Why should I get pre-qualified?
One of the questions I often address up-front with my Buyer clients is the importance of being pre-qualified by a local lender. While you may have an idea of what you would qualify for by using online calculators or by speaking with friends, there are several reasons to go ahead and take the hour to meet with a local lender before beginning your home shopping.
• Determine how much home (and mortgage payments) you can afford and how much you want to afford – these may be different numbers! You may find you qualify for a much larger mortgage and payment than you are willing to make or comfortable making each month. It is okay to be conservative here!
• You will also be given an estimate of your down payment and closing costs, which you will need in the form of a cashier’s check at closing. Have you saved enough? Will you need to structure an offer that requires or requests the Seller contribute toward your closing costs (for which a higher offer must be considered to cover the difference)?
• With the lending changes the last year or so, your credit score now factors in significantly as far as the program you can qualify for and the interest rate. Some programs and rates are not available unless the borrowers’ credit score is over 740. That’s not to say that if you are under 740 you cannot get a loan. However, it may affect your monthly payment and, by extension to some extent, the price range in which you decide to shop. You do not want to begin to shop only to find out that the home you just fell in love with is just beyond your payment’s reach!
• Similarly, if you find the best product for you is a Rural Development (RD) loan, this will affect the location in which you may purchase, as RD has fixed physical boundaries in which they will invest and in which the property must lie. If you determine that an IHFA loan is best for you, you will need to complete the Finally Home! borrower education class prior to the loan closing. These are typically offered only once to twice a month locally; not having it completed will delay your closing.
• Once you are pre-qualified with a local lender, as you shop with your REALTOR® you are ready to move on a home when you find one you would like to buy. And if you are competing with other Buyers, you will be better prepared to write a thoughtful offer, putting you in a stronger negotiating position (a Buyer who has already taken the time to personally pre-qualify shows to a Seller to be a serious Buyer – not one that might change their minds and try to back out). The idea of competing Buyers seems silly on the onset in this market, but consider: if the majority of Buyers looking right now are first-time homebuyers due to the tax credit, they are largely looking in the same price range and they ALL have the same deadline to be in contract to qualify, therefore they are creating competition by the laws of supply and demand. (Another way to lessen your competition is to not wait until April to get into contract, but beat the majority of the Buyers to the market.)
• You may find that REALTORS® are less willing to spend their time showing you homes if you have not shown the personal commitment to at least get pre-qualified. With all the recent lending changes and constrictions, Agents can no longer assume a Buyer will qualify for some kind of loan, and are reluctant to spend time showing homes to Buyers who, in the end, may not actually qualify. While it is a service business, Agents are finding they need to be more certain their potential clients are actually potential clients. Future clients are always welcome and advice is always free, but unless a client is actually in the market to buy, REALTORS® have a fiduciary responsibility to the Seller to not inconvenience them and show their home to people who have not been properly vetted and are not active Buyers (it’s not an open tour to the general public, which I’m sure you can appreciate).
• Lastly, but not least, getting pre-qualified will help you to determine your true costs of homeownership, including property taxes, insurance, homeowner/association fees (if applicable), etc. Do remember, as your eyes glaze over with the initial sticker shock, the financial BENEFITS of homeownership as well, which will not be shown to you by the bank – the tax deductions available to you through your mortgage interest paid, property taxes paid, etc (contact a tax advisor for details and tax advice).
NEXT: The Perfect Home?
Buying and Selling homes in Eastern Idaho made simple.
18 January 2010
Bonneville County Relay for Life
Relay for Life Kick-off Event!
So, Relay fans! It's time again to kick-off the new year's event! The Bonneville County Relay for Life is Friday, July 9th starting at 6pm through 6am Saturday. It will again be at the Bonneville High School track.
Team WCR (Women's Council of REALTORS) will again be entering, and I am proud to say last year we came in 4th place in total team fundraising - and it was our first year participating!
The kick-off event is this Wednesday, January 20th from 6-8pm at the Civic Auditorium. Come see the "Dancing with the Stars" theme. Team WCR will again be raffling off a pink and purple cruiser bike, thanks to the generosity of last year's winner who donated it back to the cause! Tickets are $5 or 5 for $20.
I hope to see you there on Wednesday!
So, Relay fans! It's time again to kick-off the new year's event! The Bonneville County Relay for Life is Friday, July 9th starting at 6pm through 6am Saturday. It will again be at the Bonneville High School track.
Team WCR (Women's Council of REALTORS) will again be entering, and I am proud to say last year we came in 4th place in total team fundraising - and it was our first year participating!
The kick-off event is this Wednesday, January 20th from 6-8pm at the Civic Auditorium. Come see the "Dancing with the Stars" theme. Team WCR will again be raffling off a pink and purple cruiser bike, thanks to the generosity of last year's winner who donated it back to the cause! Tickets are $5 or 5 for $20.
I hope to see you there on Wednesday!
15 January 2010
10 Things to Take the Trauma Out Of Homebuying - Installment 2
So after only a *short* break from my new blog series, here is the second installment. I know you are all loyal readers and fans, and will forward this to anyone you know who might benefit from it. Hopefully, I have all the *math* right!
2. The Right Time to Buy?
While in most price ranges home prices have fallen locally over the last two years, I am seeing signs that Buyers are still afraid to buy. Mortgage rates remain at the lowest rates in decades, first-time Buyers and now qualified “move-up” Buyers can benefit from an $8000 and $6500 tax credit respectively, and yet Buyers are still leery to pull the trigger. How will they know when to buy?
