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Understanding Mortgages

The f-step guide to getting pre-qualifiedThe 5-step guide to getting pre-qualified

If you're in the market to buy a house or apply for a mortgage - something that many people are, given the current inventory situation nationwide - you've probably heard the term "pre-qualified."

Pre-qualification marks the beginning of your homeownership journey. It's a distinction that informs your lender that you are hoping to purchase a home and relays you would like to get an idea of what your options are in terms of financing.

Although obtaining pre-qualification distinction isn't required, it's a smart opportunity that's worthy of pursuit, as it gives you a better idea of the type of house you can afford to buy. This, in turn, can save you time from searching for properties that may be unrealistic from an affordability standpoint. In short, pre-qualification is a great way to improve your odds of being approved for a home loan when the time comes.

Obtaining pre-qualification serves as a golden opportunity for you to find the perfect house you're looking for while sticking to your budget. But to reach this status, you'll need to take care of a handful of tasks. Here are the five things you'll need to become pre-qualified by a certified lender:

1. Proof of identification

This should be the easiest item for you to obtain. From a driver's license to a passport, any official document with your name and picture attached should suffice. However, you'll also need your Social Security number, so make sure the lender has this as well.

2. Income track record

It's important for your lender to know how much money you make to determine your loan candidacy. If you don't have this info on hand, ask your human resources department for your most recent pay stubs. You'll likely need a month's worth (or for however many times you're paid in a 30-day span).

3. W-2 forms

These are the documents your employer sends you at the start of the new year so you can file your tax returns. Your mortgage provider will want to see the hard copies from the last two years. You may also need to show physical tax returns from years that correspond with the accompanying W-2s.

4. Other available assets

Do you have a savings account? Checking account? Investments in stock or bonds? Whatever assets you have, see to it that your lender has all of this information. This further substantiates your financial capabilities, which can help pay for transactions like closing costs and the down payment.

5. Credit score

Although obtaining a copy of your credit report isn't absolutely necessary to pre-qualification, it can really pay off, because your creditworthiness will help determine your interest rate. Generally speaking, the higher your FICO score - ideally 650 and above - the lower your interest rate.

Understand that you don't need to provide these pieces of information until you've received a loan estimate and given your intent to proceed. But if you're ready to take a dip into homeownership waters, pre-qualification can help you get your feet wet.


Understanding Mortgages

What aspects of a mortgage are under your control

What aspects of your mortgage are up to you?

It may seem like the only things you have control over when you're looking to buy a house are the selection of what kind of house you want, and in what neighborhood. Did you know that your decisions can affect your mortgage financing as well?

  Down Payment    
 

DOWN PAYMENT:

Usually, the amount you pay up front is entirely your decision. The current median down payment for first-time home buyers is around 6 percent.

 
  Insurer  
 

INSURER:

When buying homeowner's insurance for your home, shop to find the best rate and coverage.

 
  Owner's Title Policy  
 

OWNER'S TITLE POLICY:

Title insurance is comprised of two parts: the Lender's Policy, which is mandatory, and the Owner's Policy, which is optional (though highly recommended).

 
  Loan Type and Term  
 

LOAN TYPE AND REPAYMENT TERM:

The type of mortgage loan and the length of your repayment term will both affect your mortgage payment and closing costs.

 

What you can change

Understanding what you have control over when it comes to your home purchase could potentially help you save money. Most people understand that working with a real estate agent can greatly improve their home buying experience but they don't consider how input from a few other experts can make a big difference in what it all costs. Working with a Loan Officer, you can learn about the benefits and cost savings of different mortgage loan types, down payment options and lengths of repayment, and go into house hunting pre-qualified and informed. Discussing neighborhoods with your insurance agent before home shopping can enlighten you to areas or house features that allow for better homeowner's insurance rates. The choice of which title agent or attorney to use is yours. 

Reach out to professionals you trust. Ask questions and use your resources. You just may be able to find that dream home and make sure that you get a great deal.

