Appraisals and Your Home Mortgage Loan

When you get a mortgage loan to buy your home, your lender will require an appraisal to confirm the value of the property. Why? The property serves as collateral for your loan, and lenders want to be sure that they can at least recover the amount loaned if they have to sell because of default. With your final loan commitment contingent on a satisfactory appraisal, and because that appraisal assures you are paying a fair price for the home, it is a good idea to get familiar with the appraisal process even before you make your first purchase offer.

What is an appraisal? A real estate appraisal is an assessment process that results in an impartial opinion of a property’s value. More specifically, it is an estimate of how much a given property will sell for in an open and competitive real estate market. Lenders typically contract with an independent licensed appraiser to perform the appraisal process, which is carried out according to professional practice guidelines. The process is thorough and detailed and involves an inspection of the property that is being appraised (the subject property), verification of property data though public records, analysis of market data, and application of a value approach.

The major phase of the appraisal process involves the application of a value approach.

Sales Comparison and Cost Approach
Two of the most common approaches used for residential properties are the sales comparison approach and the cost approach. The sales comparison approach looks at the subject property with respect to similar properties, called comps that have sold in the area. The premise of this approach is that the market value of the subject property is directly related to the prices of similar, competitive properties. The comparative analysis focuses on similarities and differences among properties that affect value. In other words, the appraiser compares physical characteristics and makes monetary adjustments for each comp to bring it more in line with the subject property. Those adjustments are based on contributory values of characteristics as determined by the market. For example, a bathroom in a given market may have a contributory value of $5,000. If the comp has one less bathroom than the subject property, then the sales price of the comp would be adjusted upward by $5,000.

The cost approach takes the value of the land into consideration along with an estimate of how much it would cost to replace the home if it were destroyed. The premise here is that the market value is what a reasonable buyer would pay for a suitable substitute property. This approach is useful for new construction where the costs involved in building are known. It can also be helpful in situations where a lack of market activity limits the usefulness of the sales comparison approach or where the characteristics of available comparable properties differ significantly from the subject property, making precise valuation difficult.

What can you expect to see in an appraisal report? Reports vary in form and content however examples of the types of information included in a typical report are:

  • Photos of the subject property and comps
  • Detailed description of the subject property
  • Side-by-side comparison of the subject property with up to three comps
  • Evaluation of the real estate market in the area
  • Notes about any factors that might negatively impact the subject property’s value
  • Estimate of the average sales time for the subject property

Should you worry about the outcome of the appraisal? It is a very important part of the mortgage process, and your loan could certainly be declined if the property does not qualify as adequate security. You probably should not agonize too much about appraised value because more often than not, it has an uncanny way of being right in line with the asking price. This is especially true when the seller had an appraisal done to determine the asking price, or an experienced real estate agent performed a comparative market analysis to arrive at the price.

Remember though, that in addition to the appraised value, the lender studies the entire appraisal report when determining whether the property qualifies as adequate security for your loan. Other factors like estimated time to sell the property are incorporated into their decision process. If problems do arise from the appraisal, don’t immediately push the panic button. Work with the seller and lender on compromises and solutions to try and carry the deal forward.

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Buying a Home: Bidding and Making an Offer in a Sellers Market

In a sellers’ market — when the supply of homes for sale is low and buyers are plentiful — you could easily find yourself competing against other buyers for a home. What are some of the things you should consider before joining the bidding competition? And if you do jump into the fray, how can you improve your chances for success in purchasing the home of your dreams at a fair price? Here are a few pointers:

Before You Put Your Offer on the Table

Understand how multiple offers work. Basically, a multiple offer scenario means that the seller has his/her pick of two or more purchase offers. The seller can accept one of the offers, reject all of them, or begin the counteroffer process. A counteroffer does not stop the seller from entertaining other offers while waiting to hear from you. If a better offer comes along, the seller could rescind their counteroffer before you have a chance to respond. Sellers have no obligation to respond to offers in the order they are received. Nor do they have to reveal the status of other offers to competing buyers. And in negotiating, the seller has increased leverage and may use it to improve price or terms.

Decide if this is the absolute right home for you. Try not to let the competitive market conditions create a halo effect on the home. Sometimes we find things even more attractive when competing against others to obtain them. Make sure that this is the home you would buy regardless of the market conditions.

Know your limits. This includes how much you are willing and able to pay, as well as what you are willing to give up in terms and conditions. By getting a handle on your limits up front, you can better determine whether you should even make an offer. And if you do make an offer followed by negotiations, you will be less likely to let emotions of the moment unduly influence your actions.

Know that the highest bid isn’t always the one accepted. Price is not the only consideration for sellers. They are looking for the offer that best meets their combination of needs. They may need to close quickly due to a job transfer or a move to another home. Or they might need to stay in the home for a period of time following closing. In these instances, timing of closing and possession would be factors that weigh into their decision process in addition to price.

When Making Your Offer

Open strong. In a hot sellers’ market, you may not get a chance to negotiate. So make the most competitive offer you can within your established limits. Keep the offer as clean as possible – uncluttered by lots of contingencies – but do not waive contingencies that are important and in your best interest. A contingency is a written provision that must be satisfied before the contract is binding. Contingencies can cover areas like home inspection, appraisal value, clear property title, or financing. If you have to sell a home first, you could include a “contingent upon the sale of your existing home” clause. In a sellers’ market, however, this can quickly kill an offer. Why should a seller wait for you to sell your home when buyers are lined up?

