Six Basic Mortgage Rules To Follow

Whether this is your first home or fourth, really understanding your mortgage and how it works is crucial. After all, it’ll probably be the biggest loan of your life!

What IS A Mortgage?

In the most basic sense a mortgage is a loan to buy a property. The process of securing a mortgage means lender approval based on your income, credit rating and other debt.

Understand Your Fixed Costs

Before you decide what you can—or should—spend on a mortgage it’s important to take stock of your habits and your true fixed costs. Be honest with yourself when putting together your household budget, if you’re going to be miserable without your daily premium cup of coffee, then along with your student debt and car payments, consider that a fixed cost.

Be PITH Safe

According to the CHMC (Canadian Housing & Mortgage Corporation), your monthly housing costs should be less than 32% of your gross monthly income. These are considered your PITH or Principle and Interest (of your mortgage payments), Property Tax, and Heating bills.

Get A Mortgage You Can Afford

If you pass the PITH test, the second test of what you can afford mortgage-wise is that your entire monthly debt load (car payments, credit card debt, student loans, etc) should be less than 40% of your gross monthly income. The CMHC even has a handy Mortgage Affordability Calculator on their site: cmhc.ca.

Paying Off Your Mortgage

Once you’re approved for a mortgage and buy your home (congratulations!), now you have to actually start paying off the loan. There are several factors involved in this like your interest rate, payment schedule (monthly, twice a month, every two weeks, or weekly) and your amortization period, which is the amount of time you’ve selected to pay back the mortgage (usually ranging from 15-25 years).

Picking The Right Interest RateThe interest rate at which you select to pay off your mortgage varies from “fixed”—whereby the rate will NOT change for the term of the mortgage, and is generally a bit higher but considered more stable, or “variable” whereby the interest rate can fluctuate with the current state of the market.

Finally, owning a home can truly be an amazing thing. Thankfully there are many resources out there to help make the process a smooth one like mortgage brokers and financial advisors, so remember, you’re never alone through this daunting process!

Shared from:  http://www.hgtv.ca/realestate/article/mortgage-rules/

6 Basic Mortgage Rules

Whether this is your first home or fourth, really understanding your mortgage and how it works is crucial. After all, it’ll probably be the biggest loan of your life!

What IS A Mortgage?

In the most basic sense a mortgage is a loan to buy a property. The process of securing a mortgage means lender approval based on your income, credit rating and other debt.

Understand Your Fixed Costs

Before you decide what you can—or should—spend on a mortgage it’s important to take stock of your habits and your true fixed costs. Be honest with yourself when putting together your household budget, if you’re going to be miserable without your daily premium cup of coffee, then along with your student debt and car payments, consider that a fixed cost.

Be PITH Safe

According to the CHMC (Canadian Housing & Mortgage Corporation), your monthly housing costs should be less than 32% of your gross monthly income. These are considered your PITH or Principle and Interest (of your mortgage payments), Property Tax, and Heating bills.

Get A Mortgage You Can Afford

If you pass the PITH test, the second test of what you can afford mortgage-wise is that your entire monthly debt load (car payments, credit card debt, student loans, etc) should be less than 40% of your gross monthly income. The CMHC even has a handy Mortgage Affordability Calculator on their site: cmhc.ca.

Paying Off Your Mortgage

Once you’re approved for a mortgage and buy your home (congratulations!), now you have to actually start paying off the loan. There are several factors involved in this like your interest rate, payment schedule (monthly, twice a month, every two weeks, or weekly) and your amortization period, which is the amount of time you’ve selected to pay back the mortgage (usually ranging from 15-25 years).

Picking The Right Interest RateThe interest rate at which you select to pay off your mortgage varies from “fixed”—whereby the rate will NOT change for the term of the mortgage, and is generally a bit higher but considered more stable, or “variable” whereby the interest rate can fluctuate with the current state of the market.

Finally, owning a home can truly be an amazing thing. Thankfully there are many resources out there to help make the process a smooth one like mortgage brokers and financial advisors, so remember, you’re never alone through this daunting process!

Reposted from:  http://www.hgtv.ca/realestate/article/mortgage-rules/

Pros and Cons of Fixed-Rate Mortgages

Fixed-rate mortgages are the most common type of mortgages available. Many home buyers prefer them to adjustable-rate mortgages for a number of reasons. But just because one is more popular doesn’t mean it’s right for you. FRMs have both pros and cons that you need to evaluate before choosing.

Pros of FRMs

A common reason many people choose a FRM is because it’s predictable. Unlike ARMs, whose monthly payments are tethered to changing rates, the interest rate on FRMs does not change for the life of the loan. This predictability is enough to give many home buyers peace of mind, which might be worth paying for.

