Guide For First Time Homebuyers

When buying a home there are several things you will need to get in order to move through this process quickly and without complications. Here is a brief list of items to check off before purchasing a new home.

 Fix your credit

In order to prepare to buy a home, it is best to figure out what your credit score is about three to six months prior to buying a home. A typical credit score needed to purchase a home is no lower than 620 to 640 depending on the lender and loan requirements. It is also important to fix any errors on your credit report. The earlier you do this the better to help get your credit profile on the right track to buy a home.

 Start Home Buying Loan Application

Prepare for down payment and closing costs

Your down payment can vary depending on the percent down required for the mortgage loan you are applying for. For example, conventional loans can be 20 percent down. Most first time homebuyers buy FHA (Federal Housing Act) which is 3 to 5 percent down. Look at the following examples to show a comparison of what you would need to save for a first time home purchase:

If you purchase a home for $250,000 your down payment would be $8,750 for a FHA loan of 3.5 percent down.

If you purchase a home for $250,000 your down payment would be $55,000 for a conventional loan of 20 percent down.  

Start Home Buying Loan Application

Find out how much house you can afford

In order to find out how much house you can afford, you need to know what your debt-to-income ratio is. The limitations that most loans require is up to 50 percent; however, it is advised to maintain a 30 percent debt-to-income ratio to avoid a tight budget. The debt ratio is the mount of income that has to be set aside in order to pay off your liabilities such as car payments, credit cards, student loans, etc. 

Also keep in mind that just because you may qualify for a $350,000 home based on your gross income and debt ratio that does not mean you must buy a home for that amount. Lenders typically will qualify you for the highest loan amount you can obtain so that you have more options and won’t need to get re-qualified for a higher amount if needed. Keep in mind you are getting qualified based on your gross income, not your net income which is what you live on after being taxed.

 So with that said, it is up to you as the homebuyer to make a wise home purchase based on your income and typical spending habits.

 Start Home Buying Loan Application

Start housing hunting

Once you have decided on the price range, partner with a trusted real estate agent in your area to help assist you in the home buying process. Referrals are a great way to choose an agent because they are likely knowledgeable and trusted from your family, friends or co-workers. Explain exactly what is important to you in a home like the school district, number of bedrooms, neighborhood area etc. However, try not to be too picky in criteria that you are able to fix. Try to focus on the main criteria that you can’t change like a neighborhood and school district when choosing a home.

Start Home Buying Loan Application

Make an offer

Before making an offer, have your real estate agent pull up a comparable sales list. This will show you what other similar homes in the area have sold for to help you form your offer. This will help you avoid paying a ridiculous amount and paying only what the home is truly worth.

 Be patient

The home buying process is not a quick process. There are times when you may be outbid for a home by a cash offer. You may also not find the home you want right away. We typically say there are typically “88 types of turbulence” you can experience during a home purchase that can slow down your process or cause a hiccup.  But don’t let that overwhelm you. If you are working with a trusted real estate agent and mortgage broker, such as ourselves,  know that they will take care of you.  Typically the home buying process can take up to 4 months. However, there are instances where it is much faster! It all varies. But try to be patient and know that soon you will have the home you have always wanted.

 If you are looking to start your first home purchase you can fill out this loan application.

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Tax Benefits of Owning a Home

Did you know owning a home can actually save you money? As a homeowner there are numerous tax benefits that most people don’t even know exist. As you prepare your taxes for the upcoming year, keep these several tax deductions in mind.

1. Mortgage Interest is Tax-Deductible

There are many tax benefits when you own a home, and one of the biggest incentives is your mortgage interest being tax-deductible. When you purchase a home, the interest you pay on your mortgage is tax-deductible, up to a limit of $1 million. This deduction can be applied to any home type, whether it is your first or second home. However, there are regulations that you spend a certain amount of time at the home. For example, 14 days each year, or 10 percent as much time as it is rented.

2. Tax Free profits

Another great tax benefit in owning a home comes when you decide to sell your home. Unlike other profits, the profit you make when you sell your home does not get taxed. You are legally allowed to exclude up to $250,000 in profit from the sale of your principal home. If you file taxes jointly, the amount jumps up to $500,000.

