You are not a risk-taker and prefer the stability of knowing how much your payment will be each month.
Since most home loans are for a period of 30 years, if you want a
payment you can count on for that long of a period of time, a fixed
rate mortgage may be what works best for you. Once your loan amount and
interest rate are calculated and locked in, a fixed rate mortgage will
guarantee that you will have the same payment over the life of the
loan. Making extra payments to principal will allow you to pay your
loan off sooner.
This may not always be the best choice, however. If interest rates
are very high at the time you take out your loan, with a fixed rate
mortgage you'll be stuck with that high interest for the life of the
loan (unless you choose to refinance). Conversely, if interest rates
are very low, you'll come out the winner with interest rates that will
stay low no matter how high interest rates go in the future.
The following are the advantages and disadvantages of the varying lengths and terms of fixed-rate mortgages:
15-Year Fixed-Rate:
- Pay off the loan in half the time of a 30-year loan.
- Equity builds up more quickly than in a 30-year loan.
- Payments are higher (which may be a problem if you lose your job or become unable to work).
20-Year Fixed-Rate:
- Pay off the loan in 2/3 the time of a 30-year loan.
- The overall interest paid is considerably less than for a 30-year loan.
30-Year Fixed-Rate:
- The most common choice, especially for first-time homebuyers, as it's the easiest of the fixed-rate loans to qualify for.
- Monthly payments are lower than for 15-year and 20-year loans. This can prove especially helpful if you do not have a lot of
"padding" between the amount you can afford to spend and the monthly payment for your desired property.
- More desirable if you plan on staying in the same home for years, since equity builds more slowly than for shorter-term loans.
- For income tax purposes, this term provides the maximum interest deduction.
Adjustable-Rate Mortgages (ARMs)
If you are more comfortable in taking a risk with your money or if
interest rates are very high at the time you take out your loan, an
adjustable-rate
mortgage (ARM) may be the solution for you. You might also choose this
type of loan if your planned ownership of the property is short-term or
if you expect
your income to increase to cover any potential rise in the interest
rate.
Generally, the interest rate when you take out your loan will be
lower than a fixed-rate mortgage. Please note that this is true
initially, not
necessarily long-term.
Since an ARM rate rises and falls depending on the prevailing
interest rate, your mortgage payment will rise and fall accordingly. If
your income is not
sufficient to cover the highest possible payments, then this option is
not for you. On the positive side, the lower initial payments will
allow you to
qualify for a larger loan than if you choose a fixed-rate. The downside
is that your payments will increase if/when the rates go up.
Typically, ARM interest rates are tied to a specific financial index
(such as Certificate of Deposit index, Treasury or T-Bill rate, Cost of
Funds-Indexed Arms or COFi, or LIBOR [London Interbank Offered Rate])
and your payment will be based on the index your lender uses plus a
margin, generally
of two to three points. Get the formula used by your lender in writing
and make sure you understand what it means.
Fortunately, the amount an ARM can increase is limited. There are
"caps" on how much your lender can increase your rate, both for a
period of one year
and for the life of the loan. Plan ahead, and have your lender
calculate what the maximum payment would be if your rate went to the
highest amount allowed
by the cap for your particular mortgage. If you are not confident
you'll be able to pay that amount on a monthly basis, perhaps you
should reconsider this
type of loan.
Convertible ARMs
If neither the fixed-rate or the adjustable-rate mortgage seems like
the best option, perhaps the convertible ARM will be right for you.
This alternative
combines the initial advantage of an ARM with a fixed rate after a
predetermined number of years. Obviously, this type of mortgage has
more advantages when
the initial interest rate is low and the future rate is not guaranteed.
Government Loans
Another mortgage option available to some people is a government
loan, providing that you meet the qualifications for these loans.
- VA Loans: Veterans may qualify for a loan from the Veterans Administration. There is a limit on the amount you can borrow, so this
option works best for those buying a lower priced home.
- FHA Loans: The Federal Housing Association offers loans to lower-income Americans. Look for the phrase "FHA approved"
when looking at ads for homes.
copyright © Agent Image 2007
| Back to Top |
Naturally, you want to get the best deal for the least amount of money. This holds true for mortgage rates as well.
