The Difference Between Your Mortgage Rate and the Annual Percentage Rate (APR)
Understanding the difference between an annual percentage rate (APR) and an interest rate could save you thousands of dollars on your mortgage. But most homebuyers might not know that the interest rate and the APR measure two different costs associated with your home loan.
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Interest Rate and APR
An interest rate is the cost of borrowing the principal loan amount. It can be variable or fixed, but it’s always expressed as a percentage. An APR is a broader measure of the cost of a mortgage because it reflects the interest rate plus other costs such as broker fees, discount points and some closing costs, expressed as a percentage
Why have both?
The main difference is that the interest rate calculates what your actual monthly payment will be whereas the APR calculates the total cost of the loan.
RELATED: 6 Mortgage Terms To Know
You can use one or both to make apples-to-apples comparisons when shopping for loans.
For example, a loan with a 4 percent rate will have a lower monthly payment than a loan with a 6 percent rate, assuming both are fixed for the same term. Likewise, the total cost of a loan with a 4 percent APR will be less than one with a 6 percent APR.
Where it gets tricky
Interest rates and APRs have limitations to helping you understand the true cost of your mortgage. But taken together, borrowers should be able to use both figures to determine their total costs. The trick is to understand the interplay between the two figures.
If you are only focused on getting the lowest monthly payment, then focus on the interest rate. But if you are focused on the total cost of the loan, then use the APR as a tool to compare the total cost of two loans.
This chart shows the interest rate, APR and total costs over time for a $200,000 mortgage in which 1.5 discount points cut the interest rate by one-quarter of a percentage point, and another 1.5 discount points cut the interest rate by a further quarter of a percentage point.
3 loans, same amounts, 3 APRs
Time horizon matters
If you plan to stay in your home for 30 years or more, it probably makes sense to go with a loan that has the lowest APR because it means you’ll end up paying the lowest amount possible for your house. But if your time horizon isn’t that long, it may make sense to pay fewer upfront fees and get a higher rate — and a higher APR — because the total costs will be less over the first few years.
APR spreads the fees over the course of the entire loan, so its value is optimized only if a borrower plans to stay in the home throughout the entire mortgage.
Figure the break-even point
If you’re planning to stay in your home for a shorter period, you need to do the math and determine your break-even point.
For example, if you chose a 0.25 percent lower rate for an additional 1.5 points because of the lower APR, but you moved in five years, you lost money. Your break-even on the points was seven years.
Unfortunately, those calculations can be confusing for many, which is why it’s crucial to pick the right lender. Your Buyer’s Agent should have excellent relationships with lender’s and can refer you to someone they trust.
Did you recently shop for a Mortgage? Do you have Buyer’s Remorse? What might you do differently now that you didn’t do then? We want to here from you! Sound off on our Facebook Page or on our Twitter, Instagram or LinkedIn feeds. And don’t forget to subscribe to our monthly HOME ADVICEtm eNewsletter for articles like this delivered straight to your inbox. You may unsubscribe at any time.
Why Is There So Much Paperwork Required To Get A Mortgage?
Why is there so much paperwork mandated by the lenders for a mortgage loan application when buying a home today? It seems that they need to know everything about you and requires three separate sources to validate each and every entry on the application form.
RELATED: 6 Mortgage Terms To Know
Many buyers are being told by friends and family that the process was a hundred times easier when they bought their home ten to twenty years ago.
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There are two very good reasons that the loan process is much more onerous on today’s buyer than perhaps any time in history:
1. The government has set new guidelines that now demand that the bank proves beyond any doubt that you are indeed capable of paying the mortgage.
During the run-up to the housing crisis, many people ‘qualified’ for mortgages that they could never pay back. This led to millions of families losing their home. The government wants to make sure this can’t happen again.
RELATED: Will I Qualify For A Mortgage?
2. The banks don’t want to be in the real estate business.
Over the last seven years, banks were forced to take on the responsibility of liquidating millions of foreclosures and also negotiating another million plus short sales. Just like the government, they don’t want more foreclosures. For that reason, they need to double (maybe even triple) check everything on the application.
However, there is some good news in the situation.
The housing crash that mandated that banks be extremely strict on paperwork requirements also allowed you to get a mortgage interest rate around 4%.
The friends and family who bought homes ten or twenty years ago experienced a simpler mortgage application process, but also paid a higher interest rate (the average 30-year fixed rate mortgage was 8.12% in the 1990s and 6.29% in the 2000s).
If you went to the bank and offered to pay 7% instead of around 4%, they would probably bend over backward to make the process much easier.
Instead of concentrating on the additional paperwork required, let’s be thankful that we are able to buy a home at historically low rates.
5 Reasons You Should Never Buy or Sell a Home Without a Real Estate Agent
You’re DIY’ing this real estate thing, and you think you’re doing pretty well—after all, any info you might need is at your fingertips online, right? That and your own judgment.