Be ready, willing, and able to close the deal. Act with a sense of urgency and show that you are serious. Getting pre-approved for a mortgage loan is very helpful in this regard. A pre-approval letter demonstrates that a lender has already considered your financial situation and is ready to proceed with your loan. You are essentially making an offer with the money to back it up.

Be flexible. If you do get to negotiate, do so with as much generosity as you can muster. Be reasonable and the chances are good that the seller will do the same. Don’t get into nickel-and-dime negotiating tactics. Instead, make a concerted effort to reach reasonable compromises that are win-wins for both of you.

Knowledge and preparedness are two of the keys to success in buying a home when bidding wars abound. Know what the market has to offer, determine the selling prices of comparable homes, find out as much as you can about the seller’s needs, and be ready and able to seize a good value.

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Community Living: Is It Right For You? Condominiums, Townhouses & Cooperatives

Is a traditional single-family home out of your price range, too much upkeep, or just not your style? Then community living – condominium, townhouse, or cooperative – may be a practical solution for you. All three dwellings are forms of attached housing, a setting where you share common walls. These homes come with minimal maintenance responsibilities and are often affordable even in premium priced markets. Sound great? They certainly can be. But before you jump into the market for one of these homes, understand each one and use that knowledge to decide if this type of ownership is right for you.

To help you get started, here is a quick comparison:

Condominiums
Most condominiums, or condos, resemble apartments. These individual units are typically located in a complex of multi-unit buildings that can range anywhere from two stories to a towering high rise. Buy a condo and you own the interior space of your unit. You do not own the land beneath the building. You share common walls with neighbors who can be on one or both sides as well as above and below. You also share ownership and use of common areas and amenities. Examples of common areas are hallways and exterior walls. Amenities vary with the complex and can include swimming pools, clubhouses, and tennis courts.

As a condo owner, you are responsible for paying property taxes on your individual unit. You also become a member of the Homeowners’ Association (HOA), along with the other owners in your complex. Because the day-to-day operation of your HOA is a job in and of itself, a professional management company usually handles that work. This group is charged with maintenance and upkeep of the exterior buildings and grounds. To cover that cost, they charge all homeowners a monthly association fee. The amount you pay will vary depending on the amenities offered and that fee can sometimes be significant. What the fee covers also varies from complex to complex, so it is important that you have a clear idea of what it does and does not include. Your HOA also sets and enforces rules and restrictions to which all owners must adhere. The goal is to maintain a certain uniform look and feel throughout the complex. These rules can sometimes be quite restrictive and can govern anything from the color of window treatments to the number of parking spaces you have.

Townhouses
The architectural style of townhouses differs from condos which are stacked on top of each other. Townhouses are multi-story homes in rows. Units are connected to each other by shared vertical walls, and they may have attached garages or individual driveways as well as front and/or back lawns. If you buy what is called a fee simple townhome, you own your entire unit and the accompanying land. You also jointly own one or more common walls depending on the location of your unit within the row.

Just as you do for a condo, you also pay property taxes on your townhome. Other characteristics that townhomes can share with condominiums are common areas, homeowner associations, and maintenance fees. Typically in larger townhouse communities, you will have shared ownership in the common areas and any amenities. You may also be part of an HOA where there will most likely be maintenance fees associated with your ownership. Conditions and restrictions enforced by your HOA can also govern your duties and obligations as a townhome owner.

Cooperatives
Also known as co-ops, cooperatives are not as common as condos or townhomes. A cooperative is a housing arrangement in which a corporation owns single residential units, which may have been rental apartments at one time. A board of directors governs the corporation and each resident has one vote. As a resident, you are a shareholder in the corporation. You don’t own any real property. What you have is a proprietary lease to live in your unit. Your lease runs for the life of the corporation.

Since the property is owned by a corporation, it is treated as a single piece of property for tax purposes. The corporation pays those taxes. It also handles maintenance and upkeep, and sometimes utilities. These costs are shared by co-op residents and are usually assessed on a monthly or quarterly basis. The board of directors of the corporation also exercises a fair amount of control with respect to rules and restrictions. Examples of restrictions that may come with your lease include a maximum number of residents per unit, rules prohibiting pets in the building, and no subleasing of units allowed.

No matter which of these homeownership options you are considering, take time to check out the complex or building and even meet some of the neighbors to get a sense of what they are like. Also get an idea of how governing groups are organized and how financially stable they are. And remember to review all governing documents so that you make sure you understand and can live with all the rules.

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Home Buying: Location Matters

You have many important decisions to make when buying a home. One of the most crucial relates to location. Choosing the right location matters because it has implications for two significant areas: quality of life and resale value of your home. So, what kinds of things do you look for when trying to find the location that positively impacts living quality and value? Here are some elements to consider as you begin your search:

Amenities that meet your needs. It is important that you have a list in terms of needs, interests, and preferences. Include factors that are important to you such as commute mode and time; recreational, cultural, health care, and shopping facilities; and types and quality of schools. Rank these priorities in terms of importance. That way you will have a clearer idea of whether a location meets all or most of your needs.

