As part of the loan application process, virtually all lenders will want to see a copy of your credit report. The
report will list all your long-term debts (credit cards, mortgage payments, automobile and student loans, etc),
as well as your payment history. If you don't have a copy of your credit report, most lenders will generally
requireyou to pay for a copy when they process your loan application.However, most real estate experts agree
that it is a good idea to obtain a copy of your credit report several months before you apply for a loan. This is so
you have a chance to resolve any problems with your credit before your bank sees it. U.S. Federal law ensures
that you have access to your credit report, which may be obtained from your local creditbureau or any of
several national firms that specialize in credit reports.
For most people, problems with their credit report are likely related to late payments on a debt. If you were
late one month in paying off your credit card, but otherwise have a good payment history, chances are most
lenders won't be too concerned. But if you have a history of late payments you'll need to document the reasons
why. A slow payment history won't necessarily get you turned down for a loan, but you may have to pay a
higher rate of interest or otherwise prove to the lender that you can repay your loan in a timely fashion.
Errors on your credit report:
Many people are surprised to learn that credit reports can often contains errors or inaccurate information.
If this is the case with your credit report, you'll need tocontact the reporting agency or creditor to have
the problem resolved. This cansometimes be a slow process, so make sure to give yourself time to clear up the
Bankruptcies and foreclosures:
There's no getting around it, a bankruptcy on your credit report is not a good thing. But that doesn't mean
you still can't obtain a loan. Even though a bankruptcy may stay on your credit report for seven to ten years,
lenders will often consider the circumstances surrounding a bankruptcy (family illness, injury, etc.). Moreover,
if you have reestablishedgood credit since the bankruptcy, a lender will be more inclined
to approve your application.
Understanding Different Types of Loans:
Today's homebuyer has more financing options than have ever been available before. From traditional
mortgages to adjustable-rate and hybrid loans, there are financing packages designed to meet the needs
of virtually anyone.While the different choices may seem overwhelming at first, the overall goal is really
quite simple: you want to find a loan that fits both your current financial situation and your future plans.
Though this article discusses some of the more common loan types, you should spend time talking with
different lenders before deciding on the right loan for your situation.
General categories of loans:
Most loans fall into three major categories: fixed-rate, adjustable-rate, and hybrid loans that combine features
Adjustable-rate mortgages (ARM):
Adjustable-rate mortgages differ from fixed-rate mortgages in that the interest rate and monthly payment
can Change over the life of the loan. This is because the interest rate foran ARM is tied to an index (such as
Treasury Securities) that may rise or fall over time. In order to protect against dramatic increases
in the rate, ARM loans usually have caps that limit the rate from rising above a certain amount between
adjustments (i.e. no more than 2 percent a year), as well as a ceiling on how much the rate can go up during
the life of the loan (i.e. no more than 6 percent). With these protections and low introductory rates, ARM
loans have become the most widely accepted alternative to fixed-rate mortgages.
Hybrid loans combine features of both fixed-rate and adjustable-rate mortgages. Typically, a hybrid loan may
start with a fixed-rate for a certain length of time, and then later convert to an adjustable-rate mortgage.
However, be sure to check with your lender and find out how much the rate may increase after the conversion,
as some hybrid loans do not have interest rate caps for the first adjustment period.
As the name implies, a fixed-rate mortgage carries the same interest rate for the life of the loan.
Traditionally, fixed-rate mortgages have been the most popular choice among homeowners,
because the fixed monthly payment is easy to plan and budget for, and can help protect against
inflation. Fixed-rate mortgages are most common in 30-year and 15-year terms, but recently more
lenders have begun offering 20-year and 40-year loans.
Other hybrid loans may start with a fixed interest rate for several years, and then later change to
another (usually higher) fixed interest rate for the remainder of the loan term. Lenders frequently
charge a lower introductory interest rate for hybrid loans vs. a traditional fixed-rate mortgage,
which makes hybrid loans attractive to homeowners who desire the stability of a fixed-rate, but only
plan to stay in their properties for a short time.
A balloon payment refers to a loan that has a large, final payment due at the end of the loan. For
example, there are currently fixed-rate loans which allow homeowners to make payments based on a
30-year loan, even though the entire balance of the loan may be due (the balloon payment) after 7
years. As with some hybrid loans, balloon loans may be attractive to homeowners who do not plan to
stay in their house more than a short period of time.
Time as a factor in your loan choice:
As has been discussed, the length of time you plan to own a property may have a strong influence on
the type of loan you choose. For example, if you plan to stay in a home for 10 years or longer, a
traditional fixed-rate mortgage may be your best bet. But if you plan on owning a home for a very short
period (5 years or less), then the low introductory rate of an adjustable-rate mortgage may make the
most financial sense. In general, ARMs have the lowest introductory interest rates, followed by hybrid
loans, and then traditional fixed-rate mortgages.
FHA and VA loans:
U.S. government loan programs such as those of the Federal Housing Authority (FHA) and Department
of Veterans Affairs (VA) are designed to promote home ownership for people who might not otherwise
be able to qualify for a conventional loan. Both FHA and VA loans have lower qualifying ratios than
conventional loans, and often require smaller or no down payments.
Bear in mind, however, that FHA and VA loans are not issued by the government; rather, the loans are
made by private lenders. FHA loans are insured to the actual lender and VA loans are guaranteed in case
the borrower defaults. Remember too, that while any U.S. citizen may apply for a FHA loan,VA loans are
only available to veterans or their spouses and certain government employees.
A conventional loan is simply a loan offered by a traditional private lender. They may be fixed-rate,
adjustable, hybrid or other types. While conventional loans may be harder to qualify for than government-
backed loans, they often require less paperwork and typically do not have a maximum allowable amount.
All About Adjustable-Rate Mortgages:
Adjustable-rate mortgages (ARMs) differ from fixed-rate mortgages in that the interest rate and monthly
payment can change over the life of the loan. ARMs also generally have lower introductory interest rates vs.
fixed-rate mortgages. Before deciding on an ARM, key factors to consider include how long you plan to own
the property, and how frequently your monthly payment may change.
Why choose an adjustable-rate mortgage?
The low initial interest rates offered by ARMs make them attractive during periods when interest rates are high,
or when homeowners only plan to stay in their home for a relatively short period. Similarly, homebuyers may
find it easier to qualify for an ARM than a traditional loan. However, ARMs are not for everyone. If you plan
to stay in your home long-term or are hesitant about having loan payments that shift from year-to-year,
then you may prefer the stability of a fixed-rate mortagage.
Components of adjustable-rate mortgages:
Adjustable-rate mortgages have three primary components: an index, margin, and calculated interest rate:
The interest rate for an ARM is based on an index that measures the lender's ability to borrow money.
While the specific index used may vary depending on the lender, some common indexes include U.S.
Treasury Bills and the Federal Housing Finance Board's Contract Mortgage Rate. One thing all indexes
have in common, however, is that they cannot be controlled by the lender.
The margin (also called the "spread") is a percentage added to the index in order to cover the lender's
administrative costs and profit. Though the index may rise and fall over time, the margin usually remains
constant over the life of the loan.
- Calculated interest rate:
By adding the index and margin together, you arrive at the calculated interest rate, which is the rate the
homeowner pays. It is also the rate to which any future rate adjustments will apply (rather than the
"teaser rate," explained below).
