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Renew Your Lease or Buy a Home-How Do You Know It’s Time?

It’s almost time to renew your lease and you have been watching a lot of House Hunters on HGTV. It looks easy enough on TV to buy a house and you think you are ready to take the big step, but how do you know if now is the right time? The very first thing you need to consider is your financial situation. Make an appointment with a local lender to get pre-qualified for a home loan. Resist the urge to jump on a website and get a quick pre-approval on line. This is usually not a complete pre- qualification with a credit check, but rather you plug in a few numbers and they spit a number back at you of how much house you can afford. This is seldom reliable and you certainly won’t be able to ask the questions that you need answered. Local lenders will pre- approve you free of charge and take the time to explain the different loan products that are available and how the process works. This is critical if you are serious about trying to buy a home. It will let you know how much house you can afford so you know you are looking in the correct price range. There is nothing more discouraging than finding your dream house only to discover you can’t afford it. A pre-approval letter also tells Sellers you are qualified to buy their home and puts you in a much better negotiating position. When you speak with a lender, they will look at your income, your current debt load and your credit score. Make sure you...

Earnest Money 101

What is earnest money? Earnest money is the amount of money a buyer puts down to accompany an offer to purchase real estate. Basic contract law requires “consideration” as an element of a valid contract. The earnest money deposit is that consideration when a buyer makes an offer. It is used to show the seller that the buyer is “earnest” in his desire to purchase his property. Without earnest money deposits, buyers could make offers on multiple properties leaving the sellers with little recourse if the buyers back out of the contract. The amount of the earnest money deposit is negotiated between the buyer and the seller but is usually between 2 and 5% of the offered price. Who holds the earnest money is also negotiable, but in this area it is common practice for the listing office to hold the earnest money in their trust account. The escrow or trust account is a non interest bearing account where earnest money deposits are held until the property closes or the contract is terminated. At closing, the earnest money deposit becomes a credit to the buyer for any closing costs they may have, or it is subtracted from the purchase price of the property. This process sounds easy enough but what happens when the property doesn’t close? Who gets the earnest money then? That’s where things can get sticky. Earnest money is not like a security deposit. The buyer does not automatically get their money back if the property doesn’t close. The seller doesn’t automatically get to keep the money of the property doesn’t close either. How this situation gets...

Are You Ready For A Second Home?

It’s winter in northern Illinois and you have been thinking this might be the year to start looking to buy that second home.  Whether the warmth of the Florida beaches, the Arizona golf courses or the mountains of Colorado are calling you, there are some things to consider before you take the plunge. The first item on the list should be the financial aspect of buying and owning a second home. Aside from the purchase price of the property, you need to factor in the costs of actually owning the home.  Taxes, insurance, utilities, maintenance and HOA (home owner association) fees need to be budgeted just as they would be for your primary home. Even though you may only be living there several months out of the year, remember you will have these costs 12 months out of the year. You may be able to rent out the home for the months that you are not using it which can help offset the cost. Don’t forget to consider the transportation costs to and from the property, especially if it is a great distance away from where you now live. If you will be getting a mortgage to pay for the home talk to your lender about the loan costs involved for a second home. Typically the down payment will be higher because it will not be your principle residence and there may be other additional costs as well. Property taxes and homeowner’s insurance may cost more too since you this is not your primary home. Don’t forget to talk with your accountant about how owning a second home could...

FICO Score Message From MICHAEL W ERWIN

The trend now is that if a potential buyer does not have perfect credit they are less likely to even try getting preapproved.  If you know of someone who might be in this boat please forward this communication to them to let them know, it’s ok to try!  They might get a more favorable response than what they thought… The reason there are more buyers out there right now – here is the mortgage credit availability. This is right from the MBA – the Mortgage Bankers Association. “The higher that number is, the more credit is available.” Now obviously, this number would be skyrocketing in, you know, 2004 and 2005, where anyone can get a mortgage. It’d be much higher than it is right now. But I took a look over since April 2013 all the way through this past month, and what we can see is that the availability of credit through a buyer is becoming easier and easier. Meaning even though, you know, we’re hearing things to the contrary, the actual mortgage that are available to a buyer coming in, the chance of them getting that mortgage is dramatically increasing. As a matter of fact, let’s break down some of the numbers. Here are the average FICO scores on conventional purchase loans – people bought a house – this is the average FICO score. What was the 2012 average, the 2013 average, and what was last month’s average? What this graph shows us is that the average FICO score has steadily dropped from 2012 to 2013 to just last month. That’s important. What we’re showing is that...

Tips on Buying Investment Property

Since the housing market crash has made home ownership difficult for many people, the demand for rental property has increased. If you are thinking about becoming a real estate investor there are some things you will need to consider. Before you start looking for property to purchase, you will need to get qualified for financing unless you are paying cash. If you are not going to be occupying the property yourself you will need a 20-40% down payment depending on your lender. Decide on an area where you would like to invest. If you are looking to invest in single family homes pay attention to school districts, proximity to parks, shopping and locations which would be desirable for families. If you are looking at multi unit buildings which tend to attract more singles than families, then schools and parks may not be that important. Develop a relationship with a Realtor that has experience with investors. They can keep you informed of the inventory and can help you decide which properties would be good investments. Look at as many properties as you can in your price range. That will help you determine market value for the properties you are interested in purchasing. Most properties that are priced to appeal to investors will need some rehab. Be familiar with construction and remodeling costs so you know if having to put a new roof on a house is cost effective or not. If you can do a lot of the work yourself, the costs will be much less than if you have to hire contractors. When considering properties to purchase, foundation issues,...