Oh, dear home buyer (or seller!)—we know you can do it on your own. But you really, really shouldn’t. This is likely the biggest financial decision of your entire life, and you need Real Estate Agent if you want to do it right.
1. They have loads of expertise
Want to check the MLS for a 4B/2B with an EIK and a W/D? Real estate has its own language, full of acronyms and semi-arcane jargon, and your Real Estate Agent is trained to speak that language fluently.
Plus, buying or selling a home usually requires dozens of forms, reports, disclosures, and other technical documents. Real Estate Agents have the expertise to help you prepare a killer deal—while avoiding delays or costly mistakes that can seriously mess you up.
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2. They have turbocharged searching power
The Internet is awesome. You can find almost anything—anything! And with online real estate listing sites such as yours truly, you can find up-to-date home listings on your own, any time you want. But guess what? Real Estate Agents have access to even more listings. Sometimes properties are available but not actively advertised. A Real Estate Agent can help you find those hidden gems.
Plus, a good local Real Estate Agent is going to know the search area way better than you ever could. Have your eye on a particular neighborhood, but it’s just out of your price range? Your Real Estate Agent is equipped to know the ins and outs of every neighborhood, so she can direct you toward a home in your price range that you may have overlooked.
3. They have bullish negotiating chops
Any time you buy or sell a home, you’re going to encounter negotiations—and as today’s housing market heats up, those negotiations are more likely than ever to get a little heated.
You can expect lots of competition, cutthroat tactics, all-cash offers, and bidding wars. Don’t you want a savvy and professional negotiator on your side to seal the best deal for you?
And it’s not just about how much money you end up spending or netting. A Real Estate Agent will help draw up a purchase agreement that allows enough time for inspections, contingencies, and anything else that’s crucial to your particular needs.
4. They’re connected to everyone
Real Estate Agents might not know everything, but they make it their mission to know just about everyone who can possibly help in the process of buying or selling a home. Mortgage brokers, real estate attorneys, home inspectors, home stagers, interior designers—the list goes on—and they’re all in your Real Estate Agent’s network. Use them.
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5. They’re your sage parent/data analyst/therapist—all rolled into one
The thing about Real Estate Agents: They wear a lot of different hats. Sure, they’re salespeople, but they actually do a whole heck of a lot to earn their commission. They’re constantly driving around, checking out listings for you. They spend their own money on marketing your home (if you’re selling). They’re researching comps to make sure you’re getting the best deal.
And, of course, they’re working for you at nearly all hours of the day and night—whether you need more info on a home or just someone to talk to in order to feel at ease with the offer you just put in. This is the biggest financial (and possibly emotional) decision of your life, and guiding you through it isn’t a responsibility Real Estate Agents take lightly.
Did you try the DIY route and the go Agent? Tell us about your experience. Sound of on the Patrick Parker Realty Facebook Page, our Twitter or LinkedIn Feeds or on our Instagram account. And don’t forget to subscribe to our monthly HOME ADVICE email newsletter for articles like this delivered straight to your inbox. You may unsubscribe at any time.
27 New Year’s Resolutions for Homeowners
Heading into a new year, we feel an obligation to make resolutions.
Personal resolutions can be motivating, exciting or just plain silly. This year I will… eat healthier, save money, run the Long Branch 5K, learn to surf in Monmouth Beach, do the Asbury Park Polar Bear Plunge.
As a homeowner, resolutions can also be empowering. Some are mission-critical for a solid financial year, others maybe fall in the wish list.
Need ideas? This list should get you started:
1. “Lose weight.”
Losing the weight of excess possessions save time (you know, like looking everywhere for your shoes in a cluttered bedroom), money (where did I put that bill?) and your mind (psychologists agree that clutter and stress go hand-in-hand).
2. Get organized.
The logical next step to decluttering is to find a logical place for what’s left.
Need inspiration? Walk through a home storage store or get yourself on Pinterest for some seriously clever organizational ideas.
3. Save energy.
Saving energy is good for the planet and it’s also great for your pocketbook. EnergyStar appliances are just the start.
• LED bulbs are much more efficient and now come in warmer tones and dimmable options for a more homey feel. Use a lighting calculator to measure energy and cost savings.
• Water heaters expend energy storing hot water. The Department of Energy says tankless water heaters are 8 percent to 34 percent more energy efficient than standard water heaters, depending on usage.
• Going solar no longer has to be ugly roof additions. Have you seen the new Tesla solar tiles?
Saving on energy can even have some great tax implications! Check out our article on the best energy enhancements for optimal tax write-offs.
4. Build green.
Going green is more than energy usage. It’s also about sustainability and healthful choices in finishes.
• Change out laminates and carpets for natural hard surfaces.
• Remove asbestos (with a professional).
• Use sustainable and recycled materials like bamboo, cork and Vetrazzo.
• Need to paint? Go with a low- or no-VOC non-toxic paint.
• If you’re texturizing a wall, try Earth plaster instead of gypsum.
5. Get healthy.
Create a workout space, so there’s no excuse when the weather turns. If you’re looking to move, check out neighborhoods with nearby trails, fitness centers and amenities.