A lower interest rate means
a lower monthly mortgage payment, which can save you money in the long
run. Also, it is easier to qualify for a lower payment
than a higher one.
You basically have two
routes to finding the best rate. The first is to do all the research on
your own. The second is to use a mortgage broker.
Do-It-Yourself
With the advent of the
Internet, much of this information is readily available online. Once
you have educated yourself sufficiently about real estate
loans, all it takes is the time and energy to sift through online
resources to find the information you need.
Rates change quickly. That
great rate you find today might not be there tomorrow. Once you find
the rate you are looking for, submit a loan application
and lock in that rate.
Some sources for interest rates on the Internet include:
Bank Rate Monitor (http://www.bankrate.com)
E-Loan (http://www.eloan.com)
When comparing loans, make sure that you're comparing loans of the
same type. For example, you find that "Loan A" for a 30-year loan has a
much lower
interest rate than "Loan B" (also for 30 years). Upon further
inspection, you find that "Loan A" is technically an adjustable rate
mortgage. Its payment is
based on a 30-year amortization, but becomes due through either payment
or refinancing at the end of 5 or 7 years. These are frequently
referred to as a
5-year or 7-year fixed-rate mortgage. While both said "30-year", they
are not the same type of loan.
Ask the lender for a statement detailing all fees associated with
the loan. Factors such as "points" (loan fee), interest rate and
"garbage fees" (extra
fees which some lenders charge) can vary greatly from one lender to
another.
Mortgage Broker
If you do not have the time or experience to "do it yourself," look
for a qualified mortgage broker that can assist in finding the right
mortgage for
you. Ask friends and associates who have refinanced or purchased
recently if they have a broker they can recommend. You'll want to find
a broker who is
energetic, flexible and knowledgeable about finance and loans and
someone who has your best interests in mind.
copyright © Agent Image 2007
| Back to Top |
Congratulations, you are on
your way to owning your very own home! Follow these suggestions (and
your realtor's advice) so that escrow and settlement
with go as smooth as possible.
You will be asked for a down
payment on the home you are purchasing. You can choose to put down as
much or as little as you want (depending on your
mortgage), but remember, the more you put down toward the total price
of your home, the less time it will take you to pay off and the less
your mortgage
payments will be every month.
During this period of
purchasing your home, you are going to need an escrow or settlement
company to act as an independent third party so that you know
when and who to give your money to get the deed to your new home. The
escrow or settlement company will hold your deposit and coordinate much
of the
activity that goes on during the escrow period. This deposit check may
also be held by an attorney or in the broker's trust account. Make sure
that there
are sufficient funds in your account to cover this check.
The deposit check will be
cashed. Assuming the sale goes through, this money will be applied to
the purchase price of the home. If for any reason the
sale is not consummated, you may be entitled to receive all of your
deposit back, less standard cancellation fees. In certain instances,
the seller may be
able to retain this money as liquidated damages. Prior to executing a
purchase contract, it would be wise to speak with your counsel
regarding whether or
not it is your best interest to have a liquidated damages clause as
part of the contract.
The period that you are "in
escrow" is often 30 days, but may be longer or shorter. During this
time, each item specified in the contract must be
completed satisfactorily. By the time you have opened escrow, you have
come to an agreement with the seller on the closing date and the
contingencies. Each
contract is different, but most include the following:
- Inspection contingency: this should be completed as soon as possible after the contract to purchase is signed as unsatisfactory
results of the inspection may mean that you will want to cancel the contract.
- Financing contingency:
once the contract is signed, you have a period of time to secure
funding. If, for any reason,
you are unable to secure funding during the period of time granted to
you by the contract (and the seller will not provide a written
extension of time), you
must decide whether you want to remove the contingency and take your
chances on getting a loan. You may choose to cancel the purchase
contract.
- A requirement that the seller must provide marketable title.
With an attorney or title
officer, review the title report. The title must be "clear" to ensure
that you do not have legal issues regarding your ownership.
Check into local and
state ordinances regarding property transfer and make sure that you
and/or the seller have complied with them.
Secure homeowner's
insurance. This will probably be required before you can close the
sale. Due to such requirements as special fire and earthquake
insurance, obtaining this insurance may require a lengthy period of
time. It would be in your best interest to apply for insurance as soon
as possible after
the contract is signed.