Quality of the neighborhood. An obvious point of interest is safety of the area. Check out crime statistics and drive through the neighborhood to see if any areas look unsafe. Observe whether the area is neat and clean or littered with debris. Pay attention to whether the homes are well maintained or beginning to get a run-down look. Get a good overall picture in your mind about the street, the neighborhood and the surrounding community. This includes gauging traffic patterns and volume at different times of the day, as well as checking noise levels from sources such as railroad tracks, airports, or major highways.

Personality of the neighborhood. Yes, neighborhoods have personalities too. And you need to find out what it is and how it fits with yours. How do you determine neighborhood personality? Meet some of the people who live there. Find out what age ranges the neighbors are and what they do for a living. Ask about active neighborhood associations and activities, if any. Walk around, get a feel for the neighborhood, and see if you feel comfortable and welcomed. In other words, if you feel “right at home.”

Demand and property values. Consider how popular the area is. Would it be considered to be up and coming, a situation where you might anticipate value to appreciate at a rapid pace? Or is it on the edge of what is becoming a popular place to live? Sometimes that popularity can spread outward and engulf surrounding neighborhoods with an effect of rising prices and thus property value appreciation. Of course on the other side, areas of low demand, areas where homes are already at a premium price, or areas where prices are stagnant may result in slow or no appreciation in value in the future.

Current and future development. Make a note of any development that is happening at the current time. Is it adding to the value of the area or possibly decreasing value? Also be aware of any future plans for development that could impact your property value and/or your quality of life. This includes finding out if there are any planned changes for roadways or business or commercial development in addition to residential development.

Economic vitality. This applies to the broader community. Get a sense of whether the economy is growing, stable, or stagnant. Look for a healthy mix of commercial and business districts. This provides employment and attracts residents as well as adds to the tax base that can be used for community improvements.

As you conduct your home search, keep in mind that there is no such thing as an absolutely perfect place to live. You will find positive and negative aspects about homes, neighborhoods, and communities. Have your checklist of what is most important to you – what you must have, what would be nice, and what you definitely cannot live without. Use that list to decide your compromises and trade-offs. That way you get as close as possible to your ideal place to live while maximizing your potential future gain in home value.

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What does the Monthly Mortgage Payment include? Taxes, Interest & Principal

With mortgage interest rates being at an all time low, many lenders have recommended to their customers different options when buying or refinancing their mortgage. Dependent upon the amount of years they plan to live in their home, more and more mortgage options have been reintroduced into the market and banks have now pushed some of the programs to become popular among the newest homeowners.

Mortgage Payments
After renting for three years and paying $1,000 for a one bedroom apartment, you have decided it is time to take the $1,000 a month and put it toward your own home. Buying never looked appealing due to the high interest rates but with the interest rate being low and the different options of mortgage programs, for a few dollars more a month, it is time to take the next step. The research begins with learning about mortgages and trying to find a price range that you feel comfortable with.

Borrowing $200,000 from a bank sounds like a lot, but paying $1,000 a month rent and not owning your home sounds like a waste. Once the mortgage is approved and you find a property, the monthly mortgage payment isn’t much more a month than what you were paying before. The difference is now your home becomes a tax write off and certain items, including the interest you pay in your mortgage payment, comes back to you at tax time.

If the mortgage of $300,000 is a traditional 15 or 30 year mortgage, the monthly mortgage payment includes your principal plus interest. Principal is the amount of money borrowed, $300,000, and the interest is the percentage the bank charges to borrow from them. Some mortgage companies add in the taxes to the monthly payment or give the customer a choice to pay the taxes themselves to the city. If the property taxes are included then the total monthly mortgage payment includes principle, interest, and taxes.

Now if the homeowners are planning to only live in the property for 5 years or less, many mortgage lenders may suggest an interest only loan. This means that none of the payments made to the monthly mortgage include principal; all that is being paid is the interest on the amount of money borrowed. Taxes can also be included into this type of loan and there are a variety of different programs including fixed and variable interest rates, sometimes referred to as an ARM. Each mortgage lender offers their own programs so check around to see which one fits your needs.

Private Mortgage Insurance or PMI is also known as points. Points are a certain percentage tacked onto your mortgage due to a number of reasons. Some can be you’re a first time home buyer and require a 20% down payment and can’t put down 20%, your refinancing and want to refinance for 100% of your total home, and many other reasons. Usually PMI can be paid off within the first year if you send an extra payment each month to cover the added expense. There are certain rules concerning PMI as well and must be paid off before attempting any change to your mortgage.

The best way to learn about mortgages and their payments is to ask a lender that can explain all the numbers relating to your future or current mortgage. Always be sure of your interest rate if it’s fixed or variable, if your taxes are included in your monthly mortgage payment, and what type of loan you are accepting. The first time going through the mortgage game can be tough to understand, but once you get through, it all begins to make sense.

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Basics of the Housing Market: Cycle, Home Buyers & Sellers

If you have been looking to purchase or sell real estate, you may have heard the terms sellers’ market and buyers’ market. You may also have wondered what these terms mean and how each market impacts you as a buyer or seller. Here is a brief explanation.

