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Can You Change Jobs Before Closing on Your Home?

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Some of life’s biggest changes occur at the same time, even when you don’t plan it that way. It may just happen that you get a job offer that could greatly benefit your career with your closing date looming just weeks ahead. While your first instinct may be to reply with an ecstatic “YES!”; you do need to stop and think before you make that commitment because you’re about to take on a major financial investment. The choice may be right for you, but you’ve got to consider a few things first.

How Will Your Job Change Impact Your Mortgage Loan?

You need to bring your potential job change to the attention of your mortgage lender and there are a few factors they’ll look at to determine if that may compromise your ability to take on the mortgage you were previously approved for:

  • If your income level will remain the same at your new job. If it’s higher, your mortgage may not be impacted; if it’s lower, it has the potential to change what you can afford.
  • If you’ll be working in the same industry as the job(s) you’ve held before. Your mortgage lender may consider it a risky move and it could potentially compromise your mortgage.
  • If there’s going to be a probationary period at your new job that will still be in place when you close, because then the chances are much greater that you’ll lose it since there’s zero job security.
  • The length of time that you’ll be at your new job before your mortgage closing date. If you’ve switched jobs 90 days before you close on your home, then you may have enough stability on your side.
  • Whether your high ratio mortgage is insured or backed up by a program or grant. Guidelines may differ, but some programs that allow you to make a low or no down payment  on your mortgage may choose to run a credit report and revisit your file at any time. You need to tell your lender or mortgage broker about your job change, and if this other program looks into it and don’t like what they see, they could refuse to back your loan.
  • Your loan approval amount. If you’ve got a home loan that’s far less than what you can afford (according to the bank’s assessment) and are a two income household, it may be that your loan approval would not change.
  • Your debt ratios. Regardless, your lender would recalculate your Gross Debt Ratio and Total Debt Ratio based on your new income, or based on the other household income if yours for some reason cannot be used.

Keep in mind that everyone has different circumstances and there can be compensating factors, so before you decline or accept a job offer, we can help give you guidance so that you can make an informed decision.

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Home Purchase Escrow Basics: What You Need to Know

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You’ve likely heard the phrase “We’re in escrow!” before, but what does it mean? It’s always presented as though it’s positive and as though a house purchase is a done deal. Both of these things are true, but you do need to understand the process in order to be adequately prepared when the time comes.

What is Escrow?

The escrow process puts your money in the hands of a neutral third party to complete part of the necessary financial process for you to close upon your home. An escrow account is required by many lenders in order to ensure that you’re prepared to cover some of your home expenses once you take posession as this protects their investment.

What is the Escrow Process?

Typically, an escrow account is opened before you actually close upon your newly purchased home and at that time you are required to start adding funds to it. Typically, the costs you will need to place into an escrow account is the insurance, property taxes and sometimes the utilities. Here is the general escrow process:

  1. Around closing, your mortgage lender may require you to deposit the payments to cover at least one month’s worth of funding for the required expenses. Often, lenders ask for 2-3 months of payments.
  2. Your money will be protected with the third party that holds onto your money as they transfer it only to the lender for the pre-determined expenses on a set schedule.
  3. Once you take posession of the home you will be making flat rate monthly payments to cover your expenses (property taxes, insurance, utilities) and the lender will use the funds to pay the appropriate outlets directly. Many first time home buyers find this especially simple because it helps them manage their money. Typically, property taxes would be paid on a quarterly basis in a larger lump sum. Paying monthly into escrow means that smaller amounts of money are automatically removed from a home owner’s account, so the process is budget-friendly!

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How Much Money Do You Need to Buy a Home?

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One of the biggest concerns of first time home buyers when they’re looking at getting their first mortgage is just how much money they’re going to require. Qualifying for a mortgage is the first step in the process, but it is important to understand if you will need cash for your purchase and if so, how much.

Understanding what you’ll be responsible for paying for in cash is good information to have before you even submit a mortgage application. The specific costs can vary depending upon the state that you live in, the cost of your home and to other factors, but here are some basic things to consider that should be considered.

Down Payment Required for a Mortgage

In order to qualify for a mortgage, you will likely have to produce a down payment. The specific amount required for a down payment depends upon state guidelines as well as the type of loan. FHA mortgage loans offer the competitive down payment options for those who qualify, requiring under 3.5% of the purchase price down.