6. Just fix it.
You’ve walked by that broken switch plate how many times?
Go through the house like a home inspector and create a checklist of repairs that need to be done. When it comes time to sell and appraise your house, you’ll be glad these were done.
7. Set yourself (debt) free.
Those who carry debt and struggle to pay it off are twice as likely to develop mental health problems, according to a study by John Gathergood of the University of Nottingham.
Paying off debt sets you free in so many ways, plus it’s great for your credit score. Think of all the things you could do in the future with the money you save on payments and interest (maybe even pay off your home early — see #20).
8. Remodel right.
Is it time to update a dated bathroom? Replace the garage door?
If you’re wondering what improvements will lead to a better return on investment when you sell, check out our article on which home renovations offer the greatest return on investment. Our Agent’s can also tell you what improvements are best for your neighborhood and house type.
9. Maximize your mortgage.
A recent Zillow study showed that Americans spent more time researching a car purchase than their home loan. Since the Fed announced that it’s planning three rate hikes in 2017, it’s wise to refi sooner than later.
Have you reached the loan-to-value needed to remove your mortgage insurance? Make an appointment to talk to a lender for a mortgage checkup.
10. Learn to DIY.
The more minor fixes (and if you’re really skilled, major fixes) you can do yourself, the more money you save.
11. Plan to maintain.
Create a maintenance calendar to remember those routine maintenance tasks, such as replacing furnace air filters, changing smoke detector batteries and winterizing sprinklers.
Whether it’s a paper calendar or your iCal on your phone, plan out scheduled maintenance so you won’t hear that relentless beeping of the smoke detector in the middle of the night — or run out of propane before the steaks are done (tragedy!).
Is this the year to buy a rental property? Or a vacation home?
This will really require you to understand your financial situation, so talk to your financial advisor and an Agent who understands investment properties.
13. Take an inventory.
That new flat screen television and 360 viewer you got for Christmas are going to need coverage. If disaster happens, do you really know what’s in your house?
14. Do the double check.
The Insurance Information Institute says a standard policy covers the structure and possessions against fire, hurricanes, wind, hail, lightning, theft and vandalism.
Most other disasters are add-ons. Talk to your insurance agent and make sure you have not only enough property coverage but also enough liability coverage.
15. Get a “CLUE”.
Your homeowners’ insurance premiums are dependent on a number of factors, such as credit score and the Comprehensive Loss Underwriting Exchange (CLUE) report of claim history.
You can request a free report from LexisNexis.
16. Make your neighborhood better.
Get involved with your local HOA, neighborhood watch or community events. The first step to a better neighborhood is your personal involvement.
For news, information about issues that effect your community and to keep in touch with your neighbors; you can also join the Community Facebook Pages and Group we maintain. Like the Bradley Beach, New Jersey Facebook Page or join the Groups for Bradley Beach, NJ Residents, Ocean Township, NJ Residents or our Jersey Shore and Monmouth County Lifestyle Group.
17. Save water.
Dry climate areas struggle for water in dense population centers. Watering restrictions can turn your grass brown and overuse can cost you with tiered billing. Even the New Jersey climates experience seasonal droughts or below average reservoir levels.
Xeriscape what you can outside and look for indoor appliances that use less water. If you live in a state with conservation legislation, get those regulators on your shower heads and hoses.
18. Get dirty.
Landscaping is essential to curb appeal. So this year, really plan to keep up with it or think about going to a more easy-care style.
Out back, consider a garden to save money on better produce. Get a composter for garden and food waste.
19. Plan for emergencies.
Natural disasters and social disruptions are unwanted, but they happen. To be ready, you actually need to prepare!
Do you have a family evacuation plan? Emergency supplies? Go to ready.gov for a ton of ideas on prevention and disaster preparedness.
20. Get smart.
Smart home features make your home more efficient and easy to use, even remotely. Look for these to be the “wow” factor that could make your house stand out. Who doesn’t love Alexa-enabled appliances?
21. Make extra mortgage payments.
You can take thousands of dollars and years off your mortgage by putting an extra amount towards the principal each month. For a $400,000 at 4.25 percent interest with 25 of its 30 years left, you could save $21,107 and take two years off by paying an extra $100 per month.
RELATED: How To Pay Your Mortgage Off Early
What could you save? Try Bankrate’s handy extra payment calculator.
22. Pay off your second mortgage.
Whether it’s a one- or multiple-year plan, it won’t happen if you don’t budget for it.
23. Scrutinize your property tax.
If you live in an area where your home value has dropped since the last assessment, you need to really look at that bill.
Is the assessment correct? Is it going up faster than the sale prices of comparable homes? You can appeal via your local appraisal review board.
24. Optimize your withholding.
If you’re a first-time homeowner, you’re going to enjoy those new deductions. Be sure to talk to your tax advisor about adjusting your paycheck withholding accordingly (unless you like Uncle Sam making money off your income instead of you!).
