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• AMOUNT OF CASH for DOWN PAYMENT, CLOSING COSTS & CASH RESERVES.
• OUTSTANDING DEBTS
• CREDIT HISTORY
• TYPE OF MORTGAGE YOU SELECT
• CURRENT INTEREST RATES
Lenders will analyze your income in relation to your projected cost of the home and outstanding debts. This will determine the size loan you can borrow. Your housing expense-to-income ratio is determined by calculating your projected monthly housing expense, which consists of the principal and interest payment on your loan, property taxes and hazard insurance. The sum of these costs is referred to as “PITI.” Monthly homeowner association dues, if you’re purchasing a condominium or townhouse, and private mortgage insurance are added to the PITI. Your housing income-to-expense ratio should fall in the 28 to 33 percent range. 28 percent of your gross monthly income is allotted toward PITI. 33 percent of you gross monthly income is allowed for PITI and all long term debt. Some lenders will go higher under certain circumstances.. Your total income-to-debt ratio should not exceed 34 to 38 percent of your gross income. back to top
WHAT STEPS SHOULD I TAKE WHEN LOOKING FOR A HOME LOAN?
It is strongly recommended that home buyers are prequalified or pre-approved for a loan as their first step in the process. By being prequalified, a buyer knows exactly how much house they can afford. They can make more informed decisions in the market place. This does not mean they will definitely get the loan because their credit reports, wages and bank statements still need to be verified before you can receive a commitment from the lender for the loan. Almost all mortgage lenders prequalify people at no charge. Many of them will even do it on the internet. In order to be pre-approved, an application will be taken. For a fee, your credit report will be pulled, your employment and income will be verified, your checking and savings accounts will also be verified. In other words, all the necessary documentation will be completed in order for you to obtain a loan. The only things remaining will be for you to find a home, obtain an appraisal on it to prove its value to the bank and perform whatever inspections you may want on the property. This process considerably shortens the time frame to closing. back to top
DO YOU NEED A DOWN PAYMENT TO BUY A HOME?
The most significant upfront expense when purchasing a home is the down payment. The amount of down payment required for a mortgage varies from lender to lender. It may be as much as 20% or as little as 3.5% of the purchase price, depending on your credit, your debt-to-income ratios, and whether you qualify for special programs.
Additional upfront costs include earnest money to accompany your home bid, a home inspection, and closing costs (insurance, taxes and other fees due at closing). These costs can be significant, so discuss them in advance with your agent and your lender. back to top
SHOULD I PUT MORE OR LESS DOWN OF A DOWN PAYMENT, IF WE CAN AFFORD IT?
Various types of loan programs exist. Some require a minimum of 3 percent down payment (FHA Loans) or 5 percent on conventional loans. Veterans can purchase with no money down (VA Loan). Putting down as little as possible allows buyers to take full advantage of the tax benefits of home ownership. Mortgage interest and property taxes are fully deductible from state and federal income taxes. Buyers using a small down payment also have a reserve for making unexpected improvements. It may be more prudent to make a larger down payment and thereby reduce the amount of debt that must be financed. Once a buyer puts twenty percent or more as a down payment on their desired home, they will waive the requirement for mortgage insurance. back to top
WHY DO I NEED MORTGAGE INSURANCE?
Mortgage insurance is a requirement on all loans, with the exception of veterans guaranteed loans. That means a full years premium for the insurance is collected “up front’ at the closing of escrow, plus you will be paying monthly as part of your PITI, principle-interest-taxes-insurance. back to top
WHAT IS TITLE INSURANCE?
Title insurance is a form of insurance in favor of an owner, lessee, mortgage or other holder of an estate lien, or other interest in real property. It indemnifies against loss up to the face amount of the policy, suffered by reason of title being vested otherwise than as stated, or because of defects in the title, liens and encumbrances not set forth or otherwise specifically excluded in the policy, whether or not in the public land records, and other matters included within the policy form, such as lack of access to the property, loss due to unmarketability of title, etc. The title policy form sets forth the specific risks insured against. Additional coverage of related risks may also be added by endorsements to the policy or by the inclusion of additional affirmation insurance to modify or supersede the impact of certain exceptions, exclusions or printed policy “conditions.” The policy also protects the insured for liability on various warranties of title. In addition, the policy provides protection in an unlimited amount against costs and expenses incurred in defending the insured estate or interest.
Before it issues a title policy, the title insurance company performs, or has performed for it, an extensive search, examination and interpretation of the legal effect of all relevant public records to determine the existence of possible rights, claims, liens or encumbrance that affect the property.
However, even the most comprehensive title examination, made by the most highly skilled attorney or lay expert, can not protect against all title defects and claims. These are commonly referred to as the “hidden risks.” The most common examples of these hidden risks are fraud, forgery, alteration of documents, impersonation, secret marital status, incapacity of parties (whether they be individuals, corporations, trusts or any other type), and inadequate or lack of powers of REALTORS or fiduciaries. Some other hidden risks include various laws and regulations that create or permit interests, claims and liens without requiring that they first be filed or recorded in some form so that the potential buyers and lenders can find them before parting with their money.
Since the cost for home owner’s title insurance is usually sharply reduced when taken simultaneously with the issuance of a purchase money mortgage, the risk is one that a well informed buyer should not take. In fact, several states have adopted statutory requirements which require a notice to home buyers as to the availability of title insurance similar to that being obtained by their purchase money mortgages.back to top
IS IT BETTER TO BUY A NEW HOME OR A RESALE?
Sales price increases in either type of housing are strongly tied to location, growth in the local housing market and the state of the overall economy. Some people feel that buying into a new-home community is a bit riskier than purchasing a house in an established neighborhood. Future appreciation in value in either case depends upon many of the same factors. Others believe that a new home is less risky because things won't "wear out" and need replacement.
"Existing homes have been appreciating a little more than new homes but every once in awhile they're at the same level and sometimes the new home prices go up a little quicker" according to the National Association of REALTORS (NAR).
NAR figures show the median price of existing homes went up 3 percent between 1994 and 1995; projections are that prices will increase 3.2 percent in 1996 and 1.2 percent in 1997.
New home median prices went up 0.8 percent in 1995 and are likely to increase another 0.5 percent in 1996. For 1997, the group predicts a 1.1 gain in median new home prices. back to top