Mortgage Closing Costs

In addition to requiring money for your mortgage down payment, you’ll need to save money for closing costs. This is something that you may be able to get paid by the seller of your new home, but as this is not something that is guaranteed, it is wise to have some money on hand to pay for all of the costs of purchasing a home that cannot be rolled into your mortgage. If you present a mortgage lender an offer that does not include closing costs covered by the seller, often as a first time home buyer, you are required to prove that you have the money to cover them. Depending on your local market environment and location, 3% to 6% of the purchase price may be a fair estimate for your closing costs, and somewhere in this range is what a mortgage lender will typically need to confirm.

Target Purchase Price and Other Considerations

Since the location, cost and your unique financial and credit attributes can affect what you will need to put down when you purchase a home, we can help you better understand the estimated amount that you’ll need to pay when buying a home. More importantly,  we can help you understand and target the home purchase price that suits your specific needs an finances so you can be prepared in advance to make your first home purchase!

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Lenders Can Give You Leverage As A Buyer In These Ways

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mortgage-loan-basicsIf you are independently wealthy or a lottery winner you probably buy a house with cash. For the rest of us, you can still buy a home to enjoy for the rest of your life. The most common way to do this is to work with a lender to pay for this major purchase over a period of fifteen to thirty years.

Home lending is one of the finest American institutions. Lenders make home ownership possible for ordinary people of modest means to buy their homes. Banks and finance companies have come under criticism in recent years, and they have always been the focus of resentments from consumers. However, even when the complaints are justified, lenders provide an opportunity for home ownership that would not otherwise exist.

Getting a loan for real estate is a long and complicated process. There are a few things that lenders do to help consumers. It is in the interest of mortgage originators to help you buy a home; after all, lending is their business. Beyond providing the finances, lenders can assist you in numerous ways.

Pre-approval Is A Test Of Your Home Buying Seriousness

The first step in getting a loan application accepted by a bank is to get pre-qualified. Pre-qualification is getting your documents together and reviewed by a lender. Once this simple process is complete, you can talk to your bank about pre-approval, a more rigorous look at whether you can repay a loan.

Lenders want to help you get pre-approved because it demonstrates your potential, not just to them, but also to the whole market. Sellers and their Realtors will take you seriously once you are pre-approved and lenders are glad to help with that.

Improve Your Credit With Guidance From Lenders

What Credit agencies think of you comes down to the events in your life that lenders report. For lenders, your credit reports with the three main reporting agencies and your FICO score are the determinants of whether you can borrow money and how much interest you have to pay to do it. Even if a lender declines to make a loan to you, they will usually be happy to tell you how to improve your score and how you can get positioned to reapply.

Customize Your Loan To Your Situation

Options for homebuyers include the term length, usually either fifteen or thirty years. You will pay monthly for longer termed loan, but a shorter repayment term will cost less overall.

You have some freedom in closing costs because lenders can trade mortgage points as part of the cost.  The more points you pay at closing, the cheaper the loan At the other extreme, your lender can give you points to make the purchase more affordable upfront. There are more elaborate options if you are in unusual circumstances. For example, buying a bargain that needs immediate refurbishment.

The key is to remember that lenders are in the business of making loans. There is unlikely to be a situation that they cannot work with, or that they have not seen before. Your mortgage broker or banker will be happy to explore the possibilities with you. If you are considering your home-buying options talk to a lender with the confidence that they want you to succeed, you will be glad you did.

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Investment Property Depreciation Makes All The Difference

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Real Estate Investment BasicsDepreciation is one of the most useful tools that you can use to generate wealth out of your real estate investments. Sometimes the value of an investment hides in the details of the paperwork or the accounting records.

So it is with this way to write off the costs of owning and operating a rental property. Depreciation is something that requires expert advice. So before your attempt to understand how depreciation will alter the calculation of your income, make sure that you discuss it with your tax professional.

Depreciation Requires Investment Income

Owning a property to live in and enjoy as a private citizen, is an excellent objective. However, that does not automatically make it an investment. Regardless of how much equity you have, your home is a cost. On the other hand, real estate that brings in rental income is a substantial investment. Deductions do not apply to your residence; they are for properties you own as investments.

You can deduct many of the ownership costs, but depreciation means that you can spread those deductions out over an extended period of years; the process gets more complicated from there.

The concept is that the money that you put into a property stays there as asset value. The amount reduces as if you spend the asset over time. So a new water heater may cost $2,000, but you do not claim that cost up front. Instead, you take the depreciation over five years, writing off $400 each year.

Get Help Before It Gets Technical

There are strict definitions and clearly delineated categories of what you can and cannot depreciate. A major repair might be a capital improvement on which you take depreciation. A lesser expense is unlikely to be sufficient, and you have to take it as a one-time write-off. Also, there is a list of specific expenses that are exempt from writing down as depreciation.