Contact local utility companies to schedule to have service turned on when you close escrow.
Schedule the final
walk-through inspection. At this time, you should make sure that the
property is exactly as the contract says it should be. What you
thought to be a "permanently attached" chandelier that would come with
the property might have been removed by the seller and replaced with a
different
fixture entirely.
You've made it! Once the sale has closed, you're the proud owner of a new home. Congratulations!
copyright © Agent Image 2007
| Back to Top |
Sellers Articles
When selling your home, there are no guarantees that a buyer will
simply walk through the front that your property receives maximum
exposure to attract a ready, willing and able buyer.
The appearance of your home, a buyer's first impression, and other
considerations can also affect the sale of your home. Have you
considered that home prices in your neighborhood and the value of your
property are also factors used for pricing your home? door. In many
cases you may have to bring your home to the buyer. Effective marketing
will help ensure
Below are some articles that you might find useful in the home
selling process. Please feel free to click on one the links to read
more.
Seller Articles
Most cities require that
homeowners obtain a building permit before making modifications to
their residence. Which modifications require a permit vary by city.
Also, some cities are more vigilant than others in enforcing permit
laws.
In order for the homeowner
to receive a permit, the homeowner or his/her designee are required to
file plans and pay fees to the city. In addition, the improvements are
given a value. If they increase the value of the property, this may
result in an increase in property taxes. Inspections are often
required, and this means having to schedule and then wait for
inspectors to approve the work to be done. This process can be time
consuming and inconvenient in the short run. It is for this reason that
some homeowners skip the permit process.
If a permit is needed and
you fail to get one, the city may discover this at some time in the
future and getting a permit retroactively can frequently be
significantly more expensive and much more problematic than having
obtained the permit before work commenced. If work is not done in
accordance with city procedures or if the inspector is unable to
determine if the work has been done properly, the homeowner could be
required to open walls, tear up floors, so that the inspection may take
place. In addition, by law, work not permitted where a permit was
required must be disclosed to any prospective purchaser. This may cause
the owner to discount their sale price or perform costly or
time-consuming repairs before title can be transferred.
For prospective buyers of
a property, save yourself the future hassle and loss of money by
researching whether all work on the premises has been done according to
code and with the proper permits. You may obtain these permits by going
directly to Building & Safety in the municipality in which the
property is located or by hiring a "permit puller" who will research
the permits for you.
copyright © Agent Image 2007
| Back to Top |
June and Fred Smith were
diligent about getting their home ready for sale. They ordered a
pre-sale termite inspection report. The report revealed that their
large rear deck was dry-rot infested, so they replaced it before
putting their home on the market.
The Smiths also called a
reputable roofer to examine the roof and issue a report on its
condition. The roofer felt that the roof was on its last legs and that
it should be replaced. The Smith's didn't want buyers to be put off by
a bad roof, so they had the roof replaced and the exterior painted
before they marketed the home.
The Smith's home was
attractive, well-maintained and priced right for the market. It
received multiple offers the first week it was listed for sale.
But the buyers' inspection
report indicated that the house was in serious need of drainage work.
According to a drainage contractor, the job would cost in excess of
$20,000. Fred Smith was particularly distraught because he'd paid to
have corrective drainage work done several years ago.
First-Time Tip:
If you get an alarming inspection report on a home you're buying or
selling, don't panic. Until you see the whole picture clearly, you're
not in a position to determine whether you have a major problem to deal
with or not.
What happened to the Smiths
is typical of what can happen over time with older homes. The drainage
work that was completed years ago was probably adequate at the time.
But since then, there had been unprecedented rains in the area, which
caused flooding in many basements. Drainage technology had advanced.
New technology can be more expensive but often does a better job.
The Smiths considered
calling in other drainage experts to see if the work could be done for
less. After studying the buyers' inspection report, the contractor's
proposal and the buyers' offer to split the cost of the drainage work
50-50 with the sellers, the Smiths concluded that they had a fair deal.
The solution is not always
this easy, especially when contractors can't agree. Keep in mind that
there is an element of subjectivity involved in the inspection process.
For example, two contractors might disagree on the remedy for a
dry-rotted window: one calling for repair and the other for
replacement.