Adjustment periods and teaser rates:
Because the interest rate for an ARM may change due to economic conditions, a key feature to ask your lender
about is the adjustment period--or how often your interest rate may change. Many ARMS have one-year
adjustment periods, which means the interest rate and monthly payment is recalculated (based on the index)
every year. Depending on the lender, longer adjustment periods are also available.
An ARM can also have an initial adjustment period based on a "teaser rate," which is an artificially low
introductory interest rate offered by a lender to attract homebuyers. Usually, teaser rates are good for 6
months or a year, at which point the loan reverts back to the calculated interest rate. Remember, too, that most
lender will not use the teaser rate to qualify you for the loan, but instead use a 7.5% interest rate (or calculated
interest rate if it is lower).
To protect homebuyers from dramatic rises in the interest rate, most ARMs have "caps" that govern how much
the interest rate may rise between adjustment periods, as well as how much the rate may rise (or fall) over the
life of the loan. For example, an ARM may be said to have a 2% periodic cap, and a 6% lifetime cap. This means
that the rate can rise no more than 2% during an adjustment period, and no more than 6% over the life of the
loan. The lifetime cap almost always applies to the calculated interest rate and not the introductory teaser rate.
Payment caps and negative amortization:
Some ARMs also have payment caps. These differ from rate caps by placing a ceiling on how much your
payment may rise during an adjustment period. While this may sound like a good thing, it can sometimes lead
to real trouble.
For example, if the interest rate rises during an adjustment period, the additional interest due on the loan
payment may exceed the amount allowed by the payment cap--leading to negative amortization. This means
the balance due on the loan is actually growing, even though the homeowner is still making the minimum
monthly payment. Many lenders limit the amount of negative amortization that may occur before the loan must
be restructured,but it's always wise to speak with your lender about payment caps and how negative amortization
will be handled.
How Mortgage Loans Work:
Excluding property taxes and insurance, a traditional fixed-rate mortgage payment consist of two parts: (1)
intereston the loan and (2) payment towards the principal, or unpaid balance of the loan.
Many people are surprised to learn, however, that the amount you pay towards interest and principal varies
dramatically over time. This is because mortgage loans work in such a way that the early payments are
primarily in interest, and the later payments are primarily towards the principal.
In the beginning... you pay interest:
To help calculate monthly payments for loans based on different interest rates, lenders long ago developed
what are known as "amortization tables." These tables also make it fairly easy to calculate how much money
of each payment is interest, and how much goes towards the principal balance.
For example, let's calculate the principle and interest for the very first monthly payment of a 30-year,
$100,000 mortgage loan at 7.5 percent interest. According to the amortization tables, the monthly payment on
this loan is fixed at $699.21. The first step is to calculate the annual interest by multiplying $100,000 x .075
(7.5 %). This equals $7,500, which we then divide by 12 (for the number of months in a year), which equals
If you subtract $625 from the monthly payment of $699.21, we see that:
- $625 of the first payment is interest
- $74.21 of the first payment goes towards the principal
Next, if we subtract $74.21 (the first principal payment) from the $100,000 of the loan, we come up with a
new unpaid principal balance of $99,925.79. To determine the next month's principal and interest payments,
we just repeat the steps already described.
Thus, we now multiply the new principal balance (99,925.79) times the interest rate (7.5%) to get an annual
interest payment of $7,494.43. Divided by 12, this equals $624.54. So during the second month's payment:
- $624.54 is interest
- $74.67 goes towards the principal.
Note: In Canada, payments are compounded semi-annually instead of monthly.
As you can see from the above example, even though you pay a lot of interest up front, you're also slowly
paying down the overall debt. This is known as building equity. Thus, even if you sell a house before the loan is
paid in full, you only have to pay off the unpaid principal balance--the difference between the sales price and
the unpaid principle is your equity.
In order to build equity faster--as well as save money on interest payments--some homeowners choose loans
with faster repayment schedules (such as a 15-year loan).
Time versus savings:
To help illustrate how this works, consider our previous example of a $100,000 loan at 7.5 percent interest. The
monthly payment is around $700, which over 30 years adds up to $252,000. In other words, over the life of the
loan you would pay $152,000 just in interest.
With the aggressive repayment schedule of a 15-year loan, however, the monthly payment jumps to $927-for a
total of $166,860 over the life of the loan. Obviously, the monthly payments are more than they would be for a
30-year mortgage, but over the life of the loan you would save more than $85,000 in interest.
Bear in mind that shorter term loans are not the right answer for everyone, so make sure to ask your lender or
real estate agent about what loan makes the best sense for your individual situation.
When Should You Pay Points on a Loan?
When it comes to comparing interest rates for a mortgage loan, homebuyers often have the option of choosing
a loan with a lower interest rate by paying points. Simply put, a point is equal to 1 percent of the loan amount.
For example, with a $100,000 loan, one point equals $1,000. Points are usually paid out-of-pocket by the
buyer at closing.
Paying points may seem attractive, because a lower interest rate means smaller monthly payments. But is
payingpoints always a good idea? The answer generally depends on how long you plan to stay in the house.
Let's look at an example:
Bob and Betty Smith are shopping for loan rates on a $150,000 home. Their bank has offered them a 30 year
loan at 7.5 percent with no points. This works out to a monthly payment of $1,049. However, their bank has
also offered them a loan at 7 percent if they agree to pay 2 points (or $3,000). At thislower rate, their monthly
payment drops to $998, or a savings of $51 per month.
By dividing the amount they paid for the points ($3,000) by the monthly savings ($51), we see that they will
have to own the house for 59 months (or just under 5 years) before they will start to see savings as a result of
paying points. If Bob and Betty plan to stay in the house for many years, then paying points could make good
sense. But if they see themselves moving to another house in the near future, they'd be better off paying the
higher interest and no points. (Note: for simplicity, the above example does not take into account the time
value of money, which would slightly lengthen the break-even time.)
Can you deduct points on your income taxes?
In the United States, one side benefit of paying points on a mortgage loan is that they are fully tax deductible
for the same tax year as your closing. However, this does not apply to points paid for a refinance loan. For
refinances, the IRS requires you to spread out the deduction over the life of the loan. For example, if you paid
$5,000 in points for a 30-year refinance loan, you can only deduct 1/30 of the $5,000 each year for 30 years.
If you pay off the loan early, though, you can deduct the remaining amount that tax year. As to this page and
all pages regarding tax situations, please check with your tax professional.
Getting Your Finances in Order:
15-Year, 30-Year, or a Biweekly Mortgage?
In the past, the 30-year, fixed-rate mortgage was the standard choice for most homebuyers. Today, however,
lenders offer a wide array of loan types in varying lengths--including 15, 20, 30 and even 40-year mortgages.
Deciding what length is best for you should be based on several factors including: your purchasing power,
your anticipated future income and how disciplined you want to be about paying off the mortgage.
What are the benefits of a shorter loan term?
Some homeowners choose fixed-rate loans that are less than 30 years in order to save money by paying less
interest over the life of the loan. For example, a $100,000 loan at 8 percent interest comes with a monthly
payment of around $734 (excluding taxes and homeowner's insurance). Over 30 years, this adds up to
$264,240. In other words, over the life of the loan you would pay a whopping $164,240 just in interest.
With a 15-year loan, however, the monthly payments on the same loan would be approximately $956--for a
total of $172,080. The monthly payments are more than $200 more than they would be for a 30-year mortgage,
but over the life of the loan you would save more than $92,000.
What are the advantages to a 30-year loan?