The learning curve with FRMs is straightforward. It’s easy to shop around and compare rates. The math involved with figuring out your loan is also easy. With ARMs, you have to put in significantly more work to figure out the math, and their terms and conditions are more complex.

Generally, if you plan to keep your loan long-term and you believe rates can only go up, an FRM is usually not a bad idea. The stable, predictable payments are a trade-off for instances when rates decrease.

To recap the advantages:

• You know exactly what you’ll be paying each month for the life of the loan.
• There’s no stress if rates go up.
• It is easy to shop around and compare rates.
• The math involved with your loan is straightforward.
• It can save you money if you keep your loan long-term and rates go up.

Cons of FRMs

The biggest disadvantage of an FRM is having bad timing when locking in your rate. For example, if you lock in your rate in July at 4.2% but the rate continues to drop to 3.5% by September, you’ll kick yourself for not waiting. On the other hand, the market is notoriously difficult to predict.

You receive no advantage from falling rates, and whatever changes in interest rates occur do not matter because your loan is locked in. But you’re also free from having to worry about it.

Some home buyers choose to purchase a longer lock-in period and float their rate until they believe it won’t get any lower.

FRMs usually do not come with the low intro rates that ARMs frequently do. That can be disadvantageous if you don’t plan to see out the life of your loan—that is, you plan to sell or refinance it in the foreseeable future. That’s why some home buyers, like house flippers, choose ARMs over FRMs. However, those intro rates can also be troublesome if the buyer does not understand how to handle an intro, or teaser, rate.

To recap the disadvantages:

• FRMs may not be the best option for people looking to sell or refinance soon.
• You’re stuck with the rate you locked in until you refinance.
• Falling rates can give you a case of buyer’s remorse.

Always understand the loan

The 30-year FRM is the most popular mortgage in America, but that doesn’t mean it’s the right one for you. Still, many homeowners would rather deal with the stability of an FRM over the fluctuating payments of an ARM. Be sure you understand your loan’s terms and rates, and always compare rates before signing into a mortgage.

Reposted from:  http://www.realtor.com/advice/pros-cons-fixed-rate-mortgages/

How Much Should Your Mortgage Be?

Learn the rules of home affordability to figure out what percentage of your gross monthly income you can safely spend on housing. Caution: Your mortgage lender may very well approve you for a bigger mortgage that you can actually afford.

This question often comes up among first-time home buyers:

• What percentage of my monthly income can I afford to spend on my mortgage payment?
• Does that percentage include property taxes? Private mortgage insurance (PMI) or homeowners insurance?

Most agree that your housing budget should encompass not only your mortgage payment (or rent, for that matter), but also property-taxes and all housing-related insurance — homeowner’s insurance as well as PMI. As for just how big a percentage of your income that housing budget should be? It all depends on whom you ask.

In this article on how the mortgage crash of the late 2000s changed rules for first-time home buyers, the New York Times reported:

If you’re determined to be truly conservative, don’t spend more than about 35 percent of your pretax income on mortgage, property tax and home insurance payments. Bank of America, which adheres to the guidelines that Fannie Mae and Freddie Mac set, will let your total debt (including student and other loans) hit 45 percent of your pretax income, but no more.

Let’s remember that even in the post-crisis lending world, mortgage lenders want to approve creditworthy borrowers for the largest mortgage possible. I wouldn’t call 35 percent of your pretax income on mortgage, property tax, and home insurance payments “conservative”. I’d call it average.

On the flip side, debt-hating Dave Ramsey wants your housing payment (including property taxes and insurance) to be no more than 25 percent of your take-home income.

Your mortgage payment should not be more than 25 percent of your take-home pay and you should get a 15-year or less fixed-rate mortgage…Now, you can probably qualify for a much larger loan than what 25 percent of your take-home pay would give you. But it’s really not wise to spend more on a house because then you will be what I call “house poor.” Too much of your income would be going out in payments, and it will put a strain on the rest of your budget so you wouldn’t be saving and paying cash for furniture, cars and education.

Notice that Ramsey says 25 percent of your take-home income while lenders are saying 35 percent of your pretax income. That’s a huge difference! Ramsey also recommends 15-year mortgages in a world most buyers take 30-year mortgages. This is what I’d call conservative.

Not everybody is as debt-adverse as Ramsey — and following his one-size-fits-all advice has risks. You just have to remember: the more you spend on your home, the less you have available to save for everything else. You may be able to afford a housing payment that is 35 percent of your pretax income today, but what about when you have kids, buy a new car, or lose your job?

Another reader put it this way:

• Your mortgage payment should be equal to one week’s paycheck.
• Your mortgage payment plus all other debt should be no greater than two weeks’ paycheck.

That’s on the conservative side, too. One week’s paycheck is about 23 percent of your monthly (after-tax) income.

If I had to set a rule, it would be this:

• Aim to keep your mortgage payment at or below 25 percent of your gross monthly income.
• Aim to keep your total debt loan at or below 33 percent of your gross monthly income.

As some commenters have pointed out, while it may be possible to buy a decent home in a small midwestern town for $100,000 and well within these ratios — workers in New York or San Francisco will need to spend five times that amount just to get a hole in the wall. Yes, people tend to earn more in these high cost-of-living areas, but not that much more. Does it mean they shouldn’t buy a home? Not necessarily, they’ll simply have to make trade-offs to buy in those areas.

Just remember that when you obtain mortgage pre-approval, lenders will likely approve you for a loan amount with payments of up to 30 or 35 percent of your pretax income. That may tempt you to take on more home than you should. Don’t just assume “if the bank approved it; I can afford it”. They are two very different things.

Click here to use the home affordability calculator.

Reposted from: http://www.moneyunder30.com/percentage-income-mortgage-payments#67T7i3OC8pUFFpiv.99

Why You Should Work With a REALTOR®

Not all real estate practitioners are REALTORS®. The term REALTOR® is a registered trademark that identifies a real estate professional who is a member of the NATIONAL ASSOCIATION of REALTORS® and subscribes to its strict Code of Ethics. Here are five reasons why it pays to work with a REALTOR®.

1. You’ll have an expert to guide you through the process. Buying or selling a home usually requires disclosure forms, inspection reports, mortgage documents, insurance policies, deeds, and multi-page settlement statements. A knowledgeable expert will help you prepare the best deal, and avoid delays or costly mistakes.
2. Get objective information and opinions. REALTORS® can provide local community information on utilities, zoning, schools, and more. They’ll also be able to provide objective information about each property. A professional will be able to help you answer these two important questions: Will the property provide the environment I want for a home or investment? Second, will the property have resale value when I am ready to sell?
3. Find the best property out there. Sometimes the property you are seeking is available but not actively advertised in the market, and it will take some investigation by your REALTOR® to find all available properties.
4. Benefit from their negotiating experience. There are many negotiating factors, including but not limited to price, financing, terms, date of possession, and inclusion or exclusion of repairs, furnishings, or equipment. In addition, the purchase agreement should provide a period of time for you to complete appropriate inspections and investigations of the property before you are bound to complete the purchase. Your agent can advise you as to which investigations and inspections are recommended or required.
5. Property marketing power. Real estate doesn’t sell due to advertising alone. In fact, a large share of real estate sales comes as the result of a practitioner’s contacts through previous clients, referrals, friends, and family. When a property is marketed with the help of a REALTOR®, you do not have to allow strangers into your home. Your REALTOR® will generally prescreen and accompany qualified prospects through your property.
6. Real estate has its own language. If you don’t know a CMA from a PUD, you can understand why it’s important to work with a professional who is immersed in the industry and knows the real estate language.
7. REALTORS® have done it before. Most people buy and sell only a few homes in a lifetime, usually with quite a few years in between each purchase. And even if you’ve done it before, laws and regulations change. REALTORS®, on the other hand, handle hundreds of real estate transactions over the course of their career. Having an expert on your side is critical.
8. Buying and selling is emotional. A home often symbolizes family, rest, and security — it’s not just four walls and a roof. Because of this, home buying and selling can be an emotional undertaking. And for most people, a home is the biggest purchase they’ll ever make. Having a concerned, but objective, third party helps you stay focused on both the emotional and financial issues most important to you.
9. Ethical treatment. Every member of the NATIONAL ASSOCIATION of REALTORS® makes a commitment to adhere to a strict Code of Ethics, which is based on professionalism and protection of the public. As a customer of a REALTOR®, you can expect honest and ethical treatment in all transaction-related matters. It is mandatory for REALTORS® to take the Code of Ethics orientation and they are also required to complete a refresher course every four years.

Reposted from:  http://realtormag.realtor.org/sales-and-marketing/handouts-for-customers/for-buyers/why-you-should-work-realtor

7 Things to Always Do Before Buying a Home

There's no better time to clean up your credit score or kick your credit card habits.

Maybe you’ve decided to take the plunge and buy your first home, or you’re already a homeowner and are ready to move into a new place. Whatever reason prompted the move, here are seven things you need to do before buying a home.