Recently, one roofer
recommended a total roof replacement for a cost of $6,000. A second
roofer disagreed. His report said that the roof should last another
three to four years if the owner did $800 of maintenance work. Based on
the two reports, the buyers and sellers were able to negotiate a
satisfactory monetary solution to the problem for an amount that was
between the two estimates.
It's problematic when
inspectors are wrong. But it happens. Inspectors are only human. Here
is another example: A home inspector looked at a house and issued a
report condemning the furnace, which he said needed to be replaced.
The sellers called in a heating contractor who declared that the furnace was fit and that it did not need to be replaced.
The buyers were unsure about
the furnace, given the difference of opinions. The seller called in a
representative from the local gas company. The buyers knew that the gas
company representative would have to shut the furnace down if it was
dangerous. He found nothing wrong with the furnace, and the buyers were
satisfied.
In Closing:
Sometimes finding the right expert to give an opinion on a suspected
house problem is the answer, but it is always good to get two opinions.
copyright © Agent Image 2007
|Back to Top |
CMA is real estate shorthand
for "Comparative Market Analysis". A CMA is a report prepared by a real
estate agent providing data comparing your property to similar
properties in the marketplace.
The first thing an agent
will need to do to provide you with a CMA is to inspect your property.
Generally, this inspection won't be overly detailed (she or he is not
going to crawl under the house to examine the foundation), nor does the
house need to be totally cleaned up and ready for an open house. It
should be in such a condition that the agent will be able to make an
accurate assessment of its condition and worth. If you plan to make
changes before selling, inform the agent at this time.
The next step is for the
agent to obtain data on comparable properties. This data is usually
available through MLS (Multiple Listing Service), but a qualified agent
will also know of properties that are on the market or have sold
without being part of the MLS. This will give the agent an idea how
much your property is worth in the current market. Please note that the
CMA is not an appraisal. An appraisal must be performed by a licensed
appraiser.
The CMA process takes place
before your home is listed for sale. This is a good assessment of what
your house could potentially sell for.
CMAs are not only for
prospective sellers. Buyers should consider requesting a CMA for
properties they are seriously looking at to determine whether the
asking price is a true reflection of the current market. Owners who are
upgrading or remodeling can benefit from a CMA when it's used to see if
the intended changes will "over-improve" their property compared to
others in the neighborhood.
copyright © Agent Image 2007
|Back to Top |
Ready to close the deal? Maybe not.
Sometimes unforeseeable
issues arise just prior to closing the sale. Hopefully, with
negotiation, most of these have a workable solution. Unfortunately,
this is not always the case. But don't panic. Another buyer might still
be found who is willing to accept the house as is.
Imagine that your
prospective buyers are a couple with young children. They envision your
unused attic as the perfect playroom for the kids but, before closing
the deal, they request an inspection to see if it's safe and also if
they will be able to install a skylight to provide natural light to the
new space.
This inspection reveals that
under the shingles that are in good condition is a roof that will only
last another year or two. The prospective buyers immediately balk, not
wanting to incur the time and cost of replacing the roof. Their plans
were to move in and only have to spend time and money renovating the
attic. The additional cost of the new roof, they say, is just too much.
At this point, you sit down
with the prospective buyers and calmly discuss the situation and how it
can be solved to the benefit of all. First, you agree to get another
professional opinion on what really needs to be done. Inspectors are
only human, and are not infallible. Once the extent of the damage is
agreed upon, you can jointly decide what to do about it. While the
buyers hadn't planned on that expense, you show them that instead of a
limited roof life that they would get with most existing homes, they'll
have a new worry-free roof that won't cost them in repairs for the next
decade or so. Since the roof wasn't in as good shape as you had
thought, you agree to lower the purchase price to help offset the cost
of the new roof.
By negotiating calmly and
looking at all possibilities, what could have been a "deal breaker" can
be turned into a win-win situation for both the buying and selling
parties. In other cases, the most workable agreement for both parties
might be for the deal to be called off. The seller can always find
another buyer and the buyer can always find another home.
To protect yourself against
last minute "buyer's remorse," make sure the purchase contract
anticipates and closes as many loopholes as possible after all known
defects have been fully disclosed.
copyright © Agent Image 2007
|Back to Top |