What are the different markets?
When there are more buyers than homes for sale, a sellers’ market is in effect. As you might expect, the conditions in this market favor sellers over buyers. During a sellers’ market, you will generally find that home prices rise higher than they normally would and that homes tend to sell more quickly.

At other times buyers have more negotiating power. In a buyers’ market there is a surplus in housing inventory. In other words, there are more homes on the market than there are willing buyers. During this period, prices tend to rise more slowly and may even fall. Also, homes typically take longer to sell.

When conditions do not necessarily favor either buyers or sellers, you have a transitional market. This period occurs between moves toward either a buyers’ or sellers’ market. When the market changes, it doesn’t do so overnight. There is a transitional period in between when housing demand and supply are approximately equal and pricing typically stabilizes.

How are buyers and sellers affected?
Buying a home in a sellers’ market is a very fast and competitive process. Multiple offers on the same property are not uncommon. Some of these offers may even be above the asking price. To improve your negotiating position as a buyer, have your finances in order, get pre-approved for a mortgage, be prepared to act quickly, and make a strong offer. Even so, don’t be surprised and try not to be frustrated if you still get squeezed out of the market by escalating prices and bidding wars.

If your home is for sale when conditions have created a sellers’ market, your timing is ideal for reaping the rewards of price appreciation. Generally speaking, you also have more leverage in the negotiating process. Remember however, that regardless of your more favorable position in this market, you would be wise to set realistic expectations and remain flexible in negotiations. It is unreasonable to think that a sellers’ market automatically means you will get full price, agreement on all terms, sale within a few days, or sale regardless of property condition. Hold your ground beyond a reasonable point and you could be left with your home still for sale when the market swings in the other direction.

If you are selling when a buyers’ market is in effect, be prepared for a challenge. Buyers tend to be more demanding with higher expectations for seller incentives and concessions. If you need to sell, you must be ready and willing to consider sensible compromises with respect to both price and terms. More aggressive marketing may be needed to attract buyers and extra attention to getting your property in the best possible condition will help improve your competitive edge in the marketplace.

Purchasing a home in a buyers’ market presents you with a great opportunity to find the right home at the right price. Along with this opportunity though comes a different set of potential challenges. With a greater number of homes on the market and bargaining power in your hands, you are faced with numerous choices and the temptation to negotiate on just about everything. To make the process easier, focus and narrow your search based on needs, wants and affordability. And when you find the right home, focus on which concessions are really critical to helping you meet goals and needs.

What stimulates market changes?
The housing market tends to cycle between shortage and surplus. Therefore factors that impact supply and demand influence housing market changes. Factors that have a widespread effect include interest rates, economic conditions, and consumer confidence levels. For example, low interest rates, good economic conditions and high levels of consumer confidence can increase the number of potential buyers. Since housing supply tends to lag behind demand, the result is movement toward a sellers’ market. Reverse those factors and buyer demand will most likely slow. When the market reaches the point where there is an excess of properties, a swing toward a buyers’ market generally occurs.

How long does a given market cycle last?
The short answer is: it varies. Either market can last months, sometimes even years. Much is dependent on the driving forces behind the change. Even for experts, forecasting the duration and timing of changes is difficult at best. What is certain, however, is that sooner or later the housing market will change. Neither buyers nor sellers have the upper hand all the time. For you as a buyer or seller, knowing that market change is inevitable as well as which market your area is currently experiencing will give you an informed advantage as you make decisions about buying and selling real estate.

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Straight Talk about Mortgage Loan Points

When you are shopping for a mortgage loan, interest rates are most likely at the top of your mind. As you shop lenders for the best rate, however, you will hear another term linked to the interest rate. That term is “points.” For instance, a lender may quote an interest rate of 5.25 percent plus two points. As a borrower, you need to understand the concept of those points and how they relate to your interest rate and mortgage loan.

So what are points? Points are fees paid up front to the lender in exchange for a lower interest rate on a mortgage loan. Paying points lowers your mortgage rate because the lender is getting a prepaid portion of the interest rather than collecting it in payments across the term of the loan.

Because points are used to essentially “buy down” the mortgage interest rate, they are commonly referred to as discount points. These discount points are paid at the time the loan is closed. They can be paid by the buyer/borrower or seller, or split between the two. Who pays the points depends on what is negotiated in the purchase contract and what is allowable under the terms of the mortgage loan.

Expressed in terms of a percentage, each point is equal to one percent of the total mortgage loan amount. Consequently, on a $200,000 loan, one point would cost $2,000. Using that loan amount and the rate/point combination mentioned earlier of 5.25 percent plus two points, here is an example of how points work:

  • The lender would offer a higher rate if no points were paid. Assuming the rate is lowered one-eighth of a percentage point for each discount point paid, the higher rate in this case would be 5.5 percent.
  • Paying two points would cost $4,000 ($200,000 times two percent) and would reduce the interest rate to 5.25 percent.

Keep in mind that the specific reduction for one discount point varies with different loans and from lender to lender as they have some flexibility in determining the buy down formula.