25. Pay bills, especially your mortgage, on time.
It goes a long way to improving your credit. “The longer bills are paid on time, the higher the FICO Score should rise,” says myFICO. “That’s because as recent “good payment” patterns appear on a credit report, the impact of past credit problems on a FICO Score fade.”
26. Cook dinner.
You know that fabulous kitchen you had to have when you bought your home? Use it!
The USDA’s 2016-17 Food Price Outlook shows the price of groceries decreased in 2016, with a less than 1.5 percent increase in 2017, but restaurants will continue to climb beyond 2016’s 2.4 percent increase.
You’ll also eat healthier at home by controlling what goes into your body. If you own a home with a less-than-stellar kitchen, cooking will probably motivate you to make some appliance and feature upgrades that will pay off when you sell.
27. Get hip.
Dated cabinets and 1980s fixtures don’t help your resale value. Evaluate your style and start looking at upcoming (not past) trends.
Although we’re still in a “sellers’ market” that will likely change in the next few years. A modern home (unless it’s a historic property) is simply more appealing and makes the buyer feel like it’s move-in ready.
Your house is your biggest asset. While not all of these resolutions are essential, aim to start out by focusing on your mortgage and personal finances. What do you have to add? Where might you start? Sound off on the Patrick Parker Realty Facebook Page, on our Twitter or LinkedIn feeds. And don’t forget to sign up for our monthly HOME ADVICE eNewsletter for articles like this one delivered straight to your inbox.
Here’s to a healthier, happier and successful New Year!
5 Things You Need To Be Pre-Approved For A Mortgage
While idly shopping for a home may be pleasant, serious homebuyers need to start the process in a lender’s office, not an open house. Potential buyers benefit in several ways by consulting with a lender and obtaining a pre-approval letter. First, they have an opportunity to discuss loan options and budgeting with the lender. Second, the lender will check on their credit and alert the would-be buyers to any problems.
Third, the buyers learn the maximum they can borrow and therefore have an idea of their price range. However, all buyers should be careful to estimate their own comfort level with a housing payment rather than immediately aiming for the top of their spending ability. Lastly, home sellers expect all buyers to have a pre-approval letter and are more willing to negotiate with people who have proof that they can obtain financing.
Pre-qualification Vs. Pre-approval
A mortgage pre-qualification can be useful as an estimate of how much you can afford to spend on your home, but a pre-approval is much more valuable because this means the lender has actually checked your credit and verified your documentation to approve a specific loan amount (usually for a particular time period such as 90 days). Final loan approval occurs when you have an appraisal done and the loan is applied to a particular property. (Learn more by reading Pre-Qualified vs. Pre-Approved – What’s The Difference?)
1. Proof of Income
“No verification” or “no documentation” loans are a thing of the past, so all borrowers need to be prepared with W-2 statements from the past two years, recent pay stubs that show income as well as year-to-date income, proof of any additional income such as alimony or bonuses and your two most recent years of tax returns.
2. Proof of Assets
You will need to present bank statements and investment account statements to prove that you have funds for the down payment and closing costs, as well as cash reserves. An FHA loan requires a down payment of as low as 3.5% of the cost of the home, while conventional home loans require 10 to 20%, depending on the loan program. If you receive money from a friend or relative to assist with the down payment, you will need a gift letter to prove that this is not a loan.
TUTORIAL: Mortgage Glossary
3. Good Credit
Most lenders today reserve the lowest interest rates for customers with a credit score of 740 or above. Below that, borrowers may have to pay a little more in interest or pay additional discount points to lower the rate. FHA loan guidelines have tightened in recent months, too, so that borrowers with a credit score below 580 are required to make a larger down payment. Most lenders require a credit score of 620 or above in order to approve an FHA loan. Lenders will often work with borrowers with a low or moderately low credit score and suggest ways they can improve their score. (For more on credit scores, see Can You Hit A Perfect Credit Score?)
4. Employment Verification
Your lender will not only want to see your pay stubs, but is also likely to call your employer to verify that you are still employed and to check on your salary. If you have recently changed jobs, a lender may want to contact your previous employer. Lenders today want to make sure they are loaning only to borrowers with a stable employment. Self-employed borrowers will need to provide significant additional paperwork concerning their business and income.
Your lender will need to copy your driver’s license and will need your Social Security number and your signature allowing the lender to pull a credit report. Be prepared at the pre-approval session and later to provide (as quickly as possible) any additional paperwork requested by the lender. The more cooperative you are, the smoother the mortgage process will be.
The Bottom Line
Consulting with a lender before you start the home buying process can save a lot of heartache later, so gather your paperwork or print some recent statements off your online bank accounts before your pre-approval appointment and before you begin house hunting.
Did you recently buy a home after being pre-approved? How did this make the homebuying process easier? Did you buy only to be approved later? What challenges did you meet? Sound off on the Patrick Parker Realty Facebook Page, Twitter or LinkedIn feeds and don’t forget to subscribe to Patrick Parker Realty’s Jersey Shore HOME ADVICE™ monthly email newsletter for articles like this delivered straight to your inbox.
