HOME BUYING FINANCE 101
What is the forecast for home sales in 2015?
We don’t have a crystal ball, but some people feel that rising employment nationally in our area will boost consumer confidence and home sales. A recent report by mortgageloan.com predicts that home prices nationally will rise nearly 5% in the coming year. It also predicts that today’s low mortgage rates will vanish by mid-2015. The CEO of the Association of Mortgage Professionals, Don Frommeyer, recommends that first-time homebuyers act soon since “Interest rates on mortgages are extremely low, and they will probably go up in the next several months.”
Why do I need to a ‘Pre-Qualification Letter” from a mortgage lender?
• This tells you how much house you can afford. If you under- over-estimate that amount, you’ll waste time in your house search.
• A “pre-qual” must be submitted with every purchase offer unless you are paying cash.
• Sellers do not want to clean and vacate their house for viewers who can not afford a house in their price range.
How do I get a ‘Pre-Qualification letter’ and how long does it take?
One place to begin is with your own bank. They already have your contact information, Social Security number and some financial information. They will need to know your salary and your debts and they will check your credit score. You can answer their questions verbally. Sometimes this can be done over the phone or in a short meeting. The letter itself may take 1-2 days and can be sent to you and your agent by fax or e-mail.
You are not bound to use the same financial institution as your ‘pre-qual letter’ when you select a home. You may get competitive quotes from other mortgage institutions at any time. However, you will need to apply formally for a mortgage within a week of having a signed contract. At that point you will need a lot of actual documentation.
How much do I need for a mortgage down payment?
3.5% for an FHA mortgage and 5% for a conventional mortgage. Some buyers choose to pay a larger down payment to keep their monthly principal and interest lower. You will also need to reserve some cash for your closing costs. Many lenders estimate that you’ll need 6% of the purchase price for these, though at closing you may find the actual amount is lower.
How do I determine the monthly costs for the house I am buying?
When your mortgage broker tells you how much you can afford, s/he will look at the monthly payment amount that will work with your salary and “debt to income ratio.’ Because a
a 30-year mortgage payment has 360 payments, a higher purchase offer may not make much difference in your monthly principal and interest (PI) payment. If you are qualified for a larger amount, sometimes you may want to ‘stretch’ a little to buy a better house, especially if you plan to live there for a long time. Do you expect your current earnings to remain the same or will hey increase in future years? Use the formulas in bankrate.com, to figure out other scenarios. One example:
BUYER
PURCHASE OFFER PRICE
MORTGAGE
AMOUNT
MONTHLY PI
Mary
$120,000
$100,000
497.00
John
$130,000
$110,000
501.29
Sam
$140,000
$120,000
525.16
Beth
$150,000
$130,000
573.00
In addition to your monthly principal and interest, you will pay taxes. Taxes on a real estate listing must be listed in full, but if the house will be your primary residence, you will get a STAR deduction as long as you apply for it. You will also have expenses for heat, electricity and (unless you have a well and septic), possibly water and sewer. Depending on your mortgage, you may also pay Private Mortgage Insurance. Your mortgage broker can tell you how much.
On the plus side, mortgage interest is tax deductible and your property taxes may be as well! Check with a tax professional to be verify this.
Are low-ball offers a good idea?
Your realtor, who is aware of comparative prices for houses and how long the house has been on the market, may be able to help you with the pros and cons. A lower offer might be possible for a foreclosure, for example. But if sellers find your offer insulting, they often will not respond to such an offer at all. Statistics show that normally houses listed in the Syracuse MLS sell for about 98% of their asking price and some will even sell for a price above the asking price if more than one buyer wants to buy the same house at the same time.
How do I build equity in a home?
When you buy a house, your down payment is usually the same as your equity in your home. As home prices rise, you will have more equity. For example:
You buy a house for $150,000 with $50,000 down. (Your ‘equity’ is $50,000.)
Two years later, your house is worth $200,000. (This gives you $100,000 in equity - $50,000 when you bought and $50,000 for the increase in your house price.)
Plus you have paid 2 years of principal in your mortgage payments. If that was $5,000, your equity is now $105,000.