Is there a benefit to paying points? Now, how do you know if paying points to lower your rate is to your advantage? You will need to consider a number of factors. These include what you can afford to pay up front, how long you plan to keep the home, and how long it will take you to recover the cost of paying points.

Your mortgage lender will help you do the math for monthly payments, monthly savings, and recovery time. If you are Internet savvy, you can get a jump-start on the process by using one of the readily available online mortgage calculators specifically designed to calculate discount points. To give you an idea of what numbers you can expect to see, here is a comparison of the loan from our earlier example with no points and with two points. The loan amount is $200,000 with a 30-year term.

  • Monthly payment at 5.5 percent with no points would be $1,135.58. Total interest paid would be $208.806.98.
  • Monthly payment at 5.25 percent with two discount points ($4,000) paid at closing would be $1,104.41. Total interest paid would be $197,585.34.

By paying two points, you save $31.17 per month on your payment. It will take approximately 128 months (about 11 years) before the amount saved is greater than the cost of the two points. Therefore, paying the two points would be an advantageous option if you plan to keep the home more than 11 years.

Your decision on whether or not to pay points can impact your rate, your monthly payments, and your interest savings in the long run. As you can see, that decision involves a number of personal and financial considerations. Add to that the variety of rate and point combinations that lenders offer, and it is obvious why it is important as a borrower to understand how discount points work.

Use that understanding to decide how you would like to handle points before you begin shopping for a mortgage loan. Then it will be easier to work with your mortgage professional to determine whether a lower rate with more points or a higher rate with fewer or zero points is in your best interest.

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Home Inspections & Hiring a Home Inspector

The larger and more complex your financial transaction, the more important it is for you to be an informed consumer. For most people, the purchase or sale of a home is the biggest and most involved business deal of their lifetime. So no matter which side of the transaction you’re on, it makes good sense to be as informed as possible. That includes knowing as much as you can about the condition of the property so that you can make wise and prudent decisions throughout the entire process.

Now, how do you maximize your knowledge about the property’s condition? That’s where a professional home inspection can help. A professional home inspection is a complete physical examination of property from top to bottom by an independent third party. The inspection covers components that are visible and accessible. This includes structural elements such as foundation, roof, chimneys, walls, windows, doors, insulation, basement, crawlspaces, and attic.

Systems like heating, cooling, plumbing and electrical are also inspected as well as mechanical components such as appliances. Inspectors also look for evidence of wood-destroying insects such as termites. Overall, an inspector identifies potential health and safety concerns, both positive and negative conditions of the property and any conditions that might warrant further specialized inspection.

Inspection results are delivered in the form a written report. Report formats vary and can range from a simple checklist to full narrative or anywhere in between. Preferably you should receive a comprehensive report, with annotated photos, that details findings. It should also include a summary that highlights any items of major concern. When reviewing the inspection report, remember that it is a snapshot in time. This report does not provide a warranty or guarantee for the future. It only reflects property condition and operation of systems on the day the inspection was performed, not any time beyond that.

Requiring home inspections is pretty much standard practice today for homebuyers. The requirement is usually in the form of a contingency clause in the purchase contract that specifies what happens based on the findings from a home inspection. Those findings provide buyers with the information needed to make effective decisions about their next actions in their transaction. Armed with knowledge of present property condition, buyers can better evaluate price, determine what conditions to accept or negotiate remedies for, and make judicious decisions on if/how to move forward with the purchase.

Inspections are not just for buyers though. If you are a seller, contracting for a pre-sale inspection can be beneficial too. You get advance, objective information that helps you set a fair price and address any issues that might delay your sale or even result in the transaction falling through. You get the option to make those repairs before prospective buyers see your home. If you elect not to make repairs, you are able to more accurately disclose any adverse conditions. All in all, you should find yourself in a better position for fewer contingencies and concessions and a quicker sale. Keep in mind that even when you have a pre-sale inspection, buyers may still request a professional inspection of their own.

Typically when buyers request the inspection, they are responsible for covering the costs. Sellers who have a pre-sale inspection done would pay the inspector’s fees. Either way, how much can you expect a professional home inspection to cost? Inspection fees vary by geographic location and size and feature of the property. Typically, you might expect to pay $200 to $500 for a professional home inspection. Prices vary however, and it is a good idea to check and compare costs in your area.

In addition to cost, other obvious questions are: What do you look for when hiring an inspector and where do you look? Reputation, experience, training, certifications and professional affiliations are important considerations in making your selection for an inspector. Friends or real estate professionals may refer you to qualified inspectors. Other sources are your local Yellow Pages directory and online directories of professional organizations such as the American Society of Home Inspectors (ASHI) or local professional associations for home inspectors.

No matter which party you are in a real estate transaction, contracting for a professional home inspection is a smart move. With it, you can approach and complete your real estate transaction with the confidence that comes from knowing the good, bad and ugly about current property condition.

