Mike's Journal

Here’s Seven Money Saving Secrets You Can Use When You Buy A Home...

1. Choose a low down payment loan.

There is no law that says you MUST put 20% or even 10% down. There are some loans that require as little as 3% or even zero down. This is attractive for three reasons: It’s hard to save for a large down  payment, you could earn more interest on that money than you’re paying in interest on the loan, and  it’s nice (and sometimes necessary) to have cash on hand after buying a home.

2. Have someone give you money to pay closing costs.

A relative, church or nonprofit organization can give you money for closing costs.

3. Ask the seller to pay some of your closing costs as part of your offer.

Sellers are usually allowed to contribute to a buyer's closing costs.

4. Do not pay too much insurance at closing!

Most lenders require 14 months hazard insurance paid at closing, so be ready. What happens to that  extra money?
It sits in your escrow account until you sell the house.
It is safe there, but it often earns no interest.

5. Remember, the homes that you are looking at don’t belong to your agent.

You must be straightforward about your likes and dislikes in order for the agent to do the best job for you. Your agent should show you everything available that meets yo ur requirements.
Don’t make a decision on a house until you feel that you’ve seen enough to pick the best one.
Review the Multiple Listing printout with your agent to make sure that you are getting a COMPLETE list.

6. Shop around for your home insurance.

A little shopping might be able to save you money.

7. You can deduct money paid for discount points from your gross income before computing your tax.

See a CPA for more information.

6 Things You Can Do To Qualify For a Bigger Mortgage

Say you started the home buying process backwards and started LOOKING at homes before you pre-qualified yourself for a loan. Now you’ve found that none of the homes in your price range will measure up. What do you do? Short of robbing a bank, there are 6 things that you can do to qualify for a bigger mortgage.

1. Reduce long-term debt

The first thing that lenders look at is your income to expense ratio. They compare how much money you have coming in against how much money you have going out every month.

We all know that a dollar will only go so far – and lenders know this particularly well. So, if you can pay off car loans, credit cards, or any other obligations against your income, you’ll have more money to spend on a loan – and a lender will let you borrow more money.

2. Wait until you get more income

Another way to look at the income-expense ratio is from the income side. If you have more money coming in, you can borrow more money. If you’re expecting a raise within the next year, maybe you should wait until that comes through, before asking to borrow money for a new home.

3. Add someone else to the loan

Another way to demonstrate to a lender that he will be repaid is by having someone (with a good income and stable job) co-sign on the loan. This way, the lender is looking at MORE income available to repay the loan. Family members Bank of Dad) are the typical source of someone willing to co-sign.

4. Use financing that requires lower down payments

The basic idea is this… the more money that you have available to spend, the more money that a lender will let you borrow. You’re trading off having the money available NOW or later. If you put a large down payment on a home now, that means you may have less income available to repay a loan later.

By the same token, if you make a smaller down payment, then you’ll have more money available to repay a loan – and the lender is likely to let you borrow more.

5. Wait for interest rates to drop

Interest rates are the price that lenders charge for the use of their money. So, when interest rates are high, it’s because lenders are charging you more to use their money right now.

Again, it’s a trade-off between now and later. Lenders are only going to give you so much money to use over the next 15-30 years (the life of your mortgage). They work backwards from that figure using interest rates. If you have a higher interest rate, you have less money to spend now. If you have a lower interest rate, you have more money to spend now.

So, if you can wait for a lower interest rate, you’ll be able to get more money to spend on the home you want.

Four Ways To Beat The Stress Of Buying A Home...

1. Begin with the end in mind.

Have an ultimate scenario of where you’re trying to be. What will life be like when you get there? How will it be better than where you are now? Dwell on that picture and write it out, fill up at least a page about how it feels in the new place. This is imperative.

Having the goal in front of you at all times energizes you to achieve it, in spite of setbacks and frustrations. Emotions will run high and you need an anchor. You too must focus on that future goal when anxiety threatens to get the better of you.

2. Be flexible.

In your monetary calculations, overestimate by a thousand dollars. In this market, anything can happen between contract acceptance and closing. It could be the inspections reveal areas of concern that the seller is unwilling to fix or the repair costs are higher than the amount limited in the contract.