Sealing The Deal: Making The Offer And Closing
So you’ve found a home and want it to be yours. Here’s what to do next.
If you’re ready to make an offer on a property, you’ve most likely done a lot of hard work to get to this point: You found a New Jersey real estate agent, whipped your credit into shape, chose a mortgage lender, determined your down payment, decided what type of loan you want, and (finally!) found your dream home. Now the challenge is writing a winning offer, fulfilling necessary contingencies, and getting to the closing table, where you’ll receive the keys to your new digs.
You’ll need to take a calculated approach if you want to ensure you’re getting the best deal. Follow these crucial steps to make an offer and get to the closing table:
1. Craft a compelling offer
Inventory is low in many metros. The number of starter homes on the market has dropped by 43.6% since 2012 — and first-time homebuyers today shell out 5.6% more of their income toward a home purchase than they did four years ago. This means you may have to go up against a number of other buyers when you make an offer.
You may even have to offer more than a home’s listing price to persuade a seller to accept; your real estate agent will help you come up with a compelling offer. Also, especially in a competitive market, it’s important to know just how high you’re willing to go in the event the seller asks you for your best and final offer, and then let your agent step in to handle the negotiating.
If you get into a bidding war — and can’t increase your purchase price — try pulling on the seller’s heartstrings by writing a personalized offer letter. Say what you love about the property (“Your home is around the corner from our son’s school.”) and explain why you love their home (“We love the beautiful hardwood floors you’ve taken such great care of.”).
2. Get your contingencies going ASAP
Once a seller has accepted your offer, you’re off to the races! Now it’s time to complete your contingencies, which are the conditions put in the contract that must be met for the contract to be binding.
Here are some of the most common contingencies you’re likely to encounter during this process:
• Financing contingency. This clause in the purchase agreement states that your offer on the property is contingent on being able to secure financing. The main goal of a financing contingency is to ensure that if you can’t obtain a loan, you’ll be able to get your earnest money deposit back. The clause specifies that you have a certain number of days within which to get your mortgage approved by your lender. Many lenders recommend homebuyers allow for up to 14 days. During this time, your loan will go through underwriting and — assuming everything checks out — you’ll receive a firm written commitment from your lender, which you then deliver to the seller to lift the financing contingency. This contingency is less common in hot markets; sellers are more likely to choose a buyer who has been pre-approved for a mortgage.
• Appraisal contingency. This clause states that in order for you to qualify for a loan, the property must be assessed by a third-party appraiser and found to be valued at (or above) the agreed-upon purchase price. Your lender will approve the loan only up to the appraised value. So if your agreed loan amount is $300,000, but the house appraises at $290,000, your lender is unlikely to agree to finance the sale. You and the seller will need to negotiate to determine whether one (or both) of you will cover the remaining $10,000 — or whatever the remaining cost is. If the appraisal is lower than your offer, you do have options. Sometimes everyone has to compromise to get to the closing table: the seller might have to come down on price; a buyer might pay more money in closing costs; or both real estate agents might need to take a lower commission. Alternatively, if you think the appraisal was inaccurate, you could get a second appraisal and then have your lender compare the two before deciding what loan amount you can receive. You also have the option to walk away from the purchase; this might be your best move if you feel uncomfortable paying more than what you initially offered for the property.
• Home inspection contingency. There’s more to a house than what first meets the eye. A home inspection contingency — strongly recommended by real estate agents even when you’re buying a brand-new home — states that you will get a licensed home inspector to check the property within a specified period after you sign the purchase agreement (typically seven days). Once the inspection is complete, you’re allowed to request that the seller make repairs; in many states, you’re required to give the seller a copy of the report. It’s up to you to decide what repairs you request. The seller then has the option to make the repairs or counter. If an agreement can’t be reached, the buyer can back out of the deal with their earnest money deposit intact. A home inspection contingency can give you peace of mind, since you learn exactly what condition the home is in before you decide whether to go through with the purchase. If your soon-to-be basement is covered in black mold, for instance, that may not be a home you want to purchase, with or without mold remediation.
• Lead-based paint inspection contingency. This contingency is typically used when purchasing a home built before 1978. Only certified inspectors can perform lead-based paint inspections. (Your general home inspector may already be certified.) You’re not required to do a lead-based paint inspection, but the U.S. Environmental Protection Agency recommends getting one if young children will live in the home.
• HOA documents. This isn’t a contingency per se, since you don’t include it in the purchase agreement, but it’s a legal right given to all homebuyers who purchase a home governed by a homeowners’ association. The seller must provide you with what’s referred to as the Declaration of Covenants, Conditions, and Restrictions, or CC&Rs: legal language for the association’s rules and regulations. These documents include the association’s bylaws, board minutes, record of reserve funds, master insurance policy, annual budget, a history of special assessments, and information on fineable infractions (e.g., some associations penalize residents for walking a dog without a leash).