What is the forecast for home sales in 2015?
We don’t have a crystal ball, but some people feel that rising employment nationally in our area will boost consumer confidence and home sales. A recent report by mortgageloan.com predicts that home prices nationally will rise nearly 5% in the coming year. It also predicts that today’s low mortgage rates will vanish by mid-2015. The CEO of the Association of Mortgage Professionals, Don Frommeyer, recommends that first-time homebuyers act soon since “Interest rates on mortgages are extremely low, and they will probably go up in the next several months.”
Why do I need to a ‘Pre-Qualification Letter” from a mortgage lender?
• This tells you how much house you can afford. If you under- over-estimate that amount, you’ll waste time in your house search.
• A “pre-qual” must be submitted with every purchase offer unless you are paying cash.
• Sellers do not want to clean and vacate their house for viewers who can not afford a house in their price range.
How do I get a ‘Pre-Qualification letter’ and how long does it take?
One place to begin is with your own bank. They already have your contact information, Social Security number and some financial information. They will need to know your salary and your debts and they will check your credit score. You can answer their questions verbally. Sometimes this can be done over the phone or in a short meeting. The letter itself may take 1-2 days and can be sent to you and your agent by fax or e-mail.
You are not bound to use the same financial institution as your ‘pre-qual letter’ when you select a home. You may get competitive quotes from other mortgage institutions at any time. However, you will need to apply formally for a mortgage within a week of having a signed contract. At that point you will need a lot of actual documentation.
How much do I need for a mortgage down payment?
3.5% for an FHA mortgage and 5% for a conventional mortgage. Some buyers choose to pay a larger down payment to keep their monthly principal and interest lower. You will also need to reserve some cash for your closing costs. Many lenders estimate that you’ll need 6% of the purchase price for these, though at closing you may find the actual amount is lower.
How do I determine the monthly costs for the house I am buying?
When your mortgage broker tells you how much you can afford, s/he will look at the monthly payment amount that will work with your salary and “debt to income ratio.’ Because a
a 30-year mortgage payment has 360 payments, a higher purchase offer may not make much difference in your monthly principal and interest (PI) payment. If you are qualified for a larger amount, sometimes you may want to ‘stretch’ a little to buy a better house, especially if you plan to live there for a long time. Do you expect your current earnings to remain the same or will hey increase in future years? Use the formulas in bankrate.com, to figure out other scenarios. One example:
BUYER
PURCHASE OFFER PRICE
MORTGAGE
AMOUNT
MONTHLY PI
Mary
$120,000
$100,000
497.00
John
$130,000
$110,000
501.29
Sam
$140,000
$120,000
525.16
Beth
$150,000
$130,000
573.00
In addition to your monthly principal and interest, you will pay taxes. Taxes on a real estate listing must be listed in full, but if the house will be your primary residence, you will get a STAR deduction as long as you apply for it. You will also have expenses for heat, electricity and (unless you have a well and septic), possibly water and sewer. Depending on your mortgage, you may also pay Private Mortgage Insurance. Your mortgage broker can tell you how much.
On the plus side, mortgage interest is tax deductible and your property taxes may be as well! Check with a tax professional to be verify this.
Are low-ball offers a good idea?
Your realtor, who is aware of comparative prices for houses and how long the house has been on the market, may be able to help you with the pros and cons. A lower offer might be possible for a foreclosure, for example. But if sellers find your offer insulting, they often will not respond to such an offer at all. Statistics show that normally houses listed in the Syracuse MLS sell for about 98% of their asking price and some will even sell for a price above the asking price if more than one buyer wants to buy the same house at the same time.
How do I build equity in a home?
When you buy a house, your down payment is usually the same as your equity in your home. As home prices rise, you will have more equity. For example:
You buy a house for $150,000 with $50,000 down. (Your ‘equity’ is $50,000.)
Two years later, your house is worth $200,000. (This gives you $100,000 in equity - $50,000 when you bought and $50,000 for the increase in your house price.)
Plus you have paid 2 years of principal in your mortgage payments. If that was $5,000, your equity is now $105,000.