Or the interest rate changes, which affect the necessary down payment and closing costs, you will need to come up with. As your real estate team, we will strive to tie up loose ends as quickly as possible, but remember there is no perfect world. Most buyers feel a bit overwhelmed when taking on a new mortgage and the responsibilities of a new home.

We’ve seen many buyers get angry when it seems like the cost just keeps going up. Anger is caused when reality doesn’t match up with the expectations you had in your mind. So if you anticipate this happening in advance, you won’t get angry. In fact, it’ll probably go better than you expected.

3. Trust in the process.

There’s just so much to do, it’s easy to panic. You wonder if it will ever work out. In fact, when we bought our house, we couldn’t eat for a day, we felt sick to our stomachs! You think you’re taking a big chance, but the truth is you’re giving yourself a big chance.

Even though you can’t see every step of the way, as you move towards your goals, the way opens up. We know that you haven’t moved in a long time and it’s a major upheaval in your life. But we’ve been there many times before, and we’ll be looking out for you. Trust that we know the way to get you there.

4. Get knowledge.

One thing you’ll probably feel during this transition time is being out of control. It feels like everyone else has taken over your life. The seller, your lender, the appraiser, the inspectors, they all have the power to say yes or no to your moving plans.

We’ll try our best to let you know ahead of time what your expenses will be, and what the unknowns are. We’ll tie down the loose ends as soon as possible. We’ll try to get your loan approved within a reasonable time frame. We’ll educate you as best we can and let you in “behind the scenes” so you won’t ever feel stupid or out of control.

Here’s How To Avoid 5 Of The Most Expensive Mistakes Homebuyers Make...

Mistake #1: Not knowing how much they can afford before they make an offer.

The easiest way to avoid this mistake is to get pre-approved for a mortgage by a lender so you know in advance exactly how much you can afford.

Most pre-approvals are free and it will give you a basis to make a more informed purchasing decision when you find the house you like.

Mistake #2: Not realizing that the wrong mortgage can cost thousands of dollars in needless interest and taxes.

Check with your accountant before you make your final decision on which mortgage you are going to choose. Your CPA will be able to tell you what the long-term effects will be on your income, your taxes and the equity you build in your home over time.

Most people aren't aware that with a standard 30-year mortgage they will be paying two and a half times the amount of the mortgage in payments.

With some advance planning and a simple strategy, they can cut the amount of interest they pay dramatically and own their homes sooner.

Mistake #3: Not realizing in advance who the real estate sales person represents.

Most people think that the agent they are working with is working for them. But unless they are working as your buyer representative, they represent the seller. There are different types of agency relationships you can have with a Realtor, make sure that you are clear on your options.

Mistake #4: Not discovering hidden defects before they buy a home.

One of the most expensive mistakes is also one of the easiest to avoid, by having a professional pre-purchase home inspection. Don't get stuck with a money pit. The cost of a professional home inspection is usually a few hundred dollars, but the peace of mind it can give you and the expense you can avoid needlessly is in the thousands of dollars.

Mistake #5: Not knowing how much their credit can affect their ability to buy or refinance a home.

Before you buy a home, many of the clouds on your credit history can be cleared up or even eliminated. Your mortgage professional can help you review and prepare your credit file in advance.

Get The Home YOU Want! Just What Is It That You Want?

When building or buying a home, it helps to decide just exactly what you NEED and what you WANT. Once you have a price in mind, THEN start looking, if you do it the other way around – you’ll fall in love with a home that you can’t afford and none in your price range will ever measure up to it.

Location, Location, Location!

Don’t you wonder why people always ask about location first? Well, it is the hardest thing to change about a home once you buy it. However, there are things besides the neighborhood that you need to consider. Things like… size of the lot – do you really want to mow those 5 acres or is it worth it to be that far from those nosy neighbors.

Dinner anyone?

Think about your lifestyle in relationship to the Kitchen and Dining Room.

Do you actually cook? Do you need that full gourmet kitchen with stainless steel appliances and lots of cabinet space? Do you need room in the kitchen for eating in – or will you always use the dining room?

What’s on TV tonight?

Do you need separate Living and Family Rooms? In some states, like Florida and California, lifestyles are pretty relaxed all around and rarely do we find that we need a formal Living Room.

Many family rooms need to be large enough to accommodate computer stations as well as the entertainment center, complete with video games and surround sound.