Despite the interest savings of a 15-year loan, they're not for everyone. For one thing, the higher monthly
payment might not allow some homeowners to qualify for a house they could otherwise afford with the lower
payments of a 30-year mortgage. The lower monthly payment can also provide a greater sense of security in
the event your future earning power might decrease.
Furthermore, with a little bit of financial discipline, there are a variety of methods that can help you pay off a
30-year loan faster with only a moderately higher monthly payment. One such choice is the biweekly mortgage
payment plan, which is now offered by many lenders for both new and existing loans.
As the name implies, biweekly mortgage payments are made every two weeks instead of once a month--which
over a year works out to the equivalent of making one extra monthly payment (compared to a traditional
payment plan). One extra payment a year may not sound like much, but it can really add up over time. In fact,
switching from a traditional payment plan to a biweekly mortgage can actually shorten the term of a 30-year
loan by several years and save you thousands in interest.
If you're interested in a biweekly payment plan, make sure to check with your lender. In many cases, lenders
also offer direct payment services that automatically withdraw funds from your bank account, saving you the
trouble of having to write and mail a check every two weeks.
Making extra payments yourself--do it early!
Another way to pay off your loan more quickly is to simply include extra funds with your monthly payment.
Most lenders will allow you to make extra payments towards the principal balance of your loan without penalty.
This is especially attractive to homebuyers who are concerned about their future earning power, but still want
to be aggressive about paying off their loan.
For example, if you had a 30-year loan, you might decide to send the equivalent of one or two extra payments a
year (which could shorten the overall length of the loan by many years). But if your financial situation suddenly
took a turn for the worse, you could always fall back on the regular monthly payment.
One important note, though, is that if you do decide to send extra funds, make sure to do it EARLY in the life of
the loan. This is because most home loans are calculated in such a way that the first few years of payments are
almost entirely interest, while the last few years are mostly applied towards the principal balance. Thus, you
can get the most bang for your buck by making the extra payments early in the life of the loan.
Saving for the Down Payment:
Saving funds for a down payment should be part of an overall program to get your finances in order prior to
shopping for a home. This includes rounding up financial records, examining your spending habits, and setting a
budget you can live with. Remember, too, that the down payment is not the only up-front expense. An
allowance for closing costs should also be included in your savings budget.
How much is required?
The down payment is usually expressed as a percentage of the overall purchase price of the home, and varies
depending on the lender, the type of financing and amount of money being lent. In the past, the typical down
payment was 20%, but in recent years lenders have been willing to offer conventional financing with as little as
3% down. U.S. Government financing programs, such as those offered by the Dept. of Veterans Affairs (VA) or
the Federal Housing Administration (FHA), also require minimal down payments.
Private mortgage insurance:
Typically, if your down payment is less than 20% of the purchase price, lenders will require you to carry PMI,
or private mortgage insurance. This insurance protects the lender in case of loan default, and usually involves
an up-front payment at closing, as well as a monthly premium. However, once you have paid off 20% of the
loan, you can request the policy be canceled. Some lenders cancel the premium automatically, while others
require you to make a request in writing.
If you are having trouble saving enough money, many lenders will allow you to use gift funds for the down
payment--as well as for related closing costs. The gift may come from family, friends or other sources, but
remember that lenders usually require a "gift letter" stating the gift doesn't have to be repaid. In addition,
some lenders will also require you to pay at least a portion of the down payment with your own cash. Thus,
if you plan to use gift money to purchase your house, ask your lender about their policies regarding gifts.
Buyers are usually required to deposit earnest money with the seller when they make an offer. If the offer is
accepted, the earnest money is then credited towards the down payment. The amount varies widely depending
on the seller and local custom, but be prepared from the outset to have funds earmarked for this purpose.
Don't forget closing costs:
In addition to the down payment, you will also need to save for additional fees associated with the loan. Known
as closing costs, these charges cover items such as title insurance, documentary stamps, loan origination fees,
the survey, attorney's fees, etc. When you submit your loan application, lenders are required to supply you with
a good faith estimate of your closing costs.
Some buyers are surprised by the amount of the closing costs, which can easily run into the thousands of
dollars. Remember, though, that closing costs can be negotiated with the seller. For example
Leveraging Your Money:
One of the greatest financial aspects of buying a home is the ability to leverage your money. Simply put,
leverage allows you to use a small down payment and financing to purchase a larger investment. For example,
if you bought a $125,000 home with 10 percent down, you leveraged the $12,500 down payment to purchase
an asset worth 10 times that amount!
The benefits of leverage really become apparent with appreciation, or the rise in value of a property. Using the
above example, say you were to live in the house for 5 years, and during that time property values in your area
were to rise an average of 2.5 percent a year. Your home would then be worth over $141,000. By putting only
10 percent down, you get to enjoy the appreciation for the full amount!
In addition to the 10 percent down, you'll also have to make mortgage payments. But with each payment, a
certain amount of money is being used to pay down the principal balance that you owe. This is called building
equity. So in the event you sell your house, not only can you realize a profit from your leveraged money, you
also have a chance to pay yourself back for the money you've put in over the years. No wonder so many people
consider a home an excellent investment!
The bundle of fees associated with the buying or selling of a home are called closing costs. Certain fees are
automatically assigned to either the buyer or the seller; other costs are either negotiable or dictated by local
Buyer closing costs:
When a buyer applies for a loan, lenders are required to provide them with a good-faith estimate of their
closing costs. The fees vary according to several factors, including the type of loan they applied for and the
terms of the purchase agreement. Likewise, some of the closing costs, especially those associated with
the loan application, are actually paid in advance. Some typical buyer closing costs include:
- The down payment
- Loan fees (points, application fee, credit report)
- Prepaid interest
- Inspection fees
- Mortgage insurance (typically 1 years premium plus an escrow of 2 months)
- Hazard insurance (typically 1 years premium plus an escrow of 2 months)
- Title insurance
- Documentary stamps on the note
Seller closing costs:
If the seller has not yet paid for the house in full, the seller's most important closing cost is satisfying the
remaining balance of their loan. Before the date of closing, the escrow officer will contact the seller's lender to
verify the amount needed to close out the loan. Then, along with any other fees, the original loan will be paid
for at the closing before the seller receives any proceeds from the sale. Other seller closing costs can include:
- Broker's commission
- Transfer taxes
- Documentary Stamps on the Deed
- Title insurance
- Property taxes (prorated)
Negotiating Closing Costs:
In addition to the sales price, buyers and sellers frequently include closing costs in their negotiations. This
can be for both major and minor fees. For example, if a buyer is particularly nervous about the condition of
the plumbing, the seller may agree to pay for the house inspection.
Likewise, a buyer may want to save on up-front expenditures, and so agree to pay the seller's full asking price
in return for the seller paying all the allowable closing costs. There's no right or wrong way to negotiate closing
costs; just be sure all the terms are written down on the purchase agreement.
At the closing, certain costs are often prorated (or distributed) between buyer and seller. The most common
prorations are for property taxes. This is because property taxes are typically paid at the end of the year for
which they were assessed.
Thus, if a house is sold in June, the sellers will have lived in the house for half the year, but the bill for the
taxes won't come due until the following year! To make this situation more equitable, the taxes are prorated.
In this example, the sellers will credit the buyers for half the taxes at closing.
To finalize the sale of the home a neutral, third party (the escrow holder, a.k.a. escrow agent) is engaged to assure the transaction
will close properly and on time. The escrow holder insures that all terms and conditions of the seller's and buyer's agreement are
met prior to the sale being finalized, including receiving funds and documents, completing required forms, and obtaining the
release documents for any loans or liens that have been paid off with the transaction, assuring you clear title to your property
before the purchase price is fully paid.