1. Clean up your credit score. Your credit score will be reviewed by lenders, and it plays an important role in determining how much house you can buy. If you know you won’t be moving into a new house for at least six to eight months, you have plenty of time to do some legwork to clean up your credit. Order your free credit report from Equifax, TransUnion or Experian, and make sure it is free of any mistakes. If you do find an error, contact creditors to make sure everything is up-to-date, and have them send corrections to the credit bureaus as soon as possible.

2. Kick the credit card habit. Another step to cleaning up your credit history? Make sure you aren’t buried under credit card debt. Take steps to stop credit card spending, and consider using a balance-transfer credit card to reduce your debt load faster. Improving your credit will give your credit score a boost, and that will make you more attractive to lenders. A bonus? Kicking the credit card habit can help you get a handle on your finances so making mortgage payments isn’t overwhelming.

3. Hash out monthly payments. If credit card and loan payments make up a big percentage of your monthly payments, you may reduce your chances of getting an attractive mortgage loan offer. Taking steps to lower monthly payments can put you in a better financial position for a mortgage and also reduce some of the stress of making that mortgage payment each month.

4. Define exactly what you want. Your home is one of the biggest purchases you will ever make, and you need to have a clear idea of exactly what you are looking for before you begin the search. While you should get preapproved early in the process, don’t wait for the preapproval offer to narrow down the search. You need to determine what the non-negotiables are for your future home and what you are willing to compromise on. Take the time to list what features, floor plans and style of home you are most interested in; what type of neighborhood you want to live in; and other key details. A comprehensive list of wants and must-haves can make it easier to shop for a home and compare different properties during the search.

5. Get preapproved. It’s exciting to start the homebuying process by visiting open houses, but it’s a good idea to have a preapproval letter in your pocket before you set foot in your dream home. Your preapproval letter will tell you how much you can really afford and make it easier to narrow down your search. Having that preapproval letter will also give you some negotiating power when you start working with sellers – you’ll have a greater chance of having an offer accepted when you have a letter stating that you are in a financial position to buy the home.

6. Commit to a savings plan. When you start thinking about moving, take the time to reorganize your budget and put together a savings plan for the down payment, closing costs and moving costs. Putting yourself in a position to make a larger down payment can save you money on mortgage payments in the long run and make you more attractive to the lender. Also, if you’re a first-time homebuyer, don’t overlook down payment assistance programs, if they exist in your area.

7. Set your own budget parameters. Even though you may be preapproved for a certain amount, there’s no rule that says you can’t set your own budget that’s less than your preapproval amount. Doing so can give you more confidence with your finances and may free up more money for discretionary expenses. Whether you want to have more money to travel or prefer to live with a higher disposable income, adjust your budget limits to suit your lifestyle.

Reposted from:  http://money.usnews.com/money/blogs/my-money/2014/06/25/7-things-to-always-do-before-buying-a-home

Choosing Your Real Estate Agent

We stand behind our reputation as being experienced & dedicated real estate agents that work for YOU.  It doesn't hurt to know what qualities to look for, though, in a real estate agent.  After you brush up on what to look for, please contact us to help you buy or sell your home!  (727) 464-2316

The quality of real estate agents varies dramatically, from fabulous to frightful. To find an agent who rates at the fabulous end of the scale, look for one who is:

• a person of integrity
• in the full-time business of real estate -- you don't want a dabbler
• experienced with the types of services you need
• knowledgeable about the area where you want to live
• well-connected to other professionals in the real estate and related fields
• highly regarded by other agents (who might otherwise recommend that the seller reject your offer because your agent is too hard to work with)
• sophisticated in business matters
• tuned in to your tastes and needs
• licensed by your state, meaning the agent has met minimum levels of education, training, and testing. You'll get someone with even more education if you hire a "broker" (someone with the power to oversee ordinary agents).
• a member of a trade association such as the National Association of Realtors (NAR), meaning the agent is privy to listings, market information, and other data that nonmembers must struggle to obtain, and
• at the upper end of the scale, a recipient of additional credentials (look for initials on their business cards -- for example, NAR offers such credentials as a "GRI" (Graduate Realtors Institute) or the even more advanced "CRS" (Certified Residential Specialist).) You won't find too many agents with such credentials!

Get Referrals

For recommendations, go to friends, family, and coworkers -- particularly those who've recently bought or sold a home. Run the prospective agents' names past other agents, such as those you meet at open houses, to see what kind of reaction you get. Once you've got a short list of promising real estate agents, let each know you want to interview him or her for around 30 to 45 minutes, preferably in person. You'll be testing not only the agent's knowledge, but his or her cooperativeness and punctuality.