Depending on the age of the community, you could receive hundreds of pages. As a homebuyer, you’re entitled to a period to review the documents once you receive them from the seller. (The number of days allotted varies by state.) If you decide to back out of the deal by citing that you have an issue with the HOA documents, you must notify the seller during the specified review period.
3. Assemble your closing team
Once the seller has accepted your offer, you’ll need to choose a title company to oversee certain parts of the transaction. The title company is responsible for verifying that the title to the property is legitimate, which ensures that you become the rightful owner of the home. A lot of the work that goes into doing the title search happens behind the scenes: checking that there are no outstanding liens, judgments, or unpaid taxes on the property, nor any easements, restrictions, or leases that affect ownership of the home. The title company acts as a liaison between both parties; it also typically oversees settlement.
4. Keep your finances in check
Until you reach the closing table, you need to make sure that your financial information remains the same, specifically your credit report and your bank accounts. Buying a car before you get to closing, for example, could damage your credit score — and since your loan still needs to go through underwriting, a lower score may negatively affect your mortgage (e.g., if your score drops from 760 to 690, you could wind up paying a higher interest rate or losing your mortgage entirely). A shopping spree for new furniture is also a bad idea — wait until you get the keys!
Moreover, the underwriter needs to be able to track where the down payment is coming from to approve the loan, so avoid making any large deposits or transfers to your bank accounts. If you need to move money, tell your lender what you’re doing and why.
5. What you need to bring to closing
It’s settlement day! But before you’re handed the keys to your new home, you need to go through closing. The morning of your settlement, you’ll go with your real estate agent to do a final walk-through of the house. Pay attention to any repair work the seller had done. (The seller should have shared receipts from contractors to show that licensed professionals completed the repairs.)
Assuming the home is in good shape, you’ll make your way to closing, where you’ll meet with a representative from the title company, your real estate agent, and your loan officer for settlement. (Caveat: Your lender isn’t required to be at closing, but you probably want your loan officer there in case of any last-minute issues with the loan.) The seller may or may not join you at the closing table; if they have already moved out of the area, for example, they will often sign their documents remotely.
By law, the title company must provide you with a copy of your closing documents three days in advance of settlement. Take time to review these so there are no surprises at the last minute.
The day of settlement, bring:
• Photo ID
• Homeowners insurance certificate
• A cashier’s check or proof of wire transfer for the exact amount of money you need to close
• Your co-signer (if applicable)
• Your checkbook in case there are any last-minute changes. (You still have one of those, right?)
6. Prepare for the future
Now that you’re a happy homeowner, you’ve got responsibilities: maintenance, repairs, utilities, and more (including that mortgage payment)! If you used a local lender, your mortgage will probably be sold to a larger financial institution. This won’t affect your monthly payment — it simply means you’ll be writing checks to a different company. (If you want to get technical: you’re now paying off your loan to a mortgage servicer rather than a mortgage lender.)
Traditionally, homeowners make mortgage payments on a monthly basis. However, many mortgage companies give you the option to use a biweekly payment plan. If you choose to do so, know that biweekly installments don’t necessarily save you money in interest. In most cases, the mortgage company applies the money to your loan only when it receives your full monthly payment amount, so even though you’re making payments every two weeks, you’re still effectively paying your mortgage only once per month.
Congratulations on your new home!
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Jersey Shore Home Buyers:
Beat the Competition with a Pre-Approved Loan
The Monmouth and Ocean County New Jersey housing market is red hot. This can mean you’ll need to compete with other buyers for a home.
But with a pre-approved loan from a lender, you’ll give yourself a head-start in the race for a home you love.
Pre-approval also comes in handy when you’re dipping your toe into the market. Even in a soft market, you’ll have to compete with other buyers if you find a home in excellent condition with an attractive price tag.
What is a pre-approved loan?
Every potential homebuyer should start the process of looking for a home with a visit to a reputable mortgage lender. While a lender can give you a pre-qualification for a home loan based on your credit score and your stated income and assets, a home seller wants to see you’re completely pre-approved for a loan.
To find a lender who will help land your dream home, try a pre-approved loan service like the one featured on the realtor.com® individual listings page. By checking the box that says, “I want to get pre-approved by a lender” you’ll be connected with up to three lenders right away.
How a pre-approved loan can help you compete
If you’re competing with other buyers, a mortgage pre-approval makes your offer stronger. While many buyers today have a pre-approval handy, you can use yours to win the bidding war by providing a financial statement along with a pre-approval letter from your lender with your offer.
If your pre-approval letter is for an amount above the asking price for the home, this will give the sellers confidence in your ability to easily finalize the loan. You also can ask your lender to call the listing agent directly to emphasize your ability to close the deal and to discuss how quickly the contract can go to settlement.
Most real estate contracts include a contingency: the offer depends on the buyer obtaining financing. If you have a strong pre-approval letter and feel your lender is dependable, you can remove the financing contingency or shorten the contingency term.