Important Information For First Time Home Buyers:
Putting you mind at ease!
Buying a home for the first time is an exciting process, but it can also be a bit overwhelming. Using an experienced real estate
professional like myself can make your home buying process in Staten Island or Brooklyn go much smoother.
Owning a home is a dream that has recently started becoming a reality for many people. But for many more, the maze of questions,
hurdles and potential problems prevents them from taking the big step towards owning their first home.
As an independent, knowlegeable Staten Island and Brooklyn based top producing real estate broker, I will make buying your first
home easy, and a pleasurable experience with strong advise, marketplace knowledge, and the personal touch.
I will provide you with the answers you need to help guide you through the process of buying your first home, from offering you
information about the best neighborhoods for schools, to suggesting the perfect restaurant, and even on ways to qualify you for a
good mortgage; I will give you all the information, and knowledge you need, to insure that your first home purchase is your happiest.
Some Common First Time Buyer Questions:
How much home can we afford?
Your ability to afford a home depends on a number of factors. You must consider your present income in light of your total financial
picture. There are a number of mortgage calculators available for free on the Internet that can help you decide what you can qualify
for, and what that will cost each month. It is important to note, however, that many of these don't factor in the costs of property
taxes and homeowners insurance into your quote. These costs need to be considered.
How do I qualify for a mortgage?
Qualifying for a mortgage is not the mystery it once was. With so many lending institutions available through the Internet, you may
be more likely to qualify than you ever thought possible. The first step in qualifying for a mortgage is to talk to your lender. He or
she will request some information about your current financial situation. You may have to provide paperwork related to your current
employment status, and you will soon be notified of the lending institution's decision generally within a few days. If you are
interested in finding out whether or not you will qualify for a mortgage before you ever approach a lending institution, there are a
few things you can do. First, determine what your debt to income ratio is. Most lending institutions think that your housing costs
should only be 28% of your monthly income. Moreover, they tend to believe that your total monthly debt should not be more than
36% of your income. If you have more debt than most lenders will accept, it might be a good idea to take a hard look at eliminating
some of your outstanding balances before you apply for a home loan. Once you've looked at your debt compared to your income,
you should glance at a copy of your credit report (you can get this free through several online websites). Check it for errors, and look
at your overall score – if it’s low, you might need to do some credit repair before you buy a home. Remember, lenders will look
carefully at your past payment history, so if you've had some financial issues in the past, some lenders simply won't consider you for
a mortgage – or they’ll give you prohibitive interest rates and terms.
How much money should I put down on my new home?
The down payment on a new home is one of the scariest factors for most home buyers. The simple truth is, though, the down
payment on a home shouldn't concern you. In the past, lenders required at least a 20% down payment before you could ever qualify
for a mortgage. Nowadays, most companies will allow you to get a mortgage loan with only a 1-3% down payment if you take out private
mortgage insurance. If it is possible, though, there are a number of advantages to putting 20% down on your home. First, it gives you a
strong amount of equity in your home at the start of your ownership. Second, you can avoid the costly private mortgage insurance
with a higher down payment amount. Finally, the more money you are able to funnel into a down payment, the lower your house
payments will be. Your overall decision about how much money to put down on your new home will be decided by your current
financial state and your personal preferences.
Can I buy a home with no down payment?
In the last ten years, many lenders have come up with some fairly innovative mortgage programs that allow borrowers to purchase
homes without down payment money. In this case, the lender finances 100% of the home's value. This can be a bit more dangerous
for lenders, but in most cases, it is a risk they are willing to take, especially in a market where home prices keep rising. There are a
few drawbacks to purchasing a home in this manner. First, some banks will require you to purchase private mortgage insurance.
This can be a bit costly, but there are other home loan programs available if you want to avoid it. Many lenders have piggyback loan
programs. You borrow 80% of the home's value, then you take out a second mortgage for 20% of the value of the home. The interest
on both loans is tax deductible. There are several FHA home ownership programs that offer no down payment loans. You do have to
pre-qualify for these kinds of loans, and there are some limitations, but they can be great programs for first time buyers. If you are a
veteran, the VA also offers no down payment loans. There are no out of pocket fees with this type of loan, but there are some
restrictions. Some banks offer private programs you can look into if you cannot afford the down payment on a home.
Is it better to rent or buy?
In general, owning a home is your best bet. When you write the check to a rental agency each month, your money is simply gone.
When you write the check to a mortgage company each month, you are investing in something you will some day own. The value of
your home may increase over time, making it an excellent financial investment. Moreover, most home payments are far less than the
cost of rental payments, saving you a bit of money each month. While there may be some drawbacks to home ownership, like having to
pay for the cost of repairing and maintaining the home, overall, it is a far better deal to purchase a property than to rent one.
Are there tax advantages to owning a home?
Deductible Homeowners Expenses:
One of the advantages of owning your own home is that the home mortgage interest and real estate taxes paid can be deducted from
your federal income tax*. To do so, youll need to comply with current tax laws and complete the appropriate federal tax forms and
itemized deduction schedules.
Home Mortgage Interest:
For your home mortgage interest to be deductible, it must be for a first or second mortgage, a home improvement loan or a home
equity loan. Additionally
- The mortgage loan must be secured by your main home or a second home
- Only interest paid for that tax year can be deducted
The amount you can deduct can be limited if your mortgage balance is more than $1 million ($500,000 if married filing separately)
or the mortgage was taken out for reasons other than to buy, build or improve your home.
Points (aka loan origination fees, maximum loan charges, loan discount, or discount points) are generally treated as pre-paid interest
and, as such, the full amount cannot be deducted in the year paid. Rather, the deduction must be taken over the term of the loan.
Real Estate Taxes:
State or local real estate taxes can be deducted from your income if they are paid in the tax year. To qualify, the tax must be levied on
the propertys assessed value, the taxing authority must charge a uniform rate for properties in its jurisdiction, and the tax must not be
for your special privilege but for the benefit of the general welfare.
Restrictions on Itemized Deductions:
The amount of itemized deductions you can take are restricted by your adjustable gross income. In 2003, the limits were $139,500 for
single persons, persons filing as head of household or qualified widow(er), or married persons filing jointly; and $69,750 for married
persons filing a separate return.
Many of the expenses related to owning your own home cannot be deducted from your income tax. These non-deductible items can
- Most settlement costs, including (but not limited to) appraisal fees, notary fees, VA funding fees, and mortgage preparation costs
- Local assessments that generally add value to your home, such as sidewalks, sewers, etc.
- Domestic help
Check with the IRS
*The information contained in this article is for informational purposes only and may not reflect current tax year rules and regulations.
Youll need to consult with your tax attorney, CPA, or the
Staten Island Real Estate fact:::
Staten Island is still one of the cheapest of all the five boroughs to purchase real estate.
Why Hire a Professional Real Estate Agent?
A qualified, competent real estate agent will help you navigate the myriad of decisions that arise when buying and selling a home.
An agent provides value to the homeowner in many ways:
Pays for all marketing and advertising costs.
- Adds experience and expertise in all aspects of the sales process including marketing, financing, negotiations and more.
- Handles all showings.
- Brings a network of known, trusted real estate professionals. If your agent doesn't have the answer, he or she likely knows
someone who does.
- Always has your interests in mind so you always have someone on your side.
- Can handle and advise on all price and contract negotiations.
- Provides you with all the possible options and opportunities without holding back.