Nite Nite, Sleep Tight…

The thing that really draws the attention of a homebuyer is the Master Suite. Think about the size of your furniture, do you need extra room for a crib? Do you need a sitting area or study? Separate walk- in closets for you and your spouse?

Where’s MY room?

Do you need more bedrooms? One for each kid or guest? Do they each need their own bathroom or can they share? Where are these rooms in relation to the Master Suite? Is there a room dedicated as an office or a gym?

Where are we going to put that?

Think about how much and where you need to have storage. Under the rafters tends to be very warm in the summer and cold in the winters – not the greatest place for temperature sensitive items – or things that you need to get to frequently.

Where are my clean socks?

I like to think about the Laundry as little as possible. Even so, would it be better for you to have the washer and dryer stashed in an upstairs closet, or have a Laundry production room (complete with built-in ironing board and laundry chute) – that the kids pass through on their way back in from the pool?

 

Once you have a prioritized list, share it with your consultant – this will help them find a home to really suit your needs. If after seeing a few homes that the consultant has found based on your list you find that something has moved up or down the list, in terms of priority – make sure to tell them. They want to help you find what you need and want. Having gone through this list – you’re well on your way to finding your new dream home.

Inside Secrets Of How To Get A “Yes” When You Borrow

Lenders approve loans based on their impression of your ability and INTENT to pay it back.
To figure this out, they look at 5 things:

• Creditworthiness
• Income
• Job longevity
• Job stability
• Future income prospects

 
 We’ll tell you how to make sure you look good in each of these things, so that you’ll get a “YES” when  you want to borrow money for your new home.

1. Creditworthiness

Creditworthiness is your history of borrowing and repaying against things like loans, credit cards, rent,  and whether you’ve ever filed for bankruptcy.

Find out what credit bureau the lender uses, then call or visit that same bureau for a copy of your  credit report. Some are even available on- line.

This is to make sure that there are no errors or surprises that you’ll have to explain to the lender. If  there are mistakes, it can take a few months to resolve, so it’s good to have a compelling explanation  ready when the lender sees it! 

The best way to demonstrate that you are “creditworthy” is to pay your bills in full and on time, particularly for the year or two before you want to get a loan.

2. Income

Lenders want to know that you have a history of sufficient and consistent income – so that you’ll be  able to repay the loan.

So, when you submit your paperwork to a lender, make sure to take a letter  verifying your employment (how long and what your salary is), your last couple of paychecks, and your last couple of W-2 forms.

3. Job Longevity

Lenders are looking for borrowers who have a stable source of income. If you can show that you’ve  been employed at least a year in the same company, you should be fine.

4. Job Stability

Again, lenders like stability – they tend to think that your loan payment behavior will reflect your  employment behavior.

So, don’t make lateral moves between companies just for the sake of change. If you make moves, do it for promotion, or to earn more money.
5. Future Income

Because most loans are paid back in 15-30 years, lenders are interested in people who will have income  for that amount of time. Young professionals, or those with high demand skills, are the most appealing to lenders because their income will only increase over time.

If you can demonstrate that you have a career plan that only gets better over time, you’ll be in a strong position to borrow. 

So essentially, pay your bills on time, stay with an employer, and have a career path that shows  potential, and you’ll be sure to get a “YES” when you borrow.

Here’s 4 Quick Tips That Could Save You Thousands…

1. Don’t Get “Pre-Qualified!” Get “Pre-Approved”

Do you want to get the best house you can for the least amount of money? Then make sure you are in the strongest negotiating position possible. Price is only one bargaining chip in the negotiations, and not necessarily the most important one.

Often other terms, such as the strength of the buyer or the length of escrow, are critical to a seller. This process takes anywhere from a few days to a few weeks depending on your situation. It’s VERY POWERFUL and a weapon we recommend all of our clients have in their negotiating arsenal.

2. Sell First, Then Buy

If you have a house to sell, sell it before selecting a house to buy! Let’s pretend that we go out looking for the perfect house for you. We find it and you love it! Now you have to go make an offer to the seller. You want the seller to reduce the price and wait until you sell your house.

The seller figures that’s a risky deal, since he might pass up a buyer who DOESN’T have to sell a house while he’s waiting for you. So he says OK, he’ll do the contingency but it has to be a full price offer! So you see, you paid more for the house than you could have because of the contingency. Now you have to sell your existing house, and in a hurry! Otherwise you lose the dream house! So to sell quickly you might take an offer that’s lower than if you had more time.