However, in order to receive this tax benefit, the home must be your primary residence, and you have to have lived there for at least 2 of the previous 5 years. Also, you can only claim this exemption once every two years. Which makes sense, otherwise everyone would constantly be moving.

3. Property Taxes Deductible

A third tax benefit as a home owner is claiming property taxes as income tax deduction. This can be done for both your primary and secondary residences.

4. Moving Expenses Deductible

When you buy a new home there can be a lot of moving expenses that come along with it. A benefit of being a homeowner is that the government allows you to write off many of your moving costs as long as it’s at least 50 miles closer to your job than your old home. In order to qualify for this deduction you must continue to work full-time in the general area of your job for 39 weeks during the following year.

If you are self-employed and work in your home, any move that is 50 miles or greater can have deductible moving expenses. In order to qualify for this deduction you must work full-time near the new location for 78 weeks during the next 24 months.

 Of course, because tax rules vary based on income and other factors, be sure to consult an accountant or financial advisor about your particular situation

Payroll Tax Holiday Affecting Homebuyers

Today, December 22, 2011, the House and Senate leaders have agreed to extend the two month package that includes a payroll tax cut as well as unemployment benefits. The FICA tax relief was originally a one year stimulus for 2011 in order to help stimulate the U.S. economy.

How is the U.S. payroll tax extension going to affect consumers?

The government had reduced the FICA payroll tax from 6.2 percent to 4.2 percent for 2011 only. However, the package has been extended an additional two months through February 29, 2012. This is good news for consumers, so that taxes will not be increasing in the upcoming year. However, two months is not a long time, so it is expected that negotiators will create a yearlong stimulus to help with these critical areas.

How does the payroll tax cut affect American workers?

The payroll tax holiday is going to benefit 160 million workers.  According to NBC Politics, “For a worker making $60,000 a year, a two-month payroll tax cut would mean $200 in additional take-home pay, or about $25 per week.”

What does this mean for homebuyers?

Well, in order to extend this stimulus package for the additional two months, its total cost will be $33 billion. The way it is going to be paid back is through increasing mortgage fees for home purchases and refinances starting January 1, 2012. These fees are expected to raise $35.7 billion over a 10 year period.

What are the requirements for the government housing agencies?

Fannie Mae and Freddie Mac: Increase loan guarantee fees by 10 basis points or more versus current levels, and do not decrease other costs to compensate

FHA: Increase mortgage insurance premiums by 10 basis points

This means on average the monthly mortgage payments will be raised by as much as $15 on mortgages of $210,000; however, it will vary.

How will this affect FHA insured homeowners?

Any FHA Streamline Refinance must meet a minimum of 5 percent savings as required by the FHA Streamline Refinance guidelines.  With the increase in the mortgage insurance premiums by 0.10 percent it will make it much more difficult to be eligible.

If you are a FHA insured homeowner and wanting to refinance via the FHA Streamline Refinance, then it is highly encouraged to get your loan application in and processed now before the end of the year.

If you are currently in the process with purchasing a mortgage, then you should not be subject to these increased fees. Anyone purchasing or refinancing after January 1, 2012, will be experiencing the increased fees.

Increased Mortgage Fees in 2012 for Fannie Mae, Freddie Mac & FHA

Last week, congress announced that they are requiring Fannie Mae, Freddie Mac and FHA to implement increased loan fees. These fees will go towards paying off  the $140 billion borrowed from the government 3 years ago in order to stay afloat. The following is being required:

• Fannie Mae and Freddie Mac : Increase loan guarantee fees by 10 basis points or more versus current levels, and do not decrease other costs to compensate
• FHA : Increase mortgage insurance premiums by 10 basis points

What Fee Is Being Increased?

The fee that is being increased in not directly a consumer fee, but rather a lender fee. Let me explain why. Fannie Mae and Freddie Mac do not make home loans, they simply provide the financing for lenders by purchasing the home loans from them. The fee that is then being charged is to the lender, but will be incorporated into the overall monthly mortgage payment of the consumer.