- Gives an unbiased, realistic view of your home and your options. Unlike buyers and sellers, an agent has no emotional
- Has the knowledge to help you ask the right questions.
- Being a third party, potential buyers are more likely to tell your agent the truth about your home, even if it is unflattering. This
objective viewpoint will help you make the necessary changes to get your home sold.
- Your time is valuable. A real estate agent allows you to spend your time how you want.
If your selling a house, Look at the papers and the news a Real Estate Agent is getting about 27% more money for the same house
as a FSBO!
How to Reduce Your Mortgage
One Additional Mortgage Payment a Year!
There's a simple trick to significantly reduce the length of your mortgage and save you thousands of dollars. The trick is to make one
extra mortgage payment a year and apply that payment toward your loan's principal.
Example: $100,000 loan, 30-year mortgage, 6.5% fixed interest rate
Extra Mortgage Payments/ Year
Principal & Interest
Additional Monthly Payment
# of Years
29.92 / 359 mos.
24.12 / 290 mos.
17.92 / 215 mos.
15.92 / 191 mos.
14.34 / 172 mos.
It may not be possible for you to increase your monthly mortgage payment. Keep in mind that most mortgages will permit you
to make additional payments to your principal at anytime. Perhaps, five-years after moving into your home you receive a larger
than expected tax return, or an inheritance or a non-taxable cash gift. You could apply this money toward your loan's principal,
resulting in significant savings and a shorter loan period.
With a $100,000, 30-year, 6.5% fixed interest rate mortgage loan, the borrower will pay a total of $227,542.98 to pay back the loan |
in 30 years. That equals $127,542.98 in interest payments.
If the same borrower makes a one-time $5,000 payment the first day of year 6, he/she will pay a total of $204,710.75 and pay off the
loan in 27 years (324 months). That's a savings of $22,832.23 in interest.
A crucial step in starting your search for a new home is having a clear idea of your financial situation. By
getting a handle on your income, expenses and debts, you'll have a much better idea of what you can afford
and how much you'll need to borrow.
When you buy Staten Island New Home Construction, for the most part you get an 8 year real estate TAX abatement. This "Tax
Abatement". This along with low Mortgage rates and mortgage options can result in a savings of several hundred dollars a month.
Selling Staten Island real estate? We will suggest the best strategies for preparing your home for sale, and our high-tech
comprehensive marketing program that will effectively promote your home listing daily to millions of people around the world via
8 Internet websites. Staten Island real estate is in high demand internationally and we market our home listings on eight different
Internet web sites, plus we do extensive magazine and newspaper advertising to make sure your Staten Island home is showcased
to as many potential buyers as possible. Our marketing of Staten Island property is so well orchestrated that you really have to see
it in action!!
Staten Island North Shore economic revitalization: The Staten Island Yankees ballpark is just one part of a major economic
revitalization effort on Staten Island’s north shore. The land adjacent to the stadium has metamorphosed from a strip of unused railroad
tracks to a scenic promenade with trees, ponds, benches and bike paths, giving a perfect vantage point to view New York Harbor, the
Statue of Liberty and the Manhattan skyline. The project also called for the construction of the Staten Island Institute of Arts and Sciences
and the National Lighthouse Museum. But the cornerstone of the plan was the $81 million dollar renovation to the Staten Island Ferry
terminal, the biggest revitalization effort in the borough’s history. There is lots of Staten Island real estate including New Construction Homes and
Pre-loved homes for sale with a wide array of choices and prices. Let me be your guide in finding the perfect Staten Island Homes or any Staten Island
real estate for your family! You can join my Staten Island Real Estate Mailing List and be alerted to new listings that are priced right when they
come to market. You will also be alerted to Staten Island Foreclosures when they become available.
Appraisals & Market Value - Q & A
||What is the difference between market value and appraised value?
Appraised value is a certified appraiser's opinion of the worth of a home at a given point in time. Lenders require appraisals as part
of the loan application process; fees range from $200 and up.
Market value is what price the house will bring at a given point in time. A comparative market analysis is an informal estimate of market
value, based on sales of comparable properties, performed by a real estate agent or broker.
||How do you find out the value of a troubled property?
Buyers considering a foreclosure property should obtain as much information as possible from the lender about the range of bids
It also is important to examine the property. If you are unable to get into a foreclosure property, check with surrounding neighbors
about the property's condition.
It also is possible to do your own cost comparison through researching comparable properties recorded at local county recorder's
and assessor's offices, or through Internet sites specializing in property records.
||What are the standard ways of finding out what a house is valued at?
A comparative market analysis and an appraisal are the standard ways consumers, lenders and realty agents deterimined what a
home is worth.
Your real estate agent will be happy to provide a comparative market analysis, an informal estimate of value based on comparable
sales in the neighborhood. You also can research "the comps" yourself by checking on recent sales in public records. Be sure that y
ou are researching properties that are similar in size, construction and location.
This information is not only available at your local recorder's or assessor's office but also through private companies and on the
An appraisal, which generally costs $200 to $300 to perform, is a certified appraiser's opinion of the value of a home at any given
time. Appraisers review numerous factors including recent comparable sales, location, square footage and construction quality.
|What's a house worth?
A home is worth what someone will pay for it. Everything else is an estimate of value. To determine a property's value, most people
turn to either an appraisal or a comparative market analysis.
An appraisal is a certified appraiser's estimate of the value of the property at a given point in time. To make their determination,
appraisers consider square footage, construction quality, design, floor plan, neighborhood, availability of transportation, shopping
and schools amenities, energy efficiency. Appraisers also take lot size, topography, view and landscaping into account.
A comparative market analysis is an informal estimate of market value, based on comparable sales in the neighborhood, performed
by a real estate agent or broker. You can do your own cost comparison by looking up recent sales of comparable properties in public
records. These records are available at local recorder's or assessor's offices, through private companies or on the Internet.
||What standards do appraisers use to estimate value?
Appraisers use several factors when estimating value including historical records, property performance, condition of the home and
indices that forecast future value. For detailed information on appraisal standards, contact the Appraisal Institute at 875 N. Michigan
Ave., Suite 2400, Chicago, IL 60611-1980; (312) 335-4458.
||What is the return on new versus previously owned homes?
Buying into a new-home community may seem riskier than purchasing a house in an established neighborhood, but any increase in
home value depends upon the same factors: quality of the neighborhood, growth in the local housing market and the state of the
One survey by the NATIONAL ASSOCIATION OF REALTORS® shows that resale homes do have an edge over new homes. The trade
group's figures show the median price of resale homes increased 3 percent between 1994 and 1995, compared to 0.8 percent for new
homes in the same period.
||What is the difference between list price, sales price and appraised value?
The list price is a seller's advertised price, a figure that usually is only a rough estimate of what the seller wants to get. Sellers can price
high, low or close to what they hope to get. To judge whether the list price is a fair one, be sure to consult comparable sales prices
in the area.
The sales price is the amount of money you as a buyer would pay for a property.
The appraisal value is a certified appraiser's estimate of the worth of a property, and is based on comparable sales, the condition
of the property and numerous other factors.
||Can I find out the value of my home through the Internet?
You can get some idea of your home's value by searching the Internet. A number of Web sites and services crunch the numbers from
historic public records of home sales to produce the statistics. Some services offer an actual estimate of value based on acceptable
software appraisal standards. They also depend on historic home sales records to calculate the estimate.
Neither of these services produce official appraisals. They also don't factor in market nuances or other issues a certified appraiser
or real estate professional might in assessing the value of your home.
| Condominiums & Townhomes - Q & A
||How do you choose between condos and single family homes?