3. Play the Game of Nines

Before house hunting, make a list of nine things you want in the new place. Then make a list of the nine things you don’t want. We call this “NINE OF THIS AND NONE OF THAT”.

You can use this list as a scorecard to rate each property that you see. The one with the biggest score wins! This helps avoid confusion and keeps things in perspective when you’re comparing dozens of homes.

When house hunting, keep in mind the difference between “SKIN AND BONES”. The BONES are things that cannot be changed such as the location, view, and size of lot, noise in the area, school district, and floor plan. The SKIN represents easily changed surface finishes like carpet, wallpaper, color, and window coverings. Buy the house with good BONES, because the SKIN can always be changed to match your tastes. I always recommend that you imagine each house as if it were vacant. Consider each house on its underlying merits, not the seller’s decorating skills.

4. Don’t Be Pushed Into Any House

Your agent should show you everything available that meets your requirements. Don’t make a decision on a house until you feel that you’ve seen enough to pick the best one. Review the Multiple Listing printout with your agent to make sure that you are getting a COMPLETE list.

In the late 1980’s, homes were selling quickly, usually a few days after listing. In that kind of market, agents advised their clients to make an offer ON THE SPOT if they liked the house. That was good advice at the time. Today there isn’t always this urgency, unless a home is drastically under priced, and you’ll know if it is.

What Next? 8 Steps To Follow When Buying A Home

1. Decide to buy a home.

That sounds reasonable, doesn’t it? Yet, so many of us are really “just looking” rather than seriously considering changing the location of our home. Why is it that you want to find a new home? Has your lifestyle changed enough to warrant this type of investment?

Until you identify your NEEDS and your WANTS, you’ll find it very hard to find, just the right home for you.

2. Find a great real estate consultant.

Once you’ve decided to buy a home, find a great real estate consultant. What you’re looking for is a Buyer’s Agent. This means that the consultant represents YOU as the buyer, rather than the person selling the home. They will have YOUR best interests at heart. Really good consultants know their markets, and will help you find the best match for your needs and wants. They can also recommend mortgage brokers with whom they’ve worked in the past.

3. Secure financing.

If possible, get “pre-approved” for a loan in the amount you’re willing to borrow. With this pre-approval, you are in a stronger position to buy a home when you’re ready – rather than finding your dream home, only to lose it to another buyer, because you were waiting on the approval.

4. Find your dream home.

Now that you have your “wish list”, your consultant, and your “preapproval” in hand, go forth and find yourself a home. As you go through homes, make sure to keep the listing, notes of your impressions of the house, and a photo (if possible) in a notebook, so that you can remember all the homes you’ve seen.

5. Make a written offer & negotiate the price.

Once you find your home, work through your consultant to make an offer. Typically your first offer is going to be lower than the listing price. Listen to your consultant, they are representing you and know what homes have sold for in that neighborhood. Rarely will the seller accept this first offer, so they’ll counter with another price. Back and forth you’ll go until you settle on a price. (This is where the consultant is really using their expertise).

6. Make an Earnest Money Deposit.

Once you and the seller have agreed on a price, through your consultant, you’ll make an Earnest Money Deposit which will be held in escrow. What this does is put a “good faith deposit” in a third party’s hands, to demonstrate that you are serious about buying this home. Many buyers offer 5-10% of the selling price of the home.

7. Have an inspection.

The home inspection is to protect you from buying a home that may have serious hidden structural problems or defects.

8. Sign final documents, get the key & move into your new home.

Finally! The home has been inspected, you’ve cleared the title to the property, and you’ve “closed” on the deal. All you have to do now is move in.

Don’t forget to put out the welcome mat!

Here’s Why You Shouldn’t Buy A Car Right Before You Buy A House...

When an individual’s income starts growing and they manage to set aside some savings, they commonly experience what may be considered an innate instinct of modern civilized mankind: The desire to spend money.

Since North Americans have a special love affair with the automobile, this becomes a high priority item on the shopping list. Later, other things will be added and one of those will probably be a house. However, by the time home ownership has become more than a distant and hopeful dream, you may have already bought the car.

It happens all the time, sometimes just before you contact a lender to get prequalified for a mortgage. As part of the interview, you may tell the loan officer your price target. He will ask about your income, your savings and your debts, then give you his opinion.