Hiring a Home Inspector

You want to know as much as possible about the condition of the home you are buying. One of the best ways to do that is to hire a professional home inspector. The inspector’s job is to perform a comprehensive physical examination of property, including major systems and components. The inspector then gives you an impartial opinion about the current condition of the property, as well as about potential safety concerns and any issues that might warrant further specialized inspection. As you can see, a home inspection is a very important process. You therefore want a well-qualified inspector to perform this examination. How do you find a qualified professional home inspector? And what factors do you look at when choosing one? Consider the following tips:

Finding a Home Inspector
Referrals are an excellent source for finding a professional home inspector. Ask relatives or friends who are homeowners what inspector they used when purchasing their home. If you are working with a real estate agent, you will find that he/she usually has a list of qualified home inspectors in the area. Other sources are your local Yellow Pages and directories on the web sites of professional organizations such as the American Society of Home Inspectors (www.ashi.org), National Association of Home Inspectors (www.nahi.org) or National Association of Certified Home Inspectors (www.nachi.org). You can also perform an Internet search to find state associations and/or certifying bodies.

Choosing a Home Inspector
Once you have identified a list of candidates, what factors do you consider when making your choice?

Professional qualifications and experience
You are looking for someone with relevant formal training as well as direct, practical experience and a proven track record in the home inspection business. Find out how many inspections they have performed and whether professional home inspection is their full-time occupation.

References and reputation
Get the names and contact information for at least three previous customers. Then call each one. Ask how satisfied they were with the inspection and the inspection report. Find out if any problems have surfaced with the property that were overlooked in the inspection. Also consider checking with the Better Business Bureau to see if any complaints have been filed against the company that the inspector is affiliated with.

Professional memberships and certifications
Is the inspector certified or a member of any professional associations? If yes, determine if the organizations are reputable and recognized and find out what the requirements are for membership and certification.

Insurance
Errors and omissions insurance provides protection for you if the inspector misses a problem that should have been detected during the inspection. Insurance coverage is one indication that an inspector cares about protecting their customers and plans to be in business for the long haul with a solid reputation.

Inspection report
Request a sample report so that you get a good idea of the scope of the inspection and the depth of information you will receive. Inspection report formats vary from simple checklists to full narrative or anywhere in between. You want to receive a comprehensive report, with annotated photos, that details findings.

What about price you ask? Price is a factor for consideration, but don’t let it unduly influence your decision on which inspector to hire. When it comes to something as important as your home inspection, you do not want to be a bargain shopper. Saving a few dollars on an inspection is not worth the risk of overlooked problems that might cost you a lot more in repairs and stress later on. Besides, you will typically find that home inspections by reputable, well-qualified professionals are in a similar price range. You can expect to pay $200 to $600 for a professional home inspection depending on where you live and the size and features of the property to be inspected.

Sound like a lot of work? It does take time to choose a home inspector. But it is time well spent on the front end versus finding yourself the owner of a “money pit” after your deal is closed.

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Teamwork in Your Real Estate Transaction: Which Professional Does What

Whether you are buying or selling a home, it’s to your advantage to be familiar with the team of professionals typically involved in a real estate transaction. Why? When you know who these professionals are and what they do, you enter your transaction a more informed consumer. You have a better understanding of how each professional contributes to the process and how these experts work together as a team to help you successfully close your real estate transaction. Armed with this knowledge, your result is a smoother, fairer, and timelier process. And to help you achieve just that, an overview of this team of professionals follows:

Mortgage Lender
Financing in the form of a home mortgage is a critical component of most real estate transactions. That mortgage provides the money needed to complete the purchase. Lending sources for home mortgages include institutions such as banks, credit unions, and mortgage companies. Buyers also have the option to secure a mortgage with the help of a mortgage broker. These brokers are licensed professionals who are essentially middlemen between buyers/borrowers and lenders. They work for a commission or finders fee that is typically paid by the lender. The broker’s role is to shop lenders to find a mortgage with terms and conditions that best meet the buyer’s needs and circumstances.

Real Estate Appraiser
So, what is the property worth? The answer to this question is important to the buyer, seller, and lender, although for different reasons. As a buyer you want to ensure you are not paying an inflated price for the property. If selling, you want to do so at the highest possible price. Lenders want to minimize loan risk. For them, the property serves as collateral for the mortgage, and they want to ensure that collateral is adequate in case the loan is not repaid. These divergent reasons and interests are why a professional real estate appraiser plays an important role in your transaction. The appraiser is an independent third party who, after performing a thorough assessment process, provides an impartial opinion of property value. Lenders use that appraised value as a factor in determining the mortgage loan amount.

Home Inspector
The role of a home inspector, who is also an independent third party, is to perform a complete physical inspection of the home including major components and systems. Results of the inspection are usually delivered in the form of a comprehensive report that details property condition. As a buyer, this report helps you make informed decisions about pricing negotiation and moving forward with your purchase. A pre-listing inspection, one performed before a home goes on the market, will give you an opportunity as a seller to make repairs before prospective buyers come calling. If you choose not to make repairs, you will still be in a more informed position to set price and disclose any adverse conditions.

Real Estate Attorney
Protecting your interests is important no matter which side of the real estate transaction you’re on. This is what attorneys do and why they are important in this process. A lawyer can draft, review, or advise on contracts, offers, and other documents as well as provide legal advice and help resolve matters that arise during the transaction. They also explain legal rights and obligations for both buyers and sellers and can handle the closing, the final step in your real estate transaction. Another very important way an attorney protects the interest of buyers is by ensuring that the seller is conveying clear title to the property. In other words, that the title is free from liens, taxes or any other defects that would adversely affect ownership.