Using appreciation as a measure, condominiums in some areas have been as profitable an investment as single family homes in
the last five years. And in some markets, condos appreciated even more, according to some experts.
While single family homes have been the preferred investment by home buyers, changing demographics are helping make condos
more popular, especially among single home buyers, empty nesters and first-time buyers in high-priced markets.
Also, the condominium community has worked hard in the last few years to overcome image problems brought on by
homeowners association and developer disputes as well as all too frequent construction-defect litigation.
||Are condominiums risky to buy?
While condos never had the kind of appreciation experienced by single-family homes in the go-go 1980s, most ultimately have not
lost value, say some experts. And with high prices in many urban markets and more single home buyers in the market than ever before,
the market for condos is strong.
As with any home purchase, you should do your homework about the neighborhood or development before you buy. In the case
of condominiums, it is important to read the past six months of homeowners association minutes to see how effective the board is and
to learn about any possibly detracting issues (such as protracted litigation with the developer).
The condominium community has worked hard in the last few years to overcome image problems brought on by disputes and
lawsuits. Associations are becoming more sophisticated about property management and taking steps to prevent legal problems
* Community Associations Institute, 1630 Duke St., Alexandria, VA 22314; (703) 548-8600.
* "The Condominium Bluebook," Branden E. Bickel, B&B Publications, San Francisco, CA; 1993.
||Do condos have to be made accessible to the disabled?
The 1990 Americans with Disabilities Act does not require strictly residential apartments and single-family homes to be made
accessible. But all new construction of public accommodations or commercial projects (such as a government building or a shopping
mall) must be accessible. New multi-family construction also falls into this category.
In all states, the Federal Fair Housing Act provides protection against discrimination for people with physical or mental
disabilities. Discrimination includes the refusal to make reasonable modifications to buildings that aren't accessible to the disabled.
Two educational brochures, "Housing Rights" and "Discrimination is Against the Law," are available through the Department of
Fair Employment and Housing by calling (800) 884-1684.
||Can condos ban smoking?
A homeowners association's board of directors can restrict smoking if it applies to indoor common spaces such as hallways or
recreation rooms. Outdoor spaces are a different story, say legal experts. Any restriction would probably hinge on local laws
(i.e. if a city banned smoking outdoors, a homeowners association probably could restrict smoking in its outdoor spaces).
Typical covenants, codes and restrictions (CC&Rs), which govern condo associations, give the board authority to make and
enforce reasonable rules for the use of common property. But that would not apply to interior spaces owned by smokers themselves.
* Common-interest development brochure available free from California Department of Real Estate, Book Orders, P.O. Box
187006, Sacramento, CA 95818-7006; (916) 227-0938.
* Various Internet sites specializing in common-interest developments, such as those operated by the Community Associations
Institute and CIDNetworks.
||Can a condo association ban nudity?
Could you sunbathe in the nude on your own balcony? Not necessarily. In a condominium development, a balcony is not
considered private property but common property assigned to your exclusive use but a common area nontheless.
Covenants, codes and restrictions (CC&Rs) usually spell out what activities can and cannot be conducted on common property.
Some associations prevent people from barbecuing on their balconies or hanging large plants from the railings. However, the larger
issue of regulating personal conduct is not so clear-cut. It literally depends on what side of the fence you're on.
If the sunbather can be seen from a public vantage point -- not by someone who must climb a tree or peer through binoculars --
then the rule probably would be considered reasonable, say legal experts.
Incidentally, there are places where nudity is tolerated but again, only out of public view.
||Are condos a good investment?
Condominiums have held their value as an investment despite economic downturns and problems with some associations. In fact,
condos have appreciated more in the last few years than when they first came on the scene in the late 1970s and early 1980s, experts
While there are lots of reports about homeowners association disputes and construction-defect problems, the industry has worked hard
to turn its image around. Elected volunteers who serve on association boards are better trained at handling complex budget and
legal issues, for example, while many boards go to great lengths to avoid the kind of protracted and expensive litigation that has
hurt resale value in the past.
Meanwhile, changing demographics are making condominiums more attractive investments for single home buyers, empty nesters
and first-time buyers in expensive markets.
||Where do I get information on condo association laws?
* "The Condominium Bluebook" by Branden E. Bickel, B&B Publications, San Francisco, CA; 1994; call (415) 433-1233).
* Community Associations Institute, Alexandria, VA; (703) 548-8600.
||Where do I get information on condos?
||The major interest group for condominium projects and other so-called common-intereset developments is the nonprofit
Community Associations Institute,1630 Duke St., Alexandria, VA 22314; (703) 548-8600. Also, check the Internet where CAI operates
an informative site as does CIDNetworks.
||Are one-bedroom condominiums a good investment?
||One-bedroom condominiums historically have not been considered as good an investment as condos with two bedrooms or more. But
in high-cost markets, such as Manhattan or the San Francisco Bay Area, one-bedroom condos have proven to be equally good
investments. Helping that along are changing demographic trends. With more single home buyers in the market today than at any
time in history, there is more demand for one-bedroom condos.
||How do I figure out the homeowners association?
Learn everything you can about the homeowners association before you buy into a development governed by one. The a
ssociation's financial, political and legal conditions are very important to your investment and quality of life.
When run properly, homeowners associations maintain the common grounds and keep civility in the complex. If you follow the rules,
the association should not intrude on your privacy or cost you too much in association dues.
Poorly managed associations can drag down property values and make living there difficult for residents. Start by studying the
association's covenants, codes and restrictions, or CC&Rs, and find out if you can live by them. For example, if the rules prohibit
loud music after a certain hour and you like to play your CDs late at night, this may not be the place for you. Don't move in thinking you
can get away with violating the rules or change them later because you may find yourself in turmoil with determined neighbors firmly
in control of the association board.
Find out all you can about the association's finances. Beyond reviewing the budget, talk to the association treasurer and find out if dues
are expected to increase and if any special assessments are planned. Ask if special inspections have revealed problems with roofs or
plumbing that may cause a dues hike or special assessment later on.
Call and meet with the association president. If you are the type of person who despises intrusions into your private life and the
president seems more interested in gossip about the residents than maintaining the property, this may not be the right condo complex
Speak with residents to get their views on the association's finances, its property manager, how it operates and any politics.
Associations are volunteer organizations with elected boards, like a mini-government, so politics can enter the picture and spoil a
Lastly, take some time to understand how homeowners associations are organized and how they conduct business. Like all real
estate investments, the more you know the better off you are.
||How do you choose between buying and renting?
Home ownership offers tax benefits as well as the freedom to make decisions about your home. An advantage of renting is not
worrying about maintenance and other financial obligations associated with owning property.
There also are a number of economic considerations. Unlike renters, home owners who secure a fixed-rate loan can lock in their
monthly housing costs and make prudent investment plans knowing these expenses will not increase substantially.
Home ownership is a highly leveraged investment that can yield substantial profit on a nominal front-end investment. However,
such returns depend on home-price appreciation.
"For some people, owning a home is a great feeling," writes Mitchell A. Levy in his book, "Home Ownership: The American Myth,"
Myth Breakers Press, Cupertino, Calif.; 1993.
"It does, however, have a price. Besides the maintenance headache, the amount of after-tax money paid to the lender is usually
greater than the amount of money otherwise paid in rent," Levy concludes.
