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Real Estate Financing
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Buying Your Dream House For A Lower Price
Did you ever dream of buying your own house?
Of course, everyone does! But the question is, can you afford it? For an average income earner, buying an affordable house is a $64 question. How can you save money out of a salary which has been allotted to fixed expenses like phone bills, electric bills, credit cards, health cards, taxes, etc.
You need not despair because there i... Read real estate article
FSBO Jargon and FSBO Seller
When you decide to sell your home without a real estate agent, you enter the world of the FSBO sellers. As with any new experience, you need to understand some of the basic language.
Selling your home on your own makes a lot of sense from a financial perspective. Even though the real estate market has cooled off considerably, home prices are still pumped up compared to historical refere... Read real estate article
Real Estate Financing
The majority of buyers use a loan to purchase a property, then they base their offer to purchase contingent upon obtaining a loan commitment from a lender. Until the financing is secure, the sale of a property is still pending. Your choice of lenders is endless, but don't allow the variety to intimidate you.
Your purchase agreement should specify all financing contingencies such as the interest rate, origination fees, term, and the type of loan. It also specifies a time period for you to obtain your loan commitment from the lender/. A time period of 30 days following the acceptance of a purchase contract is usually enough time to secure approval from the lender, but in a hot market a longer wait may be required. A completed loan application submitted more than five days after acceptance of the purchase contract stands little chance of being approved within a 30 day period. The most common sources of home purchase financing are mortgage brokers, commercial banks, mortgage banks, savings and loan companies, and credit unions. Ask friends and family who recently purchased or refinanced to recommend their source if they were satisfied. Your real estate agent can give you various rate sheets from various lenders. Major newspapers will usually print a summary of current home loan rates.
Some lenders offer adjustable rate mortgages, also knows as ARMs, while others offer fixed rates. Lenders that offer fixed rate loans usually provide either a 15 or 30 year variety, but usually not both. ARMs usually secure the lowest rates, but only because the interest rate has the power to float around. The interest on a 15 year loan is usually less than on a 30 year loan.
The Annual Percentage Rate, also known as the APR, is the yearly interest rate paid by the owner. When borrowers call lenders for their current rates, lenders will usually quote only the interest rate, not the APR. The APR is usually .5 percent higher than the note rate.
The qualifying ratio is determined by the relationship between the borrowers projected principal, interest, taxes, and insurance (PITI) and their gross income. Lenders like to keep the PITI under 33 percent of the borrowers gross monthly income. Lenders also look at the ratio between the borrowers total debt to income. If a lender tells you they require a 30/36 ratio, this means the PITI figure must not exceed 30%, and the PITI plus long term outstanding debt must not exceed 36% of the income.
Private Mortgage Insurance, also known as PMI, insures the lender against a default on the part of the borrower. PMI is usually required when the borrower is making a cash deposit of less than 20% of the purchase price. PMI premiums usually run about .50 percent of the loan amount. In most cases PMI can be dropped after you have 20% equity in your property.
Mortgage brokers act as intermediaries between borrowers and lenders. They take a loan application, assemble your loan package, shop loans for you, then place your loan with a specific lender. Mortgage brokers have access to a multitude of loan products, and can often arrange financing to under-qualified buyers.
Many lenders will only work with brokers. If you have been turned down by several lenders you may want to enlist in the help of a mortgage broker.
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Real Estate Inspection - Avoid a Lemon
A general inspection is a professional evaluation of the house and its major systems including the drainage system, electrical system, condition of roof, and the foundation. If you're selling your home, a general physical inspection is always needed. Your home should also pass what's called a wood destroying pest and organisms inspection.
Sometimes these pest reports will mention structural conditions that are outside its specific jurisdiction, for example if the pest contact inspector sees a failing roof, cracks in a foundation, or a plumbing problem. A disclaimer may be included in the report advising the potential buyer to seek the help of the appropriate professional. Don't count on the pest control inspector to point out anything that isn't in his jurisdiction, however. Only some inspectors will do this, but not all of them.
If you're buying a brand new home, condominium, or townhouse, it's a good idea to have it inspected by a general building inspector before you purchase. One of the most difficult things about a newly constructed home is that they haven't had years to wear. It's almost impossible to predict problems that will occur in the future, so have a professional look at it.
When you're having your new home inspected, have the plans, soils report, engineering calculations, city inspector reports, and any other available documentation available for the inspector. He will usually want to see these, and having them available makes the process all the more smoother.
If you are buying a home, you should attend the general inspection of the home you're buying. Not only will you be able to oversee everything, but you might learn something too.
There are rare occasions when a buyer can't include a physical inspection contingency in the offer to purchase. Foreclosure sales are usually "as-is" sales and are exempted from the Transfer Disclosure Requirement. When you are buying an estate or foreclosure property it's important to have both a general building inspector and a structural pest inspector thoroughly inspect the property.
Over the years, concern has raised about environmental hazards found in or on all types of residential properties. The Real Estate Transfer Disclosure Statement specifically asks sellers if they are aware of any environmental hazards on their property.
Common environmental hazards found on residential property include asbestos, formaldehyde, radon gas, lead based paint, fuel or chemical storage tanks, and contaminated water or soil. It's highly expensive to remove environmental hazards like these, so it's recommended you stay away from such properties unless you really know what you're getting yourself into.
Many sellers are aware of such problems, however. A common way for sellers to avoid their disclosure responsibilities is to sell their property "as-is." Marketing a home for sale like this often has a negative impact by scaring off potential buyers. Selling as-is is acceptable only when all defects are in writing and both parties agree.
Selling a property as-is doesn't relieve the seller of legal responsibility for disclosing material defects, though. Withholding information isn't recommended at all, and is actually illegal and considered fraudulent by the court of law.
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