When Are The Fees Effective?

These increased fees will become effective starting January 1, 2012.

How Much Is The Fee?

For some consumers, the increase in the monthly payment may not even be noticed because it may be as low as $10. The fee will be combined into the overall monthly mortgage payment. A monthly payment is estimated to increase about $10 per every $100,000 borrowed. However, the fees range per homebuyer, depending on the risk level of each loan.

Who Is Affected By The Fee?

The increased fees will affect homebuyers or homeowners refinancing starting January 1, 2012. In order to avoid this fee, one should purchase their home loan or refinance no later than the end of December 2011.

7 homebuying tips you need to know

As a new homebuyer, or even an experienced buyer, it is easy to stress over every detail when trying to find the home of your dreams. Rather than stressing over every detail, here are 7 homebuying tips that deserve extra attention.

1. Get preapproved for a loan. Getting pre-approved is much different than pre-qualified for a home loan.  With a pre-approval letter, you can engage in the home buying process with confidence because you have been given the approval to purchase a home for a certain qualifying amount. You should never engage in the home buying process unless you have this certificate of a pre-approval.

2. Partner with the right agent. Make sure you are working with an agent that you trust. Referrals from family, friends, and neighbors is a great way to meet an agent. It is highly recommended that you work with someone in your area so that they are familiar with area you would like to live. Also, make sure your agent is able to communicate with you in your preferred manner whether that is text, phone, email, or in person.

3. Don’t look at too many homes. The home buying process can easily become overwhelming. When you are given more options (just like a buffet) it makes it harder to make a decision. Make sure you are making a list of non-negotiables in a home and separating that from your list of “wants” and “wishes”. The non –negotiables will help be a determining factor in deciding if a home is meant for you or not. It’s not recommended that you look at every single house as possible because you should be narrowing your search, not broadening it.

4. Keep an open mind. It’s a lot harder to find the home of your dreams if you are closed minded to one specific style home. Make it easier for your agent to offer suggestions by keeping an open mind. Often times, you may see features and amenities you love in a different style home, but without an open mind you may never stumble across it.

5. Visit the neighborhood. One of the best things to do before choosing a home is visiting the neighborhood on a weekend to see what the neighborhood is like. You can see if kids play outside, how the neighbors interact, etc. Also, visiting the local grocery store can help give you an idea of who lives in the neighborhood. We even suggest being bold and talking to a few shoppers to get their opinion.

6. Submit your highest and best offer up front. When making an offer on a prime house, it is probably safe to say many other offers are rolling in as well. You don’t want to be outrageous with your offer, but you want to submit a realistic offer that is in your means, and also competitive. You would hate to miss out on a home because you didn’t offer the most you could for a home you want. It is also suggested that you submit your offer with comparable sales for support.

7. Be prepared to compromise. Don’t lose the opportunity of buying the home of your dreams over small things that can easily be compromised. It is not realistic to expect the seller to want to upgrade your carpet, counters and other features of the home that aren’t necessary. Don’t let those small details deter you from a home. The key features of a home that can’t be compromised are the layout, the size, and location.

Banks Giving Grace to Foreclosed Homeowners

The Holiday season is a stressful time and the last thing one wants to worry about is experiencing a foreclosure and then eviction during Christmas and New Year’s. In a recent article found from CNNMoney.com (2011), it is stated that Fannie Mae, Freddie Mac and other large banks are halting evictions temporarily this Christmas season.

The moratorium will last from December 19, 2011 to January 2, 2012. This does not mean that they are going to stop the proceedings for foreclosures, but one will be able to stay in their home during the holiday season.

Terry Edward, the executive vice president for Fannie Mae stated, “No family should have to give up their home during this holiday season.”

This small grace period from the lenders can be appreciated for keeping families in their homes during this holiday season. However, there are only several banks that are offering this grace period including Chase, Bank of America and Wells Fargo.  Other banks may still continue in the eviction processes that are not committed to this grace period for the holiday season.

In the article it also explained that halting this foreclosure process for a few weeks will benefit tens of thousands of homeowners. Many families can be thankful for the grace period that banks are giving foreclosed homeowners.