Don’t Miss Out on Real Estate Foreclosures
Today’s marketplace offers many property investment opportunities, especially with the dramatic rise in foreclosures. Real estate foreclosures can now be purchased for pennies on the dollar and come in a variety of homes and price ranges (and even timeshare properties).
Low Prices
While the location and nearby amenities will play a role in the overall price of any property, with the current economic downturn, an investor can purchase these properties for a substantially cheaper price.
Typical determinants of price, such as square footage, construction, decor, and property size may not play a role at all in a foreclosure purchase. More often the price is based on what is still owed on the original mortgage rather than its real value.
Variety of Properties
So if you have ever considered purchasing a home, there could never be a better time to invest than now. Prices are at an all-time low, interest rates are extremely low, and high dollar properties are being sold off for substantially less. And with the ever-increasing number of foreclosures, you are sure to quickly and easily find something that is just what you are looking for.
Know Your Credit Score
If you’re looking into purchasing your first home, one of the very first things you should look at is your credit score. While the amount of money you make is very important, and the size of your damage deposit will matter, a poor credit score will sink your mortgage application faster than any other problem. Nothing else matters quite as much as your credit score; even a high-paying job can’t help you if you are a risk to lend to.
If you do have poor credit, there are ways of improving it, prior to applying for a mortgage. Make sure that all of your bills are paid on time, including your credit cards. If you need more help, talk to a credit specialist, and see if they can recommend ways to improve your overall score.
This sort of thing will take some time to see results, so the best time to worry about your credit score is not when you want to buy a house, but years sooner. Keep an eye on your credit at all times, and work to remove any negative reports. That way, when you decide to look for a house, your credit report does not keep you out in the cold.
Finding a Mortgage Broker
All right, you want to buy a home. You have decent credit, very few debts, and no outstanding bills. You have a good job that pays well, with a decent employment history to review. You have the money for a down payment… you’ve got it all, right?
Nope. You need a mortgage broker.
A mortgage broker will be able to take the information you give them, and turn that into a pre-approval. They will walk you through the process of finding the right mortgage for you, signing all of the paperwork and providing all the documentation required. They will help you every step of the way and make sure that getting the mortgage does not interfere with your plans to find the perfect house.
Where can you find a mortgage broker? You can check online, but the best resources are the people you know – friends, family and co-workers. Ask around, and see if anyone recommends the broker that they used. A personal reference is much more reliable than an ad on a website or a listing in the yellow pages. And of course, if the broker is any good, you can then recommend them to your associates when the time comes for them to find a home.
Knowing Is Half The Battle
If you are interested in finding your first home, the worst thing you can do is just start looking around. Why? Because you might be setting yourself up for a big disappointment. If you start looking without knowing what your actual budget is, you will have no idea what sort of home, or which areas you should be looking at.
So, the first step in looking for a new home should be to sit down with your bills and your pay stubs and figure out your financial plans. Look at how much you pay for rent currently – can you afford more? Don’t forget that owning a home costs much more than renting, so include those extra costs into your considerations.
Once you know what you can afford, talk to a mortgage broker. They will be able to set you some limits based on what you can be pre-approved for. This will tell you what sort of price range you should be looking in for your new home.
Once you have these steps in place you can start your search in earnest, knowing that the properties you are viewing are realistic for your lifestyle, and the money you bring in. Otherwise, it’s just window shopping.
First, Pay Off Old Debts
If you are looking into purchasing your first home, you might be tempted to start saving every penny you can for your down payment. But in reality, there are some other payments you should be making first…
If you have any outstanding debt, the time to pay it off is now. Not only will a reduced debt load make it easier for you to qualify for a mortgage, but you will find that the costs of homeownership will quickly eat into any money you had planned on putting aside for paying old bills. Old debts also collect interest, which means the longer you hold on to them, the more they cost you.
But as far as homeownership goes, the biggest problem with old debt is the approval for a mortgage. Less debt and smaller debt payments will mean a mortgage company will trust you with a larger amount to purchase your home with. A higher debt load may limit the size of your mortgage, forcing you to look at smaller homes than you were hoping to see, or look in neighborhoods that you had hoped to avoid.
Either way, you should adjust your savings to unload some debt, and still have some savings left for the down payment.
Beware of Longer Term Mortgages
As you know, there are a lot of different mortgages on the market these days, and it can be tough to know which one is right for you. Some people swear by the traditional 25 year mortgage, meaning that your house will be completely paid off in a quarter of a century. But recently, companies have been coming out with much longer term mortgages, from 30, 40 and even 50 years in length.
