Buy vs Rent
Traditionally first time home buyers were renting prior to buying their home. But a typical question for an LO is the “buy versus rent” question, and which one is more “affordable” for the client. But it is important for an originator to know that they understand the dynamics of their local housing markets in a way that can benefit their customers. An LO can help his or her client understand available housing options in the context of their individual financial situations and long-term financial goals.
How much money has the client saved up? An experienced LO starts with an evaluation of the client’s financial health, and calculating how much money the client has for a down payment (normally 5-20%) or deposit on a rental (usually one month of rent). Experienced originators tell clients to be sure to keep enough in savings for an emergency fund - three to six months of living expenses to cover unexpected costs.
How much debt does the potential buyer have? Current and expected financial obligations like a car payment and insurance, credit card debt, and student loans must be considered – the client should be able to make all the payments in addition to the cost of a new home. Experienced originators suggest aiming to keep total rent or mortgage payments plus utilities to less than 25 to 30 percent of gross monthly income. Recent regulatory changes limit debt to income (DTI) ratio on most mortgage loans to 43 percent.
Potential borrowers should know their credit score. They should work with the originator in looking at all the costs of ownership and of renting: utilities, yard maintenance, cable, rental insurance, and so on, rental insurance. They should know how long they plan on staying, or perhaps the ability to move quickly is more important.
So many questions that need to be answered, so little time!
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The industry is always looking for ways to streamline and finesse the mortgage loan process, and ideally, lenders should start with the very first step—pre-approval. For borrowers, it really does pay to work with a lender who asks the right questions and procures all the appropriate documents, as they’re less likely to make a misstep and stall the process.
A common lender mistake is simply not doing enough research. Even if a buyer has a pre-approval letter from an esteemed mortgage lender, the loan application will be declined if the lender hasn’t looked into tax returns and credit reports sufficiently to find out that the borrower has, for example, already financed the maximum number of properties as dictated by Fannie and Freddie.
Given the importance of credit, many people have their credit report run every year. Although this is primarily to watch for suspicious activities on one’s credit card, knowing your credit score is an important step if considering a home purchase or refinance.
Self-employed borrowers also pose problems when it comes to income, as institutions won’t issue a loan based only on assets. If a borrower isn’t able to demonstrate any income—he or she is starting a new business, for example—the application will be declined, even if the borrower has several million in the bank and a pre-approval letter from a well-regarded lender.
Oversights like these leave everyone with a bad taste in their mouth—the seller loses time in selling the property, and the buyer loses time in searching for a property and has to cover the cost of the appraisal, at the minimum. Time and energy is wasted by all, and the mistakes are entirely preventable if lenders are diligent throughout the pre-approval process.
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You’ve done the right thing. Taken the advice of your realtor and gotten a pre-approval from a lender. Now on to the buying process! However, are you really approved? Has your file gone through the underwriting process? Did you provide documents to verify your income and assets? If not, then you might not really be “pre-approved.” This is considered more of a pre-qualification process when those two things don’t happen. If so, then you shopping for a home could potentially end in disaster and you not purchasing that home of your dreams!
So what do you do to avoid potential disaster? Ask your lender the following questions:
- What documents do you need from me to get me pre-approved by your underwriter?
- When will my file go into underwriting?
- How long will it take to get an answer back from underwriting?
- How quickly will I be able to close after I get an accepted purchase agreement?
- When can I lock my rate and for how long?
- What could delay my approval or closing?
These questions are crucial to a successful purchase and closing of a home. If any of those questions cannot be answered easily by your lender of choice, then you may want to consider shopping around. Of course, other things are important also: loan type, rate and costs. However, none of that will matter if you are not able to close the loan.
In today’s market, most lenders are going to be close when it comes to costs and rates. Where you see higher costs and rates is typically lenders who market online and in the media. Someone has to pay for the costs of all that marketing. Who do you think they are going to pass it on to? In most cases it’s the consumer.
With that in mind, your ultimate goal is homeownership. That’s why who you choose to do business with is so important. You want a lender who has proven over and over again that they can get the job done. Also, they can get it done within the timeframe you need it done. Anyone can talk a good game, but can they perform. So don’t be afraid to ask the questions above. This will ensure a smooth process and the end result of you buying the home of your dreams.
IN 23815; KY MC81345
Louisville, KY 40216
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If you want to start an argument, announce to a crowd that the economy is recovering: half will agree with you, half won’t. Certainly an economic downturn can impact many, leading to short sales, foreclosures, and bankruptcies. And plenty of people are asking about buying a property that was involved in a bankruptcy. To answer that, the key issue is what type of bankruptcy was filed, and how long will it take to close?