WHAT YOU NEED TO KNOW BEFORE YOU BUY A HOME

Get Pre-approved! Unless you are paying cash you need to get approved for a mortgage before you start looking at homes. You will know exactly how much you can afford so you can look in the correct price range and you will need to submit a pre-approval with any offer. If you find the perfect home and you donít have a pre-approval letter you risk losing it. Get pre-approved first and when you want to make an offer you will be ready. Once you have been pre-approved do not make any significant changes in your credit or employment. Do not change jobs or do anything to increase your debt load. That new car will have to wait until after you close on your home. Even a minor increase in your debt load may prevent you from qualifying for a mortgage. When you are ready to make an offer on a home you will need to put down earnest money. You will need to put down a minimum of $1000 on most purchase offers and some sellers require a cashiers check. Be ready to provide this when you sit down to write an offer. Let your Realtor help you decide what to offer by showing comparable sales data for the home you are interested in buying. By being informed on what similar properties are selling for you can make a good decision on how much to offer to get the best price without risking offending the seller. You want to open negotiations, not close the door on them. If you are making an offer contingent on selling your current home,...

TIPS FOR THE HOMEBUYER

You should look at several homes before choosing one so you have a basis for comparison. Don’t be turned off by paint colors- itís an easy & cheap fix. Don’t forget to check the basement- check the age of the furnace and water heater, look for evidence of water damage or mold along the walls. Don’t shy away from homes that are not in move in condition, if a little work will increase the value, it may be worth the effort. Don’t place all damages on the same level, worn carpet is far less serious than a leaking roof. When looking at empty homes, try to visualize the rooms with your furniture to make sure you will have enough space. Take measurements if you need to. Short sales generally take much longer to close than standard sales. Drive by the neighborhood at different times during the day to understand the area. Donít be afraid to talk to the neighbors to get information about what itís like to live there. Remember, bad neighbors and run down houses in close proximity can have an impact on the value of a property. GET PRE-APPROVED FIRST. Unless you are buying with cash this needs to be your first step. Be flexible about your wants. One house will seldom fit all your wants so be ready to compromise. Check the driveway and sidewalks for cracks. Re-placing concrete can be expensive. Donít be blinded by nice dÈcor. The owner will be taking that with him. Remember you are buying the empty house, not the owners high end furnishings. If you plan on re-selling in 5...

10 STEPS TO PREPARE FOR HOME OWNERSHIP

Get Pre-Approved for a mortgage. Do this before you start looking for a home so you know what price range you can afford. When you are ready to make an offer, you will need a written pre approval. Once you have your letter you will be ready to make an offer when you find a house. Develop your home wish list. Prioritize the features and be willing to compromise. Decide where you would like to live. Take into account school district, work commute and any other things that will affect the location of your home. Start Saving. Depending on the type of mortgage you are getting you will need enough money for your down payment and closing costs. You may also want money to pay for inspections, attorney fees etc which are not figured in to basic closing costs. Donít forget moving expenses, utility deposits and insurance. Make sure you have enough cash available to cover these costs plus a little extra cushion for emergencies. Get your credit in order. Obtain a copy of your credit report and make sure it is accurate. Most mortgages now require a minimum credit score of 640 to qualify. If yours is less than that you may want to get some credit counseling to raise your score high enough to qualify. Explore your mortgage options. Talk with your lender about the different types of loans you may qualify for and what the requirements will be so you can make an educated decision. Organize your documentation. In order to get approved for a mortgage your lender will require W2 forms, recent pay stubs, tax returns,...

What to Expect at a Real Estate Closing

The final step in a real estate transaction is called the closing. When you are buying a house, this is when all the papers are signed and the ownership transfers into your name. If all goes well, you walk out with the keys to your new home! If you have never purchased property before, the closing process can seem a little intimidating. If it has been awhile since you bought property, a lot has changed. After all the contingencies have been met ( all inspections completed satisfactorily, the appraisal completed and your financing has been approved) you are ready to schedule your closing. Your closing will be scheduled on or before the closing date you agreed to in your contract. Until that time, the seller still owns and will probably retain possession of the property. Keep in mind that you are usually unable to move anything into the house until after the closing. When you are preparing for your move, make sure you have scheduled movers for sometime on after the closing date. Besides scheduling the movers, you will also need to have all utilities put in your name. This includes gas, electric, water & sewer, cable, phone and internet, if you wish to have them. Usually, you need to have all the utilities put in your name as of the date of closing. Make sure you allow enough time for the transfer to occur- at least a week before you should have this done. Also, some companies may require a deposit if you have never had service in your name. You will also need to have homeowners insurance...

How to Make a Winning Offer

Once you have found the house you want, you need to make a written offer to buy it. There are many things to consider before you write the offer. You will need your pre-approval from your lender, an earnest money check( an amount of money you put down when making an offer to demonstrate your good faith, usually $1000 or more based on the price of the home) and a written offer to purchase that you will complete with the help of your Realtor. Obviously, the price you wish to offer is an important consideration but there are many other factors that may affect whether or not your offer is accepted. These other factors are called contingencies and they may sometimes be as important to the success of your offer as the price. If you are obtaining a mortgage to purchase the property then your Realtor will want to include a financing contingency. The bank will normally also require an appraisal of the property to be completed and therefore you will also need an appraisal contingency. If you are paying cash, you will need to decide if you wish to have an appraisal done, since it is not required. In the financing contingency, you will need to include the type of mortgage you are obtaining( conventional, FHA, VA, etc.) and the date by which you will be providing the seller with your final loan approval (typically 30 days or so). If you have already been pre-approved, the bank should have all the required documentation from you and will just need a copy of the final purchase contract and the...

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