“If only you didn’t have this car payment,” he might begin, “you would certainly qualify for a home loan to buy that house.”

You see, when determining your ability to qualify for a mortgage, a lender looks at what is called your “debt-to-income” ratio.

What are debt-to income ratios?

A debt-to- income ratio is the percentage of your gross monthly income (before taxes) that you spend on debt. This will include your monthly housing costs – including principal, interest, taxes, insurance, and homeowner’s association fees, if any. It will also include your monthly consumer debt, including credit cards, student loans, installment debt, and….

CAR PAYMENTS!

How a New Car Payment Reduces Your Purchase Price

 Suppose you earn $5000 a month and you have a car payment of $400. At current interest rates (approximately 8% on a thirty-year fixed rate loan), you would qualify for approximately $55,000 less than if you did not have the car payment.

Even if you feel you can afford the car payment, mortgage companies approve your mortgage based on their guidelines, not yours.

Buying things on credit not only hurts your credit score, but it also leaves less money for you to use for a house payment. Lenders look at this figure also to determine how much money they will lend you, and how much they will charge you to lend it.

If you haven’t already bought a car, remember one thing: Think ahead. Think about buying a home first. Buying a home is a much more important purchase when considering your future financial well being.

The Top Ten Reasons It's a Great Time To Buy Real Estate!

From Broker Agent News
By Paul Pastore

Mike's Note: Although the author is talking about a market in Arizona, virtually all of the points he makes are relevant to the Triangle Area Real Estate Market.

ML

1. Selection, selection, selection. There are about 57,000 resale homes on the market in Maricopa county(Phoenix). Regardless of the price range a buyer desires, there are plenty of houses from which to choose. Just a few years ago the resale inventory dropped below 5,000 units. A buyer was forced to make compromises if they were going to locate the home of their dreams. There is a great selection of attached homes, condos, and townhouses. You can find large lots, small lots, and a lot that will accommodate your boat or RV. There are lots of options in this market.
                  
                
2. No Bidding Wars. In 2005 we had one client that made an offer on ten homes. They lost the first nine to the 'feeding frenzy' that existed. Other buyers bid the properties up substantially from the original listing price. There were escalation clauses where buyers authorized their agents to outbid other offers by thousands of dollars. There is no competitive bidding in this buyer's market.
                  
                
3. You can make an offer. A few years ago when you made an offer, the only question was how high above the list price could the buyer reach in hopes of being the best offer on the table. Today the sell price list vs. price ration is about 96%. A seller will not be insulted if you 'make them an offer they can't refuse'.
                  
                
4. Patience is tolerated. In the hot seller's market that existed everything was rushed. Find a house before other buyers did. Hurry up and make the offer.  Today a buyer can take their time. Look at several homes and think about your decision for a few hours.
                  
                
5. Due diligence is welcomed. In this market a buyer is encouraged to obtain a home inspection, termite inspection, and appraisal. In 2005 many buyers waived these contingencies in order gain an advantage with multiple offers.
                  
                
6. There are plenty of specs. In the not too distant past buyer had to 'play games' if they wanted a new home. There were lotteries and waiting lists in order to obtain new construction.  Some buyers slept in their cars in order to get to the head of the lines. R.L. Brown estimates that builders have thousands of specs ready for immediate occupancy.
                  
                  
7. Repair requests are welcomed. After a buyer completes a home inspection, they are allowed to submit a repair request to the seller. In the past a seller might insist the home was sold 'as is'. Many times, there were back-up buyers waiting for a primary buyer to upset the seller whose home was increasing in value almost daily.
                  
                
8. Few, if any investors. It is estimated that one third of all sales in 2005 were to investors. These non-owner occupied buyer caused the market to inflate and affordability to decline.  Mortgage fraud became commonplace. It's a great time to buy without having to compete with hundreds of prospective landlords.
                  
                
9. Location, location, location. Today's buyers can find homes closer to work. In the past buyers flocked to Maricopa and Queen Creek in order to find affordable homes. In this market,                 reasonably priced homes are within biking or walking distance o schools, rapid transit lines, and relatives.
                  
                
10. Real Financing is available. The 'wink, wink' zero down, no doc, adjustable, sub-prime loans are gone. Fixed rates are back. FHA financing, first time homeowner bond programs, special loans for teachers, and police officers are back in business. It's a great time to buy real estate!