The IRS sanctions an even more elaborate depreciation scheme called the Modified Accelerated Cost Recovery System (MACRS) that uses a formula to apportion depreciation rapidly at first and then at a gradually reducing rate over the full term. Again, you should speak to your certified public accountant before you make any estimates of investment cash flow.

Your Investment Portfolio Cost Reduction Strategy

It is always comforting to generate a profit from your investments, but most investors seek to build long-term equity. When you become the owner of investment properties, your most stressful concern will be making enough income to cover the cost of your investment first, build equity, and then work to earn a profit on top.

Depreciation is one way to increase your chance of producing a positive cash flow from your real estate portfolio; it is an excellent way to make your wealth to work for you. Your real estate broker and CPA are two professionals you will need to start building wealth. Talk to your Realtor and tax advisor to learn how depreciation will make your investment successful.

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Before You Apply For A Mortgage Be Careful With Your Credit

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credit-report-basicsConsumers In The Eyes Of Lenders

Your credit history may seem like a vague and abstract stack of file entries to you. But to banks, the numbers and ledger entries are all they need or want to know about you. What lenders find in your credit report will determine how they respond when you apply for a mortgage.

As it turns out, the way that you use your credit gives very distinctive clues about you. Your credit card usage shows how you are likely to behave when you pay a home loan.

If you have credit cards and use them regularly, your behavior is likely to fall into one of three categories. You pay off your cards completely each month, a substantial portion of your balance or just enough to stay in good standing.

Somebody Studied How Predictable Consumers Can Be

In a 2013 study, TransUnion conducted a study that concluded there are three types of credit card payers. The TransUnion Study showed that these categories also indicated the likely future behaviors of borrowers. The study referred to consumers who made full payment monthly as transactors. The term that describes card members who pay only part of the balance or the minimum as revolvers.

By analyzing tens of millions of consumer habits with credit cards, car loans, and mortgage payments, TransUnion found that revolvers have three times the mortgage default rate of transactors.

Using credit cards will build your credit score precisely because the credit agencies want a detailed history of your activity. Charges and payments will show a statistically measurable record that shows the experts how you are likely to behave in the future.

Lenders now use software that includes analytics that discovers information about transactors and revolvers into their lending decisions. This new approach is excellent news for many homebuyers. The metric will raise the number of applicants who win approval for the best terms and lowest interest rates. Borrowers who pay off credit card balances the most quickly will have the best access to home loans.

Apply For A Mortgage Like A Transactor

So what does this mean for consumers thinking of purchasing a new home or refinancing? Anyone who thinks they might wish to buy a home at some point in the future should craft their reportable credit activity accordingly. Become mindful of how you use credit. The earlier you can develop the practice of living within your means, making purchases on a credit card but paying off the balance every month.

Using a credit card sensibly demands tremendous self-discipline. The temptation to over-spend will always be right there. If you can cope with this challenge, you can enjoy the benefits of the features that credit card companies promote, without the costs of interest payments.

Whether you choose to make the sacrifices to develop a track record as a transactor or not, if you have any credit rating at all, there is a mortgage package that will work for you. However, it’s your card repayment behavior that will determine the terms that lenders offer when you apply for a mortgage.

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Down Payment Gifts – Avoid The Obvious Mistakes

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Mortgage Down Payment BasicsIn Which You Say Down Payment Gift Three Times

Trying to use a cash gift from friends or family as a down payment on a home is like rattling a can opener around cans of dog or cat food. Presumably, if you have the food you have the pet also and immediately get its full attention, whether you want it or not.

In the case of the can opener, it’s your dog or cat that miraculously appears. Your furry best friend goes from sleeping in the other room to hungrily staring at you in seconds.

Cash gifts passing into your bank account make your branch manager and the government wake up and take an interest. You will have to prove that it’s a gift, and the person giving it will have to prove they have it legitimately. You are going to get a lot of attention.

Getting Ready To Find A Chunk Of Change

When you are buying real estate, and you don’t have cash from selling your last home or out of your savings account, one of your biggest challenges is likely to be finding the funds for the down payment.

When you finance a home purchase with a mortgage, your lender will expect that you contribute a share, the down payment. The convention in residential real estate is that the deposit is at least twenty percent of the purchase price. Government programs such as FHA allow you to put down a smaller deposit if you buy mortgage insurance for the exceptional amount.