The tax credit for first-time Buyers has enough media coverage and Buyer attention to get the word out on the financial benefits of homeownership: not only the potential of equity growth over time, but the ability to deduct mortgage interest and property taxes and that any gains made on sale are tax-free if you occupied the home two of the last five years.
Even with the recent value drop, the common consensus among investors is that real estate remains one of the best performing long-term investments. Yet what about the near-term? No one wants to feel like they made one of the largest purchases of their life only to wonder if they could have gotten the same home for $10,000 less in six months!
So, let’s create a scenario. Say you are looking to buy a home for $200,000 with 3.5% down. Your loan amount would be $193,000 and your down payment $7000, your Principal and Interest Payment $1036/mo.
But you were not sure it was the right time, so you waited. Six months later the Seller reduced the price to $190,000 (a 5% price reduction). Your loan amount now is $183,350 and your down payment $6650 (saving you $350). But the rate in the mean time has gone up to 5.5%. Still incredibly low! However, your payment now is $1041/mo.
Yes, it’s only $5/mo more, and you saved $350 in down payment. But if you plan to live in the home 5 years, that is an extra $300 in payments, and while you were waiting the six months for the price to drop, you were still paying rent! If your rent is $500/mo – that’s $3000 out of your pocket that you could have used for a down payment! Or to build equity in YOUR home instead of someone else’s. And you cannot deduct ANY of that $3000, while if it was being applied to your mortgage payment, the bulk of that would be deductible on your Federal Taxes (please consult a tax advisor for information). Is it possible rates won't rise 0.5%? Yes. But what is more likely: a Seller reduces the asking price by 5% or rates rise 0.5%?
Consider further the chart to the right, as provided by the National Association of REALTORS®. This assumes a purchase price of $200,000 with 10% down at a rate of 5.5% vs $1000/mo in rent (a bit high for this area, but comparable to a mortgage payment in this price range). Not considering any equity gain from payments made toward the principal, in a year of no growth the annual cost of the loan is $9,673 vs $12,000 renting. That means even with no market value growth, the homeowner would still have an extra $2327 in his pocketbook vs. renting. Who couldn’t use that? Even at a 1% depreciation in value, the homeowner would be up $327 on the investment vs. renting. And obviously even better off with below trend growth.
So is it a good time to buy? Yes! Most price ranges currently have increased inventory to choose from. And if you are a first-time or “move-up” buyer, the scenario above does not even take into account the added tax credit available – which is refundable – cash in hand! And this time, it is NOT likely to be extended again.
Think you are interested in more? Call me today!
NEXT: Why Should I Get Pre-qualified?
2. The Right Time to Buy?
While in most price ranges home prices have fallen locally over the last two years, I am seeing signs that Buyers are still afraid to buy. Mortgage rates remain at the lowest rates in decades, first-time Buyers and now qualified “move-up” Buyers can benefit from an $8000 and $6500 tax credit respectively, and yet Buyers are still leery to pull the trigger. How will they know when to buy?
The tax credit for first-time Buyers has enough media coverage and Buyer attention to get the word out on the financial benefits of homeownership: not only the potential of equity growth over time, but the ability to deduct mortgage interest and property taxes and that any gains made on sale are tax-free if you occupied the home two of the last five years.
Even with the recent value drop, the common consensus among investors is that real estate remains one of the best performing long-term investments. Yet what about the near-term? No one wants to feel like they made one of the largest purchases of their life only to wonder if they could have gotten the same home for $10,000 less in six months!
So, let’s create a scenario. Say you are looking to buy a home for $200,000 with 3.5% down. Your loan amount would be $193,000 and your down payment $7000, your Principal and Interest Payment $1036/mo.
But you were not sure it was the right time, so you waited. Six months later the Seller reduced the price to $190,000 (a 5% price reduction). Your loan amount now is $183,350 and your down payment $6650 (saving you $350). But the rate in the mean time has gone up to 5.5%. Still incredibly low! However, your payment now is $1041/mo.
Yes, it’s only $5/mo more, and you saved $350 in down payment. But if you plan to live in the home 5 years, that is an extra $300 in payments, and while you were waiting the six months for the price to drop, you were still paying rent! If your rent is $500/mo – that’s $3000 out of your pocket that you could have used for a down payment! Or to build equity in YOUR home instead of someone else’s. And you cannot deduct ANY of that $3000, while if it was being applied to your mortgage payment, the bulk of that would be deductible on your Federal Taxes (please consult a tax advisor for information). Is it possible rates won't rise 0.5%? Yes. But what is more likely: a Seller reduces the asking price by 5% or rates rise 0.5%?
Consider further the chart to the right, as provided by the National Association of REALTORS®. This assumes a purchase price of $200,000 with 10% down at a rate of 5.5% vs $1000/mo in rent (a bit high for this area, but comparable to a mortgage payment in this price range). Not considering any equity gain from payments made toward the principal, in a year of no growth the annual cost of the loan is $9,673 vs $12,000 renting. That means even with no market value growth, the homeowner would still have an extra $2327 in his pocketbook vs. renting. Who couldn’t use that? Even at a 1% depreciation in value, the homeowner would be up $327 on the investment vs. renting. And obviously even better off with below trend growth.
So is it a good time to buy? Yes! Most price ranges currently have increased inventory to choose from. And if you are a first-time or “move-up” buyer, the scenario above does not even take into account the added tax credit available – which is refundable – cash in hand! And this time, it is NOT likely to be extended again.
Think you are interested in more? Call me today!
NEXT: Why Should I Get Pre-qualified?
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