As for evaluating the risk associated with home ownership, David T. Schumacher and Erik Page Bucy write in their book "The
Buy & Hold Real Estate Strategy," John Wiley & Sons, New York; 1992, that "good property located in growth areas should be
regarded as an investment as opposed to a speculation or gamble."
The authors recommend that prospective buyers spend a few months investigating a community. Many people make the mistake
of buying in the wrong area.
"Just because certain properties are high-priced doesn't necessarily mean they have some inherent advantage," the authors write.
"One property may cost more than another today, but will it still be worth more down the line?"
||What are the pros and cons of adding on or buying new?
Before making a choice between adding on to an existing home or buying a larger one, consider these questions:
* How much money is available, either from cash reserves or through a home improvement loan, to remodel the current house?
* How much additional space is required? Would the foundation support a second floor or does the lot have room to expand on
the ground level?
* What do local zoning and building ordinances permit?
* How much equity already exists in the property?
* Are there affordable properties for sale that would satisfy housing needs?
Ultimately, the decision should be based on individual needs, the extent of work involved and what will add the most value. According
to Remodeling magazine's annual "Cost vs. Value Report," remodeling a home not only improves its livability but its curb appeal
with potential buyers. The highest paybacks come from updating kitchens and baths and, most recently, adding on a home
office, according to the survey.
For more information, check out "The Do-able Renewable Home," a free booklet available from the American Association of
Retired Persons, Fulfillment Department, 601 E St., N.W., Washington, DC 20049; (202) 434-2277.
||What do all of those real estate acronyms in the ads mean?
If you find yourself stumbling over weird acronyms in a real estate listing, don't be alarmed. There is method to the madness of
this shorthand (which is mostly adopted by sellers to save money in advertising charges). Here are some abbreviations and the
meaning of each, taken from a recent newspaper classified section:
* assum. fin. -- assumable financing
* dk -- deck
* gar -- garage (garden is usually abbreviated "gard")
* expansion pot'l -- may be extra space on the lot, or possibly vertical potential for a top floor or room addition. Verify actual potential
by checking local zoning restrictions prior to purchase.
* fab pentrm -- fabulous pentroom, a room on top, underneath the roof, that sometimes has views
* FDR -- formal dining room (not the former president)
* frplc, fplc, FP -- fireplace
* grmet kit -- gourmet kitchen
* HDW, HWF, Hdwd -- hardwood floors
* hi ceils -- high ceilings
* In-law potential -- potential for a separate apartment. Sometimes, local zoning codes restrict rentals of such units so be sure
the conversion is legal first.
* large E-2 plan -- this is one of several floor plans available in a specific building
* lsd pkg. -- leased parking area, may come with an additional cost
* lo dues -- find out just how low these homeowner's dues are, and in comparison to what?
* nr bst schls -- near the best schools
* pvt -- private
* pwdr rm -- powder room, or half-bath
* upr- upper floor
* vw, vu, vws, vus -- view(s)
* Wow! -- better check this one out.
The documentation the escrow holder may be collecting includes:
- Loan documents
- Tax statements
- Fire and other insurance policies
- Title insurance policies
- Terms of sale and any seller-assisted financing
- Requests for payment for various services to be paid out of escrow funds
Upon completion of all instructions of the escrow, closing can take place. All outstanding payments and fees are collected and paid at this
time (covering expenses such as title insurance, inspections, real estate commissions). Title to the property is then transferred to the seller
and appropriate title insurance is issued as outlined in the escrow instructions.
At the close of escrow, payment of funds shall be made in an acceptable form to the escrow. As your real estate agent, I'll inform you of
the acceptable form.
The Escrow Holder Will:
The Escrow Holder Won't:
- Prepare escrow instructions
- Request title search
- Comply with lender's requirements as specified in the escrow agreement
- Receive funds from the buyer
- Prorate insurance, tax, interest and other payments according to instructions
- Record deeds and other documents as instructed
- Request title insurance policy
- Close escrow when all instructions of seller and buyer have been met
- Disburse funds and finalize instructions
- Give advice - the escrow holder must maintain neutral, third-party status
- Offer opinions about tax implications
Before you reach the closing day, you will want to make a decision as to how you will "hold title" to the property. This decision has legal,
tax and estate planning ramifications. Therefore, it may be prudent to consult an attorney or certified public accountant (CPA).
The following information is supplied for informational purposes and should not be relied upon as legal definitions.
* A single individual who has not been legally married.
*An unmarried individual who was married and is now legally divorced.
*A married individual who wishes to acquire title in his or her name alone. At the time of closing, the spouse of the buyer will be
required to specifically disclaim or relinquish his or her right, title and interest to the property.
A living trust is created while an individual is alive and gives the individual control of the distribution of his or her estate. The
individual transfers ownership of his or her property and assets into the trust.
Buying with Others
Tenancy in Common:
Enables each partner in the property to sell, lease or will to his/her heirs that share of the property belonging to him/her.
- Who can take title? Any number of individuals.
- Ownership Division: Any number of interests, equal or unequal.
- Who holds title? A separate legal title to his undivided interest is held by each co-owner.
- Possession: Equal right of possession.
Property owned by multiple individuals where if one of the owners dies, the remaining owners acquire the share of the deceased
- Who can take title? Any number of individuals.
- Ownership Division: Interests cannot be divided.
- Who holds title? There is only one title to the whole property.
- Possession: Equal right of possession.
Property owned equally between a husband and wife. Each must sign all agreements and documents of transfer.
- Who can take title? Only a husband and wife.
- Ownership Division: Interests are equal.
- Who holds title? Similar to title being in a partnership, title is held in "community."
- Possession: Equal right of possession.
Additional Ways to Hold Title:
A corporation is a legal entity, created under state law, consisting of one or more shareholders but regarded under law as having
essentially the same as those of an individual. The entity has continuous existence until it is dissolved according to legal procedures.
Land owned by a corporation cannot be attached for personal debts or judgments rendered against any of its shareholders.
A partnership is an association of two or more persons who can carry on business for profit. A partnership may hold title to real
property in the name of the partnership with partners having an equal or an unequal interest in the property.
A trust is an arrangement whereby legal title to property is transferred by the grantor (or trustor) to a person called a trustee, to be held
and managed by that person for the benefit of the people specified in the trust agreement, called beneficiaries.
For lenders to verify this information, though, they're going to need to look at your financial records. It is also
important to remember that you should include records for each person who will be an owner of the house. So
before you even visit the bank, make sure you'll be able to provide copies of these important documents:
- Paycheck Stubs
Remember that lenders are most interested in your average income. Not only will they want to see this
month's paycheck, but also how much you've been making for the past two years. Steady employment is also
more attractive to lenders, so if you've been hopping from job to job, be prepared to discuss the reasons why.
- Bank Statements
In order to qualify you for a loan, most lenders will also ask you for copies of your bank statements. Ideally,
they'd like to see a steady history of savings--or at the very least, that you're not bouncing checks every month.
- Tax Records
It's always a good idea to save copies of your tax returns, especially if you're self-employed. If you own your
own business, it's important to note that lenders generally consider your income as the amount you paid taxes o
n--not the gross income of the business.
- Dividends & Investments
Lenders will usually consider long-term investment dividends, as well as your investment portfolio, when
evaluating your income.
- Alimony/Child Support
If you receive steady payments as part of a divorce settlement or for child support, you can also include this as
part of your gross income. Just remember that lenders will want to see a copy of your divorce/court
settlement verifying the amount of the payments.