The benefit of these longer term mortgages is that your monthly payments are reduced – but the big problem is, you end up paying a lot more for your house in the long run. All the extra interest that is racked up over those extra years means that your house will end up being way more expensive than you ever realized.
The real kicker is that your monthly payments will not go down that much by adding years to the back end of your mortgage – usually only going down by a hundred dollars or so.
So while that extra amount might be the difference for some people between being able to afford a home or not, you should avoid these long-term mortgages if at all possible, and save yourself some money in the long term.
What is Preapproval for a Mortgage?
So, you have decided to buy a house. You have been renting for long enough, and you want to have a place to call your own. You have been saving for years for the down payment, your credit is in good shape, and you have enough income to comfortably make the payments on a mortgage.
So, you go out and start house hunting. You see a bunch of homes, and finally, find one that you love. You put in an offer, but wait a minute – you haven’t been approved for a mortgage yet. The buyer gets a competing offer, and the other person is preapproved. Everything else being equal, the home owner is going to pick the other offer, every time.
Preapproval is simply a mortgage company agreeing, in principle, to approve you for a mortgage, up to a certain amount. What that amount is will depend on a few factors, but the important thing is, it will give you some idea of what your budget should be, and show a prospective seller that you are serious about your offer. And the next time you place a bid on a house, you will be the one whose offer looks better for doing that little bit of pre-planning.
How Much Down Payment?
In the old days, the question of how much you should put down for a down payment on a home was simple – ten percent. But these days, ten percent of a home’s value is a lot of money, and many homebuyers searching for their new home simply do not have that kind of money lying around. So if they can’t do ten percent, can they still get a mortgage?
The answer is yes. There are all sorts of programs out there to help first time home buyers, but they vary from state to state. Do your homework, and find out what sort of incentives are available to you. There may be programs that allow you to borrow some of your down payment from other sources, or a lower limit in place for new home buyers, possibly as low as five per cent.
There are downsides to these programs – usually financial ones. Lower down payments mean higher home costs, which mean higher mortgage payments over longer periods of time. Do your research, and balance the savings available in down payments against future costs very carefully.
Fixed or Adjustable?
If you are looking for your first new home and are reviewing mortgage materials, you might be wondering if you should sign up for a fixed rate mortgage or an adjustable rate mortgage. Which one makes the most sense?
A fixed rate mortgage means that your rates are fixed in place for the length of the mortgage. So, if you think that the rates that are being offered now are likely to be the best possible rates over the next few years, you would want to lock in at a fixed rate to take advantage of those lower percentages. Of course, if the interest rates drop drastically, there is nothing you can do, and you will be stuck paying the higher rates.
However, if you feel that the current rates are too high, and you have reason to believe that the interest rates will go down some time in the near future, then you might consider an adjustable rate mortgage, which lets you move with the market. But remember, if the market moves the other direction, the holder of an adjustable rate mortgage could find their rates and monthly payments skyrocketing out of control.
So which one is best? Call me today and I’ll help you decide based on your situation.
Don’t Miss Out On Extended Tax Credit
I’ve mentioned this before, but I want to make sure that anyone interested is aware in time to take advantage of this great opportunity.
Basically, as part of its plan to stimulate the U.S. housing market and address the economic challenges facing our nation, Congress has passed new legislation that…
- Extends the First-Time Home Buyer Tax Credit of up to $8,000 to first-time home buyers until April 30, 2010.
- Expands the credit to grant up to $6,500 credit to current home owners purchasing a new or existing home between November 7, 2009 and April 30, 2010.
So here are the basics on how this Extended Home Buyer Tax Credit can help you become part of the American dream:
- To qualify as a first-time buyer you must not have owned a home during the past 3 years (this includes your spouse as well). To qualify as a current homeowner you must have lived in your home for 5 consecutive years within the last 8 years.
- The price of the home cannot exceed $800,000.
- As a single buyer your income cannot be over $125,000, and as a married couple your income cannot be over $225,000.
- As long as a written binding contract is in effect on April 30, 2010, you will have until July 1, 2010 to close.
- You don’t have to repay the tax credit as long as you live in the home for 3 or more years.
If you have additional questions feel free to contact me, or visit the IRS website at the following link:
About Me
I help clients examine a variety of California home loans to find the best one and utilize all the tools at my disposal to showcase a comparison of loans. If your goal is to find a home loan that improves your financial standing, pays off debt, and you want information on how to use your home loan to leverage your financial position then you've come to the right place. DRE #00646652
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