Insurance Broker or Agent
Insurance brokers and agents are licensed professionals who help buyers with insurance needs. In most cases, the lender will require proof of property insurance in order to close the transaction. Once again, the lender is seeking to mitigate their risk. Property insurance is considered acceptable security for the loan in the event that the home, the lender’s collateral, is destroyed due to an unfortunate event.

Real Estate Sales Professional
Licensed to handle real estate sales transactions, real estate brokers and agents can play a major role from the beginning of a real estate transaction through its successful completion. Their role can best be described as orchestrating the various components of the transaction. This includes serving as a valuable resource for information about the market, communities, and specific properties; coordinating people and paperwork; simplifying complexities of the transaction; guiding clients through the process; and handling the nitty-gritty aspects of the transaction. In addition, a real estate broker or agent can often help you locate the other professionals mentioned earlier.

As you can see, these professionals all play different and important roles in a real estate transaction. Being informed about how they can help you is beneficial whether you are buying or selling. Keep in mind though that even when working with these professionals, you are still the decision-maker in your real estate transaction. These professionals are not there to make decisions for you but rather to provide information and advice that will help you make informed decisions. This in turn results in a more successful, stress-free, and rewarding real estate transaction for you.

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How to find a Home Mortgage Lender you can Trust that will be Honest

The more mortgage lenders entering the market, the more potential for dishonesty to just close a deal. There are many websites that advertise, “make lenders compete for your business,” but the only problem with this is many of the lenders do not look properly at your information and send an email giving the basic quote, not a specific quote for your needs. The lenders that do send a specific quote and give you a monthly payment, after speaking to them over the phone and getting the rates and monthly payment, the quote is no where near the original. How can you find a mortgage lender who is truthful and honest?

Not all websites are bad to use when looking for a mortgage lender, just be aware that some do not mention certain fees, prepayment penalties, or may not add your taxes into their monthly estimated payment.

Before shopping around for a mortgage lender, make a list of the certain terms and personal concerns to ask any lender to choose the honest from the dishonest. Begin the list with the amount of mortgage you are inquiring about, ask about the interest rates, PMI, second mortgages, penalty fees, closing cost, application fee, appraisal fee, flexible closing, lock in rate, and fixed or variable rates. From this point, you should have enough information to decide which lender you feel most comfortable with.

For instance, Fred bought his home for $265,000 four years ago and used a lender he was referred to by the realtor who sold him his property. The entire process was smooth and when a problem did occur, the mortgage loan officer called the corporate headquarters and solved the problem in less than a day. Any question Fred asked, the lender answered and even took the time to explain about the different mortgage programs they offered and all the different interest rates. They met in person a few times, double checked the paperwork together, each category was explained, and Fred never felt rushed and always knew what the up front costs were and had enough time to decide to pay them or average them into the mortgage. Fred refinanced his mortgage and used the same lender and loan officer and now refers them to his friends and family.

Donna bought her home for $265,000 four years ago as well and the same realtor recommended the same mortgage lender to her but she decided she would go research the internet before deciding. Donna put all her info into a mortgage lender website and within four days had five lenders who gave her quotes. Some of the banks she never heard of and none of them had a local person she could meet with. Donna decided to go with one of the bank lenders she found and began the mortgage application.

She assumed she was locked into the rate of 5% because she did fill out the application and paid the fee, three weeks go by and she received the official paperwork to sign and return. On the paperwork she notices many mistakes, her social security number was wrong; she was told there would be one first mortgage at 5%. Now the paperwork was showing a first mortgage for $240,000 at 5.5% fixed and a second for $25,000 at 6.25% variable. Donna got on the phone with the mortgage lender and told them the mistakes and said she thought her mortgage was just a first and locked in at 5% fixed, besides her social security number must be wrong! Due to the incorrect social security number, the mortgage structure changed because the lender was running it off someone else’s credit history which led to two payments for Donna. The aggravation was not worth the time spent correcting her paperwork and requested her application fee be refunded. After, Donna called the realtor and asked for the recommended mortgage lender. Now Donna, like Fred, continues to use the same mortgage lender and refers her friends and family as well.

The best way to find a mortgage lender who is honest, truthful, and patient is by asking friends, family, and sometimes realtors. The most reliable answers you will get is from people who have used a mortgage lenders services. Buying or refinancing a home can be stressful and confusing, why add to this stress with a lender who is not professional? There are many large, corporate banks and smaller, independent banks; whichever you decide to use, ask for referrals and recommendations before attempting to go through the Donna ordeal.

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Flipping Real Estate: Investment Property or Residential Property?

Should young adults take the step into flipping real estate, becoming a landlord, or just becoming a homeowner?

Today’s young adult has more options when it comes to investing their money. More and more have learned the value of the dollar, invested properly, could have them set for the rest of their lives and their children’s lives. In a recent article written about real estate, the average age of first time home buyers are 25 years old. Many of these young adults interviewed stated they worked throughout their high school years and took on small jobs throughout college. By 25 years old, the majority finished their undergraduate degree, and began working full time after graduation or continued onto Grad school, worked either part time or full time, and by age 25 felt it was time to take their money and invest it into real estate.