- Credit Report
Virtually every lender will want to see a copy of your credit report as part of the loan application process. The
report lists all of your long-term debts, as well as your payment history. In general, they will require you to pay
for the credit report (approximately $50), but if you have a recent copy, they may accept that instead.
How Much Can You Afford?
Understanding how much you can afford is one of the most important rules of home buying. Depending on
your individual situation, your budget can affect everything from the neighborhoods where you look, to the size of
the house, and even what type of financing you choose.
Bear in mind, however, that lenders will look at more than just your income to determine the size of the loan. Likewise,
you may find that there are some creative financing options that can help boost your purchasing power.
Loan prequalification vs. preapproval
One of the best ways to determine your budget is to have your real estate agent or lender prequalify you for a loan.
Prequalification is different from preapproval, because it is only an estimate of what you'll be able to afford. On the other hand,
preapproval is a more formal process where a lender examines your finances and agrees in advance to loan you money up to a
What factors are important to lenders?
Banks and lending institutions will use several criteria to determine how much money they'll agree to lend. These include:
- Your gross monthly income
- Your credit history
- The amount of your outstanding debts
- Your savings--or the amount of money you have available for a down payment and closing costs
- Your choice of mortgage (i.e. 30-year, FHA, etc.)
- Current interest rates
Two important ratios
Lenders also use your financial information to figure out two, very important ratios: the debt-to-income ratio and the housing expense
- Debt-to-income ratio
Many lenders use a rule of thumb that the amount of debt you are paying on each month (car payment, student loan, credit card,
etc,) shouldn't exceed more than 36 percent of your gross monthly income. FHA loans are slightly more lenient.
- Housing expense ratio
It is generally difficult to obtain a loan if the mortgage payment will be more than 28 to 33 percent of your gross monthly income.
Down payments make a difference
If you can make a large down payment, lenders may be more lenient with their qualifying ratios. For example, a person with a 20
percent down payment may be qualified with the 33 percent housing expense ratio, while someone with a 5 percent down payment
is held to the stricter 28 percent ratio.
Other ways to improve your purchasing power:
If you're having trouble saving money, many lenders will allow you to use gift funds for the down payment and closing costs.
However, most lenders require a "gift letter" stating the gift doesn't have to be repaid, and will also require you to pay at least a
portion of the down payment with your own cash.
- Negotiating Closing Costs
Through negotiation, some sellers may agree to pay all or most of your closing costs (for example, if you agree to meet their full
asking price). If you choose to try this, make sure to ask your real estate agent for advice.
- Loan Programs
Many local governments have special loan programs designed to help first-time homebuyers. Loans may be available at reduced
interest rates, or with little or no down payments. Check with your local housing authority for more information.
- Loan Types
Some homebuyers choose Adjustable Rate Mortgages (ARMs) because of low initial interest rates. Others opt for 30-year loans
because they have lower monthly payments than 15-year loans. There are significant differences between different loans, so
make sure to discuss the pros and cons of different loans with your agent or lender before making a decision.
Refinancing your home can be an excellent way to bring down your monthly mortgage payment, raise cash, or consolidate debts with
high interest rates. However, you need to do your homework before deciding to refinance. One important factor is the difference
between current interest rates and the rate of your original loan. You also need to take into account the amount of time it will take to
recoup the costs of refinancing.
When should you refinance?
Some common reasons homeowners refinance include:
- Lower monthly mortgage payments
- Convert an adjustable rate mortgage (ARM) to a fixed-rate mortgage
- Raise funds for family expenses (i.e. college tuition)
- Pay off high-interest loans
- Home improvements
The old rule of thumb is that you should refinance your home if interest rates fall more than 2 points below your existing mortgage
rate. That's because refinancing usually involves most of the same closing costs (loan origination fee, prepaid interest, etc.) as the original
loan. For anything less than 2 percent, the savings on your monthly mortgage payment might not be significant enough to be worth your
Savings vs. time:
For some homeowners, though, the 2 percent rule is not as important as the time needed to break even on the refinancing. For instance,
if it costs $3,000 to refinance a house, and the monthly mortgage payment is lowered by $90, it would take almost 3 years for the savings
to cover the costs of refinancing.
If all the information (survey, title search, etc.) for your old loan is still current, however, the lender may be willing to waive many of the
fees. In addition, you may be able to roll the closing costs of a refinance loan into the new note. In other words, you don't avoid the
closing costs, but instead pay them back over time along with the rest of the loan. If you consider this option, be sure to calculate the
potential savings vs. the expense of paying off a higher principal balance.
Keep in mind that refinancing usually lengthens the time it takes to pay off your house. If you are 3 years into a 30-year mortgage and
then refinance with a new 30-year loan, you'll end up making payments on the house for 33 years. Nevertheless, if the monthly savings
are substantial enough, you still could end up paying much less over the long haul with the new loan.
Adjustable Rate Mortgages (ARMs):
Timing can also be a factor in switching from an ARM to a fixed-rate loan. For example, rising interest rates might influence you to covert
your ARM into a fixed-rate loan if you plan to stay in your house for several more years.
Conversely, you may plan to move in a year or two, and find a lender who is willing to offer you dramatic interest rate savings with an
ARM. In this case (and as long as the closing costs are minimal), it might make sense to switch from a fixed-rate loan to an ARM.
Refinancing with a new loan doesn't mean you have to give up all the money you've paid towards your old mortgage. With each payment,
you build up a certain amount of equity in a property--which is the amount you've paid on the principal balance of the loan.
For example, if you have a $100,000 loan at 8 percent, you would build about $2,800 worth of equity in the first 3 years. Thus, if you
refinanced, the new loan would only amount to $97,200.
Raising cash with home equity loans... use caution:
If you've built enough equity, you can refinance in order to take cash out of the property. Perhaps you need money to pay off your credit
cards, add a new bathroom, or cover the costs of braces for a child. Regardless, lenders will typically allow you to borrow against the
equity you've built in your house, plus appreciation (often up to 75 percent of the current appraised value). These types of loans are also
calledhome quity loans.
Be cautious, however, of lenders offering 100 percent or 125 percent home equity loans--their rates are often markedly higher than
traditional lenders. In addition, any amount you borrow that is above the market value of the house is NOT tax deductible. Check with
your tax professional.
Talk to your lender
With all the different types of refinancing loans available today, you should take some time to shop around and speak with several
lenders before making a decision. Be sure to discuss all the expenses and benefits, as well as what will be expected of you, in advance.
The more you educate yourself, the better your chances of finding the right refinancing package.
Borrowers are eligible to buy another home much sooner than if they are foreclosed on. The time frame for a short-sale home is usually
2-3 years, as opposed to 5 years with a foreclosure.
Short sale transactions occur at no cost to you. A short sale’s selling expenses are paid by the lender, including agent commissions, back taxes, and attorney
- There are cash incentives from various sources, such as lenders, The US Treasury (HAFA) and FHA (HUD). These entities pay cash for distressed
owners to short sell their homes. Cash incentives range between $2,000 and $30,000.
- Generally no mortgage payments are due while awaiting a short sale transaction short sale, transactions usually take 3-6 months.
- If all of these benefits seem too good to be true, you should understand why banks and their insurers would much rather you short sell rather than
draw out a foreclosure battle:
* A Forclosure usually arises when a homeowner, who has entered a mortgage loan agreement with a lender (usually a bank or other secured creditor), is
unable to comply with the terms of the agreement, such as failing to make mortgage payments. In such a situation, the lender is legally permitted to repossess
the real property as per the mortgage agreement. Once the lender has repossessