6 Things You Must Know Before Obtaining a Mortgage
Before you commit your hard earned dollars to monthly mortgage payments, consider these 6 issues. Effective consideration of these important areas can make your payments work much harder for you
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You can, and should, get preapproved for a mortgage before you go looking for a home.
Preapproval is easy, and can give you complete peaceof-mind when shopping for your home. Your local lending institution can provide you with written preapproval for you at no cost and no obligation, and it can all be done quite easily over-the-phone. More than just a verbal approval from your lending institution, a written preapproval is as good as money in the bank. It entails a completed credit application, and a certificate which guarantees you a mortgage to the specified level when you find the home you’re looking for.
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Know what monthly dollar amount you feel comfortable committing to.
When you discuss mortgage preapproval with your lending institution, find out what level you qualify for, but also pre-assess for yourself what monthly dollar amount you feel comfortable committing to. Your situation may give you a preapproval amount that is higher (or lower) than the amount of money you would want to pay out each month. By working back and forth with your lending institution to determine what this monthly amount is, and what value of home this translates into at today’s rates, you won’t waste time looking at homes that are not in your price range.
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You should be thinking about your long term goals, and expected situation, to determine the type of mortgage that will best suit your needs.
There are a number of questions you should be asking yourself before you commit to a certain type of mortgage. How long do you think you will own this home? What direction are interest rates going in, and how quickly? Is your income expected to change (up or down) in the near term, impacting how much money you can afford to pay to your mortgage? The answers to these and other questions will help you determine the most appropriate mortgage you should be seeking.
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Make sure you understand what prepayment privileges and payment frequency options are available to you.
More frequent payments (for example weekly or biweekly) can literally shave years off your mortgage. Simply by structuring your payments so that they come out more frequently, will significantly lessen the amount of interest that you will be charged over the term. For the same reason, authorized prepayment of a certain percentage of your mortgage, or an increase in the amount you pay monthly, will have a major impact on the number of years you will have to pay and could shorten your payment term considerably These two payment options can cut years off your mortgage, and save you thousands of dollars in interest. However, not every mortgage has these prepayment privileges built in, so make sure you ask the proper questions.
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Ask if your mortgage is both portable and/or assumable.
A portable mortgage, where available, is one that you can carry with you when you buy your next home and avoid paying any discharge penalties. This means that you will not have to go through the entire mortgage process again unless you are making a move up to a much more expensive home. An assumable mortgage is one that the buyer for your home can take over when you move to your next home. This can be a very powerful tool at the negotiating table making it much easier and more desirable for a buyer to buy your home, and again saves you any discharge penalties.
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You should seriously consider dealing with a Mortgage Expert.
Consider dealing only with a professional who specializes in mortgages. Enlisting their services can make a significant difference in the cost and effectiveness of the mortgage you obtain. For example they can make the process faster thereby avoiding costly delays. Typically there is no cost or obligation to enquire.
13 Extra Costs Before Buying a Home
Whether you’re looking to buy your first home, or trading up to a larger one, there are many costs — on top of the purchase price — that you must figure into your calculation of affordability. These extra fees, such as taxes and other additional costs, could surprise you with an unwanted financial nightmare on closing day if you’re not informed and prepared.
Some of these costs are one-time fixed payments, while others represent an ongoing monthly or yearly commitment. Not all of these costs will apply in every situation, however it’s better to know about them ahead of time so you can budget properly.
Remember, buying a home is a major milestone. Whether it’s your first, second or tenth home, there are many important details to address, during the process. The last thing you need are unbudgeted financial obligations cropping up hours before you take possession of your new home.
Read through the following checklist to make sure you’re budgeting properly for your next move.
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Appraisal Fee
Your lending institution may request an appraisal of the property which would be your responsibility to pay for. Appraisals can vary in price from approximately $175 – $300.
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Property Taxes
Depending on your downpayment, your lending institution may decide to include your property taxes in your monthly mortgage payments. If your property taxes are not added to your monthly payments, your lending institution may require annual proof that your taxes have been paid.
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Survey Fee
When the home you purchase is a resale (vs a new home), your lending institution may ask for an updated property survey. The cost for this survey can vary between $700-$1,000.
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Property Insurance
Home insurance covers the replacement value of your home (structure and contents). Your lending institution will request proof that you are insured as it protects their investment on the loan.
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Service Charges
Any new utility that services your hook up, such as telephone or cable, may require an installation fee.
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Legal Fees
Even the simplest of home purchases should have a lawyer involved to review all paperwork. Shop around, as rates vary greatly depending on the complexity of the issues and the experience of the lawyer.
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Mortgage Loan Insurance Fee
Depending upon the equity in your home, some mortgages require mortgage loan insurance. This type of insurance will cost you between 0.5% – 3.5% of the total amount of the mortgage. Usually payments are made monthly in addition to your mortgage and tax payment.
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Mortgage Brokers Fee
A mortgage broker is entitled to charge you a fee in order to source a lender and organize the financing. However, it pays to shop around because many mortgage brokers will provide their services free to you by having the lending institution absorb the cost.
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Moving Costs
The cost for a professional mover can cost you in the range of: • $50-$100/hour for a van and 3 movers, and • 10-20% higher during peak demand seasons.
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Maintenance Fees
Condos charge monthly fees for common area maintenance such as groundskeeping and carpet cleaning in hallways. Costs will vary depending on the building.
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Water Quality and Quality Certification
If the home you purchased is serviced by a well, you should consider having your water checked by your local experts. Depending upon where you live, determines whether or not a fee is charged, to certify the quantity and quality of the water.
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Local Improvements
If the town you live in has made local improvements (such as the addition of sewers or sidewalks), this could impact a property’s taxes by thousands of dollars.
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Land Transfer Tax
This tax is applied whenever property changes hands and the amount that is applied can vary.
How Sellers Set Their Asking Price
For you to understand how much to offer for a home you’re interested in, it’s important for you to know how sellers price their homes. Here are 4 common strategies you’ll start to recognize when you begin to view homes:
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Clearly Overpriced:
Every seller wants to realize the most amount of money they can for their home, and real estate agents know this. If more than one agent is competing for your listing, an easy way to win the battle is to overinflate the value of your home. This is done far too often, with many homes that are priced 10-20% over their true market value. This is not in your best interest, because in most cases the market won’t be fooled. As a result, your home could languish on the market for months, leaving you with a couple of important drawbacks:
- your home is likely to be labeled as a “troubled” house by other agents, leading to a lower than fair market price when an offer is finally made
- you have been greatly inconvenienced with having to constantly have your home in “showing” condition… for nothing. These homes often expire off the market, forcing you to go through the listing process all over again.
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Somewhat Overpriced:
About 3/4 of the homes on the market are 5-10% overpriced. These homes will also sit on the market longer than they should. There is usually one of two factors at play here: either you believe in your heart that your home is really worth this much despite what the market has indicated (afterall, there’s a lot of emotion caught up in this issue), OR you’ve left some room for negotiating. Either way, this strategy will cost you both in terms of time on the market and ultimate price received
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Priced Correctly at Market Value
Some sellers understand that real estate is part of the capitalistic system of supply and demand and will carefully and realistically price their homes based on a thorough analysis of other homes on the market. These competitively priced homes usually sell within a reasonable time-frame and very close to the asking price.
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Priced Below the Fair Market Value
Some sellers are motivated by a quick sale. These homes attract multiple offers and sell fast — usually in a few days — at, or above, the asking price. Be cautious that the agent suggesting this method is doing so with your best interest in mind.
How to Save Thousands of Dollars When You Buy a Home
If you’re like most homebuyers, you have two primary considerations in mind when you start looking for a home. First, you want to find a home that perfectly meets your needs and desires, and secondly, you want to purchase this home for the lowest possible price.
When you analyze those successful homebuyers who have been able to purchase the home they want for thousands of dollars below a seller’s asking price, some common denominators emerge. Although your agents negotiating skills are important, there are three additional key factors that must come into play long before you ever submit an offer.
These Steps Will Help You Save Thousands When You Buy a Home
Make sure you know what you want…
As simple as this sounds, many homebuyers don’t have a firm idea in their heads before they go out searching for a home. In fact, when you go shopping for a place to live, there are actually two homes competing for your attention: the one that meets your needs, and the one that fulfills your desires. Obviously, your goal is to find one home that does both. But in the real world, this situation doesn’t always occur.
When you’re looking at homes, you’ll find that you fall in love with one or another home for entirely different reasons. Is it better to buy the 4-bedroom home with room for your family to grow, or the one with the big eat-in kitchen that romances you with thoughts of big weekend family brunches? What’s more important: a big backyard, or proximity to your child’s school? Far too often people buy a home for the wrong reasons, and then regret their decision when the home doesn’t meet their needs.
Don’t shop with stars in your eyes:
Satisfy your needs first. If you’re lucky, you’ll find a home that does this and also fulfills your desires. The important thing is to understand the difference before you get caught up in the excitement of looking. Find out if your agent offers a “Buyer Profile System” or “Househunting Service,” which takes the guesswork out of finding just the right home that matches your needs. This type of program will cross-match your criteria with
ALL available homes on the market and supply you with printed information on an on-going basis. A program like this helps homeowners take off their rose-colored glasses and, affordably, move into the home of their dreams.
To help you develop your homebuying strategy, use this form:
What do I absolutely NEED in my next home:
- ______________________________ 2. ______________________________ 3. ______________________________ 4. ______________________________ 5. ______________________________
What would I absolutely LOVE in my next home:
- _______________________________ 2. _______________________________ 3. _______________________________ 4. _______________________________ 5. _______________________________
9 Buyer Traps and How to Avoid Them
Buyer Beware
No matter which way you look at it buying a home is a major investment But for many homebuyers, it can be an even more expensive process than it needs to be because many fall prey to at least a few of the many common and costly mistakes which trap them into either:
- paying too much for the home they want, or
- losing their dream home to another buyer or,
- (worse) buying the wrong home for their needs.
A systemized approach to the homebuying process can help you steer clear of these common traps, allowing you to not only cut costs, but also secure the home that’s best for you.
This important report discusses the 9 most common and costly of these homebuyer traps, how to identify them, and what you can do to avoid them.
Find out if your agent offers a Buyer Profile System or “House-hunting Service,” which takes the guesswork out of finding just the right home that matches your needs. This type of program will crossmatch your criteria with ALL available homes on the market and supply you with printed information on an on-going basis. A program like this can help you to affordably, move into the home of your dreams.
9 Buyer Traps and How to Avoid Them
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Bidding Blind
What price should you offer when you bid on a home? Is the seller’s asking price too high, or does it represent a great deal. If you fail to research the market in order to understand what comparable homes are selling for, making your offer would be like bidding blind. Without this knowledge of market value, you could easily bid too much, or fail to make a competitive offer at all on an excellent value.
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Buying the Wrong Home
What are you looking for in a home? A simple enough question, but the answer can be quite complex. More than one buyer has been swept up in the emotion and excitement of the buying process only to find themselves the owner of a home that is either too big or too small. Maybe they’re stuck with a longer than desired commute to work, or a dozen more fix-ups than they really want to deal with now that the excitement has died down. Take the time upfront to clearly define your wants and needs. Put it in writing and then use it as a yard stick with which to measure every home you look at.
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Unclear Title
Make sure very early on in the negotiation that you will own your new home free and clear by having a title search completed. The last thing you want to discover when you’re in the back stretch of a transaction is that there are encumbrances on the property such as tax liens, undisclosed owners, easements, leases or the like.
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Inaccurate Survey
As part of your offer to purchase, make sure you request an updated property survey which clearly marks your boundaries. If the survey is not current, you may find that there are structural changes that are not shown (e.g. additions to the house, a new swimming pool, a neighbor’s new fence which is extending a boundary line, etc.). Be very clear on these issues.
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Undisclosed Fix-ups
Don’t expect every seller to own up to every physical detail that will need to be attended to. Both you and the seller are out to maximize your investment. Ensure that you conduct a thorough inspection of the home early in the process. Consider hiring an independent inspector to objectively view the home inside and out, and make the final contract contingent upon this inspector’s report. This inspector should be able to give you a report of any item that needs to be fixed with associated, approximate cost.
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Not Getting Mortgage Preapproval
Preapproval is fast, easy and free. When you have a preapproved mortgage, you can shop for your home with a greater sense of freedom and security, knowing that the money will be there when you find the home of your dreams.
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Contract Misses
If a seller fails to comply to the letter of the contract by neglecting to attend to some repair issues, or changing the spirit of the agreement in some way, this could delay the final closing and settlement. Agree ahead of time on a dollar amount for an escrow fund to cover items that the seller fails to follow through on. Prepare a list of agreed issues, walk through them, and check them off one by one.
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Hidden Costs
Make sure you identify and uncover all costs – large and small – far enough ahead of time. When a transaction closes, you will sometimes find fees for this or that sneaking through after the “sub”- total – fees such as loan disbursement charges, underwriting fees etc. Understand these in advance by having your lender project total charges for you in writing.
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Rushing the Closing
Take your time during this critical part of the process, and insist on seeing all paperwork the day before you sign. Make sure this documentation perfectly reflects your understanding of the transaction, and that nothing has been added or subtracted. Is the interest rate right? Is everything covered? If you rush this process on the day of closing, you may run into a last minute snag that you can’t fix without compromising the terms of the deal, the financing, or even the sale itself.