 


Understanding Mortgages

How long does it take to build a house

How long does it take to build a house?

Whether just perusing or intently looking, you've probably noticed something about the housing market: There aren't currently many places to choose from.

The slim-pickings situation isn't a new one. In fact, according to the National Association of Realtors, total supply levels have fallen year-over-year for 35 months in a row. What's more, the overall unsold housing supply amount is hovering at four months as of April, based on the current sales pace.

Given this reality, you may be wondering just how long it takes to build a property from scratch. After all, waiting for a newly constructed house to hit listings - as opposed to an existing one - can serve as a worthwhile option. However, as you might imagine, the period of time that passes before an in-process property becomes a finished product tends to vary.

Based on the most recent analysis available from the Census Bureau and the National Association of Home Builders, approximately seven months is the average amount of time before developers are ready to put a house up for sale. Having said that, "ready" is a relative term, because houses are built for various intentions and by different entities.

For example, when a single-family home is created for rent purposes, the completion average is slightly less than nine months, based on NAHB's analysis. When it's built by the owner of the land, the permit-to-completion process can run between 10 and 12 months.

Where are you looking to buy?

Another factor that can play a role in completion time is the area of the country in which you're looking to buy.

For instance, in the Mountain West - meaning states like Utah, Nevada, Idaho and Wyoming - it's around 15 days from permit to start, then an additional six months from permit to completion. Meanwhile, on the West Coast, you'll often have to be a bit more patient, as it takes around 31 days for developers to begin building after obtaining a permit, then another eight months before they've pounded in the very last nail.

In addition to the region of the country, the nature in which a house is under construction - the city versus someplace more rural - also plays a role. In a New England-based metropolitan statistical area, it's about 10 months before a single-family home receives it's finishing touches. It's slightly less than that in a non-MSA, averaging around eight to nine months.

Almost uniformly, according to the Census' Survey of Construction, properties built in the city versus more rural climes reach completion quicker. This is largely due to availability of labor, as more people live in metros where demand tends to be greater as well. This increases the need for rapid development, meaning as quickly as circumstances allow.

Bill Green, co-founder and COO of Hinged.com, told NAR that environmental conditions in a given region can prove pivotal. One such condition is soil type, which impacts drainage, and topography. For example, building where land is flat, as opposed to an area that's features rougher terrain, tends to have fewer potential obstacles, both in the literal and figurative sense of the term.

The bottom line is this: The average time to build a house is almost entirely dependent on circumstances. Your timeline plays into those circumstances. If you're not in any rush, waiting for a house to reach the finished stage may make the most sense. But if you're looking to buy as soon as possible, an existing home can be just as good - if not better than - a newly built residence.

By working closely with your real estate agent and loan officer, you can look at your available options and settle on the decision that's right for you.


Understanding Mortgages

Time to upsize? 4 ways to determine if the move is right

Is it time to upsize your home

These days, there really isn’t such a thing as the “typical” family. By most indications, people are having fewer children, based on Census Bureau figures, but they do have greater generational diversity.

According to the Pew Research Center, approximately 20 percent of Americans live in a multigenerational household - up from 12 percent in the 1980s. Although frequently consisting of grandparents, married couples and children, multigenerational families' most common construct includes parents and their adult children, ranging from their late teens to early thirties.

But no matter the occupants of your home, "Should I buy a bigger house?" is probably a question that has crossed your mind at one time or another. Coming to a decision on this isn't easy, especially in an ever-changing residential real estate environment with multiple market forces at work, chief among them supply and demand.

With that in mind, here are four ways to help you decide if upsizing is the right move for you:

1. Outline your goals

The reasoning behind wanting to upsize isn't usually as plain as "I want more space." Rather, there are multiple, specific reasons that contribute to wanting a larger home - and specific questions to ask.