Ask Questions

Below are some questions you can ask a real estate agent to determine whether the agent's experience and success rate are suited to your needs. Also add your own questions. For example, if you're looking for help buying a foreclosure, or a newly built house in a development or a condo, you'll want to make sure your agent has experience with such properties.

• How many homes have you found for buyers in the last year? Ask for the addresses of these recent transactions, and find out the selling prices. This will help you see whether the agent truly works with clients similar to you and how successful the agent has been.
• How can you help me afford the home I want? Ask the agent what type of home you can expect for the amount you've budgeted and for suggestions on special and new mortgage loan programs and recommended mortgage brokers. Also ask about recent insurance and tax changes.
• How will you communicate with me? Will the agent call you or use email? How often will you hear from him or her? Once a week is a minimum in a stable market, but daily check-ins could be necessary in a hot market. And how quickly can he or she respond to calls and questions from you? If you're eager to get in and see a house, you may not want to wait a day.
• How do you organize your work? Ask to see logs, checklists, worksheets, and other tools or documents the agent uses to keep track of the various details -- from the house search and financing through negotiating an offer and closing the deal.
• How will your commission be paid? If the agent will be representing you exclusively, ask whether he or she expects you to pay the commission instead of the seller. (This is rare; you don't have to agree to this in order to have an agent represent you exclusively.)
• Who are some past clients I can call as references for you? If you think you might hire this agent, be sure to follow through with these calls!

During the interview, ask the agent questions from the list above. Consider how well the agent listens to your concerns and answers your questions clearly and directly. Only agree to hire an agent after you've found one you're enthusiastic about. Then, commit your agreement to writing, and play fair by not signing up additional agents to help you.

For more on finding and choosing the best agent, including checklists of interview questions you can print out from a CD-ROM, see the book Nolo's Essential Guide to Buying Your First Home, by Ilona Bray, Alayna Schroeder, and Marcia Stewart.

by: Ilona Bray, J.D.

Reposted from:  http://www.nolo.com/legal-encyclopedia/choosing-real-estate-agent-29645.html

7 Things You Should NOT Do Before Applying For A Home Loan.

1. DON’T buy or lease an auto. The lender looks carefully at the debt-to-income ratio and a large payment, such as a car lease or purchase, may greatly impact those ratios and prevent you from qualifying.
2. DON’T move assets from one bank to another. These show up as new accounts and complicate the application process. If you do move accounts, you must disclose and document the source of funds for each new account and/or deposit. Consolidate your accounts after closing.
3. DON’T change jobs or give notice at your current employer. A new job may involve a probation period, which must be satisfied before the income from that job may be considered for qualifying purposes.
4. DON’T buy new furniture or major appliances for “new house.” If the new purchase increases your debt load, it can disqualify you from the loan or deplete your funds for closing. Some lenders pull a new credit report just prior to closing.
5. DON’T attempt to consolidate bills before speaking with your lender. The lender will advise you if this needs to be done.
6. DON’T pack or ship information that may be needed for the loan application. Important paperwork such as: two years tax returns and W-2s, two months of most recent bank and brokerage statements, divorce decree, closing statement (HUD-1) if you’ve just sold a home.
7. DON'T have any personal property written in the purchase contract for the new home.

*Courtesy of Michelle Piccari, Mortgage Planner American Equity Mortgage 

The Loan Process

In a recent Zillow survey, 44% of home buyers admitted they are "not confident in their knowledge of mortgage or the mortgage process." Home buyers may depend on you for information and help in getting them through the loan process successfully. Let's take a look at the phases of the Mortgage Circle of Life - Origination through Closing.

Origination
The mortgage professional: Determines how much a customer can afford to spend on a home; completes the mortgage application with the customer; orders of credit report and reviews credit history; discusses available loan programs; explains documentation that's required; and verifies a customer's approval/qualification for the mortgage requested.

Processing
Once the customer has a contract on a property, the processor orders an appraisal; initiates / completes a title search and flood certification (if needed); collects, verifies, and reviews documentation; obtains appraisals; bundles the documentation and sends it to Underwriting.

Underwriting
The underwriter analyzes loan documentation for accuracy; evaluates the customer's ability and willingness to repay the loan based on credit and employment history; reviews the appraisal to determine that the property complies with loan program guidelines; ensures there is clear title to the property; determines risk acceptability; and approves or denies the loan.

Closing
After the loan is approved, the closing agent conducts the settlement meeting; makes sure all documents are signed and recorded and closing fees and escrow payments are paid and properly distributed.

Once the property has changed hands and the customer has the keys to the house, they can move into their new home.

*The above information has been obtained and revised from the Zillow website.