Since most such sales come with no representations, warranties or indemnifications, attorneys representing buyers should make due diligence their number one priority. Section 363 of the U.S. Bankruptcy Code allows parties involved in a Chapter 11 or Chapter 7 (most common for consumers) proceeding to dispose of real property in order to help pay off their debts through a highly structured process aimed at getting the most out of each asset while retaining the least liability.
As such, properties are sold "free and clear" from all liens and encumbrances, but it's not uncommon to later discover hidden issues, experts say, and the buying process itself can present various other hurdles. The buyer should conduct exhaustive due diligence. The trustee or debtor-in-possession rarely has access to all of the materials a buyer would typically need to see before making a decision to purchase property; sometimes a debtor has destroyed the documentation prior to the bankruptcy, or not kept it in good enough shape.
A buyer should take advantage of the property being “Free and Clear”. Although the transfer of the property comes with no representations or warranties, it also comes with no liens or encumbrances. A buyer should enlist a knowledgeable lender and real estate professional, and be prepared to move quickly in what could be a competitive bidding environment.
The main goal under any filing in bankruptcy is to give one, who is burdened with debt, a fresh start. A debtor files a petition with the court, along with a schedule of assets and creditors; a trustee is appointed to administer the sale of nonexempt property. The primary role of the trustee is to pay the secured and sometimes unsecured creditors, from the proceeds of the sale of property, and this may take up to 45-60 days to wind its way through courts – but could very well be worth it to the buyer!
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Purchasing a new home is an exciting milestone in your life — but it also can be an intimidating responsibility. Most buyers put an offer on a home that appeals to them for a variety of different reasons, whether it's the location or the features inside the home or the land that surrounds the house. After their offer is accepted, they rely on the advice and insight of a home inspector who provides them with more details about the health of the home.
Despite the fact that buyers do their homework prior to closing on their new home, many are left with unexpected issues after the closing. There's so many anecdotes about buyers whose basements flood the day after they move in or who are faced with an HVAC system that doesn't work once summer arrives.
A home warranty may be able to provide some security and peace of mind, but these protection plans can carry with them a high price tag. This leaves many buyers wondering if they are really worth it?
Here's how you can decide if a home warranty is right for your home purchase:
Consider the Benefits of a Home Warranty
A home warranty provides an extra layer of protection for buyers who may have used much of their cash to fund the purchase of a home. Most people are not prepared to put out a significant amount of money for repairs and replacements immediately after closing on a house, so a home warranty protection plan may be appealing.
When a repair is covered by a home warranty, the homeowner is able to quickly call a representative who can provide a list of recommended contractors to complete the job. This can expedite the repair process, which minimizes the inconvenience to the new homeowner.
Home warranty benefits are renewable. Homeowners who invest in a home warranty plan can extend the benefits past the first year, which allows them to take advantage of benefits in the years to come.
Home warranties typically cover the repair and replacement of major appliances that often experience issues. Kitchen appliances, such as the refrigerator, and HVAC systems are commonly covered under home warranty plans. The costs of these replacements is significantly higher than the warranty plan itself, so many home buyers find it worth it to purchase a plan based on this fact alone.
Recognize the Disadvantages of these Protection Plans
Home warranty plans will typically only cover a repair if the homeowner uses one of their previously-approved contractors. This limits who can be contacted to complete the repair, and homeowners who use a contractor that was not approved by the warranty company likely won't get coverage for the repair or replacement.
Some policies limit the amount of coverage the individual will receive. If a homeowner has a particularly bad year with several significant repairs, they may not receive additional coverage if their quote has been met. Many plans cap coverage between $1,500 and $2,000.
Home warranty policies are notorious for their fine print. Home buyers who are considering purchasing one of these protection plans need to read the fine print carefully in order to fully understand what their coverage will be. For example, some repairs are only covered under specific circumstances that are outlined in the policy. If the failure of the equipment is the result of a circumstance that is not identified, it likely won't be covered under the home warranty.
Buyers who want the peace of mind that comes along with a home warranty but don't want to pay hundreds of dollars for the protection may consider using it as a negotiation tool. Many sellers are willing to include a home warranty with the purchase of a home, particularly if the home inspection highlights issues that may become larger problems in the future. For them, it might be cheaper to purchase a home warranty than to fix the potential problem. Sellers are able to appease the buyer and move forward with the purchase agreement, while buyers are able to rest easy knowing that they have the protection of a home warranty plan if an unforeseen issue arises shortly after the purchase of the property.
Ultimately, it's up to the individual buyer to determine whether a home warranty is worth the cost. Find out more about home warranty plans and the protection that these plans offer by contacting a real estate agent today.
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