value), if there are neighbors with pools, and more. These are things that you may not see when simply taking a quick tour of the area in person.
  • Verify the Sound Levels – If your prospective home is near a busy street, visiting at various times per day will help you determine just how noisy it will be. Remember to open the windows, particularly in the bedrooms. Sometimes in the excitement of looking at a beautiful home, obvious steps like this can be overlooked.
  • Speak to People That Live Nearby – Typically, new neighbors will tell you everything you need to know about the area and more once you move in. They may be equally as open if you just try to initiate a conversation before you purchase. If you don’t feel bold enough to approach the neighbors, visit local stores and speak with the staff.

Scouting out the area and doing some homework before you make an offer is the closest you can get to trying before you buy, and it can ensure that you are satisfied with your decision for the long-term.

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Qualifying For a Mortgage When You Are Self-Employed

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When you are self-employed, qualifying for a mortgage can be more challenging since more documentation may be needed. The reason for this is that there are some facets of being self-employed and verifying self-employed income that that banks consider to be higher risk.

Since it is true that individuals with salaried jobs are also at risk of losing them at any time, there is no such thing as a totally secure borrower, but being self employed does have a few documentation requirements.

Self-Employed Documentation Requirements

There are a number of things that you will likely need as a self-employed individual. These items will vary depending on the lender and program:

  • Proof of income / tax returns for the first 2-3 years your business has been operating
  • 3 or more months of bank statements
  • Proof of assets / reserves
  • Letter from CPA / Your business registration details to support the existence of a business for 2 or more years
  • Income statement for your business

Self-Employed Income Calculation

Be aware that your lender may choose to take an average of your first 2-3 years in business and not use your actual income today to calculate your approval amount.

If you have made substantial business deductions against your tax returns, bring additional documentation or mortgage lenders may look at your net income only. You want to do what you can to prove the true extent of your income if it is required to get the kind of mortgage you want.

If you are self-employed and the sole income earner in your family, with an understanding of the process, you can ensure that you get yourself a mortgage and step onto the first rung of the property ladder. Many lenders do offer special mortgages for the self-employed that can allow you to work around the traditional system so your entrepreneurial nature does not hold you back. Looking into these options can also help you with the process.

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Adjustable Rate Mortgage Terms

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Many new home buyers are focused more on the affordability of their monthly payments today without enough focus on the future payments they may have to pay if their loan adjusts to a possibly higher rate sooner than expected. Sometimes borrowers will take a shorter term, adjustable rate term when a longer term adjustable rate loan might be more appropriate and vice versa. There is a risk that if a homeowner gets into a shorter term adjustable mortgage that is not appropriate for them, they may not be able to afford their home if their mortgage rate adjusts upward too quickly.

As a result, it is important that new home buyers run some numbers before they choose their mortgage term. We can help you calculate payments at different interest rates and help estimate worst case scenarios upon adjustment (in the case of an adjustable rate mortgage), to help prevent a scenario where a loan that is affordable in the beginning, will not be unaffordable when the loan enters into its adjustment period. If we find that an adjustable rate mortgage term is not suitable for your finances or comfort level, then we can explore options for a longer term adjustable mortgage that will better fit your needs.

The Benefits of a Longer Term Adjustable Rate Mortgage

  • A longer term adjustable rate mortgage guarantees that home buyers will be able to afford their home over a longer period of time without their rate adjusting.
  • A 10 year adjustable mortgage, for example, allows home buyers to pay down more of the principal since the first few years of a mortgage primarily pays the interest.
  • By the time the longer term adjustable mortgage comes up for renewal, the total amount will be lower. This means it will be more affordable even if interest rates are higher as there will be a lower balance owed.

Home buyers that believe they will be able to afford their mortgage regardless of an increased interest rate can simply pick the mortgage term that most appeals to them. A little bit of preparation before choosing a loan term is critical in maintaining financial stability in the future and preventing challenges in the future.

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Home Closing Basics

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Everyone’s home search is different. Some buyers fall in love with the first home they see, and others have wish lists that are harder to satisfy. Buyers typically make their decisions based on location, size, finishes and features, and of course price. What most buyers don’t realize is that the process doesn’t end when you choose your dream home and put in an offer.

The Offer Process

In many ways the offer process is straightforward. You determine a price you’d be willing to pay, add any conditions or requests you’d like the seller to consider, and then allow your agent and possibly a lawyer to review it before it’s submitted. If you’re submitting an offer without having secured financing, there are other actions you need to take, including showing proof of income.

Once your offer is accepted by the seller, there are only a couple of reasons why you’ll be allowed to back out of the deal. Some purchases are contingent on financing, while some are contingent on the results of a home inspection. If neither party backs out, however, you go to closing.

What is Closing?

Closing is the name given to the time when your home purchase becomes final. In order to close your mortgage needs to be approved, and you must officially turn in your down payment and checks for closing costs. Sometimes you’ll be able to sign the final contract early, but often that step has to wait until closing day. Your closing day is the day you receive your keys and your house is officially in your name. That’s the day when your home search is truly over.

Need Help With Your Home Purchase?

We can help you pre-qualify for a mortgage and help you understand what mortgage rate you would qualify for. More importantly, we can help you establish how much home you can afford. Since rates are near or below 2011 lows, now is the time to lock in extremely low rates before they are gone, which is not a question of if, but when.

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