Sellers are happy to see an offer without a financing contingency, because it proves the buyer has confidence the loan will close on time. However, waiving this contingency can be risky because if your financing doesn’t come through you could lose your earnest money deposit and even run the risk of being sued by the sellers.
A shorter contingency might be safer and still garner you the attention and confidence of the sellers in a competitive situation.
What benefits did you see from getting pre-approved? Post your stories on the Patrick Parker Realty Facebook Page, Twitter Feed or on LinkedIn. Plus don’t forget to subscribe to the monthly Patrick Parker Realty email newsletter for articles like this one delivered straight to your inbox.
4 Credit Secrets for Buying a Home
In a report that was done by the Federal Trade Commission in 2015 they found that 1 out of every 4 consumers had errors on their credit report.
That being stated, means that it’s possible that you could possibly fall under that scenario. There are many things you can do to improve your credit on your own and should consider before buying a home. Let’s dive into four ideal credit secrets that will help rebuild your credit and improve your score.
Pay off collections first, inquiries second.
While it’s unattested of people living in South Florida, living on credit at one point or another is the norm. We’re talking about using credit cards for everyday living expenses, like rent or groceries. If you’ve fallen behind these are the first debts to focus on.
According to the folks at Experian, charge card debt is about 50% of most people’s issues when it comes to scarring or less-than-perfect credit.
By paying any of the items that went to collections first, then focusing on your hard inquiries second you’ll see an improvement in your score almost right away.
By the way, if you check your score once in the morning and then once at night it will most likely be different. The debt fairies are constantly changing and reporting, making it very hard to stay consistent.
The good news is, most of the time they are off by a few digits. Hard inquiries are generally coming from lenders for items like mortgages, car loans and more credit cards.
They can stay on your report for a while, and there are some cases you may have to ask to have them removed.
Be consistent with all 3 of the bureaus
Each score is synonymous to the other two bureaus. Don’t forget to be consistent with all three of the credit bureaus (TransUnion, Experian and Equifax).
Just because you ask for an item to be changed or removed, doesn’t mean that all three get the message.
By pursuing your due diligence, and following up with all three you are ensuring that they are undeviating from one another. Peace of mind will be beneficial by having consistency in place.
RELATED: What Affects Your Credit Score?
Check for errors and discrepancies
You’d be surprised to learn how many people fail to do this. A man who’s a Senior, Junior, the third, etc., needs to make sure his credit is being reported and not a relative. This is a common mistake that does happen.
Of course, everyone wants to believe bureaus are safe from ‘human error’, but this is just not the case. It’s your credit and your responsibility to know what’s on it.
It’s also necessary to stay engaged in being accurate. The last thing you want is to run into an incubus during an important purchase, such as buying a home, so be sure to check this often.
RELATED: 9 Fast Fixes For Your Credit Score
By law, you are entitled to one free credit report a year. Contact a loan officer for more details on how this works.
Working hard to manage your credit is important. Healthy credit makes you have the security necessary knowing you’re covered with issues like emergencies or better yet, a vacation. It’s also vital when getting a mortgage.
The other credit secret that we want you to know is that following up is HUGE when it comes to buying a home. Once you start to pay off your debts, you’ll want to follow up with the creditors.
Your report, needs to be consistent with all three bureaus and if you find errors, keep following up with the appropriate party until they’re gone.
FREE DOWNLOAD: The Ultimate Home Buying Checklist
Are you a “credit master warrior”? Share your stories on the Patrick Parker Realty Facebook Page, Twitter Feed or on LinkedIn. Plus don’t forget to subscribe to the monthly Patrick Parker Realty email newsletter for articles like this one delivered straight to your inbox.
6 Mortgage Terms to Know
Buying a house is an exciting and busy time. Once you’re pre-approved for a mortgage, you can start looking at homes in your price range. Whether you’re a first-time homebuyer or have been there before, it’s easy to feel overwhelmed. Not only will you have to find a home inspector and a real estate lawyer, you’ll also need to choose a mortgage lender. A mortgage represents a serious amount of money, so it’s important to fully understand it.
Before diving into these key mortgage terms we think it is important to briefly describe the difference between a Mortgage Broker and a Mortgage Lender. A Mortgage Broker is an intermediary who brings mortgage borrowers and mortgage lenders together, but does not use its own funds to originate mortgages. A mortgage broker gathers paperwork from a borrower, and passes that paperwork along to a mortgage lender for underwriting and approval.
Here are 6 mortgage terms to know as a homebuyer:
1. Amortization Period
Do you aspire to be mortgage-free? Well, you’ll want to know your amortization period. Your amortization period is the period of time over which your mortgage will be fully paid off. Generally, a standard amortization period on high-ratio mortgages (a down payment between 5% and 19.99%) is 25 years. On conventional mortgages (a down payment 20% or greater), 30 year amortization periods are still available. By shortening your amortization period you’ll pay less interest over the life of your mortgage, but your mortgage payments will be higher. A few years ago homeowners could choose an amortization period as long as 40 years, but that has recently been reduced by the federal government in an effort to avoid a housing bubble.