How To Present A Down Payment Gift Letter

When you are purchasing real estate, you are journeying right to the heart of the financial system. You’re going to generate some serious scrutiny if you bring in any sources of funding that are hard to track.

Banks and government agencies see transactions of every description; this includes some shady deals; if it’s possible, the banks have seen it all before. So, they have very carefully developed policies and procedures to ensure that they don’t inadvertently facilitate money laundering.

Couples Can Double Up On Giving

Having someone who is willing to help you buy a home is a real blessing, it’s likely to be someone close like your parents or in-laws. This noble third-party still needs to prove to your lender’s satisfaction that they are helping with funds from a legitimate source. Some rules determine how much a person can give as a down payment gift for tax purposes. Currently, one person can give $14,000 per year, and a couple can give twice that.

If your benefactor agrees to it, the best course of action may be to accept the cash early, before you begin the pre-qualification process. When it comes time to give the finds to the escrow company, you can then do so from a paper trail of regular bank accounts.

Your lender will happy, and you are more likely to get a loan on terms you like, and then you can close on a home, and collect the keys. All that remains after that is to open a can of tasty treats for your cat or dog, a bottle of a favorite beverage for you, and celebrate.

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13 Hacks To Lift Your Credit Score Before You Buy A Home

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Before You Purchase Your HomeBuying your first home is an excellent decision. But you may want to improve your credit score now that you are putting the plan into action. When you apply for a loan, you will want to be in the best financial position to get a good deal. The one thing that will disrupt your efforts most quickly is a rejected loan application.

To make sure you can qualify, boost your credit score and optimize your credit reports before you begin house hunting. Your credit score will improve when you make regular payments and reduce the balances of outstanding loans.

Your Credit Reports

Read your credit reports – The three major credit reporting agencies TransUnion, Experian, and Equifax, have to provide a free copy of your credit reports once a year. Download from the web at annualcreditreport.com and read these agencies say about you, it can be an eye-opening experience.

Inventory your liabilities – Your credit reports should have all of your borrowing and outstanding debts listed. These documents can run to dozens of pages.

Dispute any anomalies – Credit agencies have been known to record inaccurate and false information about consumers. Read your reports with a skeptical eye and be prepared to challenge inaccuracies. Getting incorrect data removed might make a difference in whether you get a loan or how much interest you pay.

Your Credit Score

Free credit scoring services – Your Fair Isaacs and Company or FICO Score is a mathematical calculation of your credit worthiness. FICO gives you a snapshot of your credit condition where higher means a better chance to get your mortgage application approved. Some services charge to give you this information, but you can get it free on the web if you shop around.

Credit monitoring – If you are concerned about credit fraud, consider paying for credit monitoring by one of the big three credit agencies or FICO.

Create A Proactive Budget

Write it all down – Create a budget on paper or use a spreadsheet application. You get a much clearer picture of what you owe when you see it all on one page. A budget will also help you make a plan to reduce your debt and improve your credit score.

Online budget managers – Subscription based online budget management services like Mint.com by Intuit will help you organize your personal finances and make a budget.

Pay Off Loans

Make extra payments – Use any cash you have to pay down the balances that are reducing your credit score. It will help your credit both by showing that you can make payments and by reducing the amount you owe. If you don’t have savings you can:

Spend less – Cut your living expenses by any means necessary. It may take some ruthless self-discipline, but it will open up the world of home ownership to you.

Earn more – Become the resident expert at volunteering for overtime, get a second job, or a gig that gives you extra income and pays everything toward reducing high loan balances. Also, the time you spend working you will be spending less money.

Financial Kung Fu

Rent-to-own programs – Ask your local agent or broker about leasing programs that give you the option to buy later. Rent-to-own may help you secure the right terms and give you the time to organize your finances.

Renegotiate your interest rates – While it might seem unlikely, call the customer service desk and ask. If you offer to make larger payments in return for a lower interest rate they might agree to new terms. What do you have to lose?

Seek alternative lending sources – Consolidating loans and credit cards may offer you the chance to pay down balances more quickly. Paying less interest means you can take bigger bites out of the principal.

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Earnest Money Deposits Show How Serious You Are

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Home Purchase BasicsHow Much Earnest Money Deposit And When?

When real estate holdings transfer from a seller to a buyer, earnest money deposits get the ball rolling, they’re the good faith payment that says the purchaser means business. As a buyer, the usual practice is that you offer an earnest money deposit between $1,000 and two percent of the sale value.

The law of contracts and the principle of caveat emptor govern real estate, which means be careful and don’t believe anything until you get it in writing. For sellers, that means you don’t do a deal until you’ve got a signed contract. You need to confirm that the buyer has deposited the earnest money into the appropriate escrow account.