The next question was do they invest their savings into their first home, as an investor and buying a property that needs work and then reselling it for higher profit, or buying a property to rent and taking on the role of a landlord? These options were never a question for young adults since many think of an investor in real estate or a landlord as an older person. But in today’s market, younger and younger investors have learned what it takes to make money, invest it into something that is not overly risky like the stock market, and consider a piece of property a long term investment.

Suggestions to young adults before deciding on how to invest their money in the real estate market would be to speak to a long term investor of real estate, a financial planner, a mortgage lender, and even your parents. Any home owner can share their experiences and knowledge of wealth they have learned by real estate owning. For a mortgage, many times investment properties are given a different interest rate scale comparing to a residential property. Also for flipping properties, mortgage lenders can give a bridge loan or short term loan since they understand that you will not be holding the mortgage for 30 years and plan to sell within 6 months.

Before deciding to buy that old 1900 Victorian home and spend the money and time renovating it, get all the information about the difference of buying it as a residential or investment property. Sometimes if the young adult still lives at home, the property can be bought as a residence since they may consider this first purchase a possible first home. If they decide to resell it or flip it for investment, it just brings money into their pocket and more to use on their second real estate property when they decide to purchase. Another option is renting the home after the updates are complete. Becoming a landlord requires finding renters, collecting the monthly rent, holding the security deposit in a escrow bank account, deciding on who takes care of any maintenance issues, and being responsible for your property. When deciding to rent a property, the main point is to have the renters pay the mortgage and also make some income from it. Some rental properties can make investors $500–$1500 a month.

If you are interested in investing your money but not ready to play the stock market, real estate is a long term investment and possibly a safer bet. There will also be homes and properties for sale and people who will be looking to buy. As the times change, updates need to be made to homes and flipping properties can make the right investor a large sum of profit. If you are looking to buy a residential home, this is also good choice over renting. Once you make the first step to home ownership, the doorways will begin to open and obtaining mortgages for investment properties will find you.

 

Information is for educational and informational purposes only and is not be interpreted as financial or legal advice. This does not represent a recommendation to buy, sell, or hold any security. Please consult your financial advisor.

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Check your Credit History before deciding to Purchase a Home

As a home buyer, there are many rules that need to be followed before even placing a bid. Numerous papers need to be in order including a prequalification letter from a lender, the highest amount of price the buyer is willing to spend, the area where the buyer would like to reside, and your credit history. Many people will apply for a mortgage and either get denied or get a very low qualification amount. As a result, they are often puzzled.

Before deciding to purchase a home, check your credit history first to make sure there are no negative marks or a low score. Making the decision to buy a home is stressful enough. Why not be a proactive consumer before finding out you do not qualify for any mortgage?

Most lenders of mortgages and bank loans will not qualify a potential buyer if their credit score is too low. Before deciding to begin the process of purchasing a home, consumers should request their credit score and credit reports from all three credit reporting agencies because each agency reports differently. TransUnion, Experian, and Equifax are the three top agencies where mortgage and bank lenders inquiry to when making a decision about the qualifications for a mortgage. There are a few ways to obtain your own credit reports either by phoning each agency separately and requesting a report be sent to your home, sending a letter through snail mail, or the internet. Many websites now offer all three reports for one price. Depending on the situation, sometimes consumers can get their reports for free.

The credit score is called FICO and this determines your financial future. The score ranges from 300 – 800 with 300 being the lowest and 800 being the highest. From these reports, everything you have ever done is listed from credit cards, student loans, and inquiries that companies have made on you. Each monthly payment is documented if it was paid on time, late, and how late. These reports give all the information a financial lender needs to determine if you are a risky candidate to give a loan to or not. If there are any negative marks on your credit reports, the sooner you get them off, the better. Usually negative marks stay on for seven years before they can be taken off.

Here is an example: Let’s say Debbie decided she wants to buy a home in the next year and she never looked at her credit reports. She knew she had some bad experiences a few years ago with a credit card where she was making late payments or no payments at all for some months. She figured since she paid off the credit card and has made an effort to not be in that situation again, her credit score has to be pretty high. Debbie requested her credit reports and waited to receive them in the mail.

When she began reviewing them she found that the credit card company from six years ago never reported the fact she paid off the credit card and closed the account. This information has been sitting on her report for six years and it has brought her FICO score down. Immediately Debbie remembered she received a letter from the credit card company six years ago stating she paid off her balance and filed it away. Debbie made copies of this letter, wrote her own letter explaining the situation, and requested the reporting agencies to change this information. Within two months, the reports were fixed and Debbie’s credit score did increase to over a 700. A year later, Debbie found herself shopping around for houses with a prequalification letter.

If Debbie never took the time to review her credit reports, when she began her home search she would have had major disappointments. Checking your own credit is part of living in today’s world. Due to the internet, identity theft has increased by 80% and by checking your credit every few months, makes you an informed consumer and less likely to become a victim. The entire buying real estate process all depends upon that one little number and if it doesn’t fall in the right category, then it becomes difficult to ever own a home.

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