Even though you may of have purchased your home for $550,000, it doesn’t necessarily mean your lender agrees with its value. Most mortgage lenders will require an appraisal to determine your property’s value. You shouldn’t confuse market value and appraised value, as they aren’t always the same. It’s important to not get caught up in a bidding war and pay a lot more than the appraisal value, as you’ll have to come up with the extra money if the appraisal comes in a lot less. Homebuyers cover the cost of appraisals, although some lenders may be willing to foot the bill.
RELATED: Market Value vs. Appraised Value
3. Home Insurance
Protects your home in most cases from fire and other named perils. Insurance is paid by monthly premiums. Most lenders require you’re fully insured before they’ll approve your mortgage.
Lenders don’t simply offer you a mortgage out of the goodness of their heart. The interest on a loan like a mortgage covers the cost of borrowing. When you start paying your mortgage, you’ll notice your interest payments are quite high, but as you get closer to paying it off your interest payments will get smaller. That’s because as you pay down your principal, your interest payments become less and less.
Nobody wants to pay only the interest on their mortgage. A portion of each mortgage payments goes towards principal and interest. Most closed mortgages come with prepayments privileges. When you make lump sum payments, it’s applied against principal. This can help you shave years off your mortgage and save thousands in interest.
RELATED: Will I Qualify For A Mortgage?
Not to be confused with the amortization period, a mortgage term is the length of your current mortgage agreement. Although a mortgage term can be as short as six months or as long as 10 years, most homebuyers choose the stability of a five-year fixed rate mortgage term. Once your mortgage term expires, you can repay your balance in full or renew your mortgage with the same or another mortgage lender.
Best Practices for Paying Off Your Mortgage
It’s simple to pay off a mortgage earlier. But should you? It’s a complicated question.
Let’s discuss why…
For many people, their mortgage carries an interest rate that’s lower than they could average in retirement or investment accounts. And that means the “extra” money you could throw at a mortgage might actually earn you a lot more elsewhere.
With a low mortgage interest rate, homeowners are “so much better off putting that money in a Roth IRA,” says Jill Gianola, CFP professional, author of “The Young Couple’s Guide to Growing Rich Together.”
Other financial pros agree. And if you have extra money and an employer that offers matching retirement contributions, that option might give you a higher return for your money than paying off a low-rate mortgage, says Eric Tyson, author of “Personal Finance for Dummies.”
Then there’s the college aid factor. If you’re applying for need-based aid for your kids, that home equity could count against you with some colleges, he says, because some institutions view equity as money in the bank.
If, after those caveats, you want to pay off your mortgage early, here are 4 ways to make it happen:
1. Pay an extra 1/12th every month
Divide your monthly principal and interest by 12 and add that amount to your monthly payment. End result: 13 payments a year.
IMPORTANT NOTE: Before you make anything beyond the regular payment, phone your mortgage servicer and find out exactly what you need to do so that your extra payments will be correctly applied to your loan.
Let them know you want to pay “more aggressively,” and ask the best ways to do that.
Some servicers may require a note with the extra money or directions on the notation line of the check.
And to confirm, if you’re putting extra money toward your loan, always check the next statement to make sure it’s been properly applied.
2. Refinance with a shorter-term mortgage
Want to make sure your mortgage is paid in 15 years? Refinance to a 15-year mortgage.
15-year mortgages often carry interest rates a quarter of a percentage point to three-quarters of a percentage point lower than their 30-year counterparts.
But this option is not quick or free. You must qualify for a new mortgage – which means paperwork, a credit check, and, likely, a home appraisal. Plus closing costs.
So do your research about refinance costs before jumping in… even with a lower interest rate, that quicker payoff means higher monthly payments. And this method is a lot less flexible. If you decide that you don’t have the extra money one month to put toward the mortgage, you’re locked in anyway.
Ultimately, unless the new interest rate is lower than the old rate, there’s no point in refinancing. Without a lower rate, you’ll get all the same benefits (and none of the extra costs) by just increasing your payment a sufficient amount.
3. Make an extra mortgage payment every year
12 months, 13 payments. There are a couple of ways to pull off this tactic. You can save up throughout the year and make an extra payment. Or, for those who get paid biweekly, harness part or all of those “extra” or “third” checks.
Get a bonus? A tax refund? An unexpected windfall? However it ends up in your hands, you can funnel some or all of your newfound money toward your mortgage.
The upside: You’re paying extra only when you’re flush. And those additional payments toward the principal will cut the total interest on your loan.
The downside: It’s irregular, so it’s hard to predict the mortgage payoff date. If you throw too much at the mortgage, you won’t have money for other needs.
So yes, whether you should pay off your mortgage early it’s a complicated question. But it does not mean without the proper research you can’t come to an answer.
Have you used any of the above methods to start paying your mortgage off early? What is working for you?
And don’t forget to subscribe to the monthly Patrick Parker Realty email newsletter for articles like these delivered straight to your inbox!
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