Lenders And Sellers Understand Deposits Differently

Don’t confuse the earnest money with the deposit your bank wants you to put down. Your earnest money locks the seller into the sales contract. Although this payment contributes to your equity and therefore the full deposit, you’ll have to provide additional funds to fulfill the lender’s requirements when you close.

Banks expect buyers to provide a deposit of at least twenty percent of the sale price. You can reduce the deposit if you can join a government-backed loan program. If you don’t have the equity, you can also purchase private mortgage insurance for the excessive portion of the loan.

Once you’ve hammered out the details of the deal and signed the contract, you send a check or wire transfer to escrow for all or part of the agreed earnest money deposit. The amount you agree to put down depends on how well you negotiated. If the seller has other offers, your realtor may advise you to provide a larger sum as earnest money than you would if no one else is bidding.

Getting Your Funds Back When Agreements Fall Through

As the buyer, you are making a serious commitment and parting with funds when your realtor posts the deposit. Real estate transactions are always suspenseful, with a significant chance that even the simplest deal will fall through. Financing is the most notorious culprit; changes in terms demanded by the bank on a whim or of some flaw discovered in the property can stop the sale in its tracks.

Here are the three most likely outcomes when a deal doesn’t go through:

  • If the seller pulls out of the deal, then the buyer is likely to get the funds back
  • The purchaser changes their mind and cancel the transaction; they’re probably not getting the earnest money back
  • When it’s the lender that backs out the question is more complicated and may come down to timing
  • In any case, you should get advice from your Realtor

Only hand over the deposit when you are sure that you want the home and understand the risks. As with many other aspects of real estate sales, your individual state sets the laws that determine the finer details. Earnest money deposits are no exceptions how states regulate property transactions. Consult your realtor to confirm their personal approach and the process in your state.

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Rising Real Estate Prices And Stretching To Buy Your First Home

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Before You Purchase Your HomeHow Do You Respond To Rising Real Estate Prices?

Buying a home is once again becoming less affordable, but so is renting. Even with rising real estate prices, buying your home is still a less expensive option in the medium to long term. So, how can first-time buyers make a move to home ownership when it’s such an extreme reach to do so?

As it turns out, surging housing prices aren’t a problem for all regions of the country, some areas are affordable, others not so much. The price of houses and condominiums connect to other factors. The desirability of the region and the demands of the job market; residential real estate affordability relates directly to the quality of life and economic strength of your area.

Options That Make Home Buying More Affordable

Your choices in the face of high real estate prices are only limited by your imagination and determination. Granted, some of those choices sound a little like strong medicine. But, as prices go up, earning extra capital will require that you commit to investing sweat equity.

Here are some things you can do in response to high housing prices:

Move to a more affordable region – Harsh, but if you live in one of the most expensive parts of the nation, there are homes of equal size and quality that are less expensive elsewhere. If you’re retiring or can work remotely, you may find that other regions have much to offer.

Begin the process early – If you decide to buy your first home in an expensive community, you have to take longer and work harder to gather the necessary resources.

Get a second job – If you can save the income from a second job it could add up to a down payment, or at least enough to cover your closing costs. Five to eight hundred hours of work extra in a year adds up to a chunk of change, even at minimum wage. Also, keeping busy will help you avoid spending extra cash on entertainment, making your nest egg even bigger.

Explore Government loan guarantees – If you aren’t already checking out programs that offer government-backed financing. FHA and the Veterans Administration are two such examples. One of these programs might get you a smaller down payment and a lower interest rate than you could qualify for otherwise.

Lower your expectations – Well that just sucks! Or does it? Perhaps a more modest home-buying option could be a happier one. A smaller house or one further out from town might come with peace of mind included.

Tips For Would-Be Investors

Invest in more affordable regions – Like moving to cheaper regions, investing in residential and commercial investments can provide bargains. Smart investors can find less expensive options with which to expand a property portfolio. The returns will be proportionally smaller and growth slower, but over time, you can attain substantial equity.

Join a real estate syndicate – When investors of modest means want to tackle ambitious projects they form syndicates, legal entities pool assets. Ask your real estate broker or business-banking manager for local opportunities.

Buy shares in REITs instead – Larger syndicates can apply for special tax treatment, as real estate investment trusts. Many of the largest REITs are listed on the stock market and pay substantial quarterly dividends. Publicly traded REITs are the most hands-off real estate investment, available from your stockbroker.

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