For example, is the kitchen too confining? Are your kids getting bigger, thus no longer fitting in their formerly ideally sized bedrooms? Perhaps you have a child on the way who will need a room of his or her own? There are countless reasons to want to upsize - it's simply important to outline all of them to determine if making such a move has merits.

2. Understand bigger may not always be better

Just as timing is a core component of home buying, the same standard applies to your current family situation. For instance, if you live in a multigenerational household, cramped quarters may be inconvenient. However, it may also only be a temporary annoyance, if someone will move out of the residence soon. In short, consider the timeline of your family's construct before upsizing.

3. Run the numbers

A host of factors go into where you should enter or re-enter the housing market, but the overarching one should be your financial situation. You may be comfortable with what you're spending now for monthly mortgage payments, but going larger will almost certainly cost more.

Be sure to take advantage of online mortgage calculators and assess your other expenses to determine if spending a higher dollar amount is something you can manage.

4. Assess the potential downsides

Almost every housing decision you'll make comes with potential drawbacks. For example, a common one associated with buying a bigger place is a longer commute, as larger houses tend to be in the suburbs, farther away from cities where most employers reside, as Realtor.com notes. A longer drive into work may be immaterial, but be aware of the possibility that your drive time could increase.

Just as no two families are alike, the same goes for housing needs. By understanding your current situation and recognizing how going bigger aligns with your overarching goals - both from a family and financial standpoint - you're more likely to make the sizing decision that makes sense.

 


Understanding Mortgages

Should you buy a foreclosed home

With the economy in sounder shape in recent years, foreclosed property filings have fallen rather precipitously. Indeed, if you look at the numbers from 2017, foreclosures in the U.S. totaled roughly 676,500, according to figures from ATTOM Data Solutions. That's a decrease of 27 percent compared to the previous year and down a whopping 76 percent back in 2010 during the immediate aftermath of the recession when foreclosures hovered at around 2.9 million across the country.

That said, more than two-thirds of a million foreclosures is a sizable figure, especially when you consider the overall housing situation, where demand is high and inventory is low.

So is buying a foreclosed house something you should consider? As with many aspects of buying a home, there's no easy answer. But you should be able to draw your own conclusions after evaluating the pros and cons. Here are a few of them:

Pros

Lower asking price

The abundance of demand and scarcity of property has caused home values to rise. In fact, they've increased year over year for 73 months in a row through March, the most recent month for which data is available, with the median cost per house at around $250,400, according to the National Association of Realtors (NAR). Foreclosed houses, on the other hand, tend to be priced lower than market value because sellers want to move their properties as quickly as possible. Pricing alone can be a compelling reason to buy.

Potential for greater return on investment

Buying a home could easily be the biggest investment you ever make, so it's important to make it wisely. If a property was initially sold at a high price point but now is lower because of its foreclosed status, buying might present an opportunity for a greater return on investment.

Cons

Home may be in a state of disrepair

All properties will have some wear and tear. But the former tenants of a foreclosed home may have struggled financially, which means they probably haven't paid for needed repairs. This is part of the reason why foreclosures sell for less. New tenants will likely have to spend money on substantial upgrades or renovations.

Owners may still reside there

The foreclosure process is a lengthy one, especially when buyers follow the traditional method: going through a mortgage lender. It takes time for a property to go from mortgage delinquency to full foreclosure status, and there may be a considerable amount of paperwork waiting on the other side. It could be several weeks, or even months, before the previous tenants actually move out.

Not ideal for first-time owners

Around one-third of those shopping for a home are in the market for the first time, according to the NAR. These families, many of whom are young, want to buy a property that's move-in ready. Obviously, that's generally not the case for foreclosed houses. The price may be right, which is good news for first-time buyers, but purchasing a foreclosed property could put them on the hook for liabilities that the previous owners left, such as debts or unfinished repairs.

By working in consultation with your real estate agent and debating all sides, you can come to the right decision on whether buying a foreclosed house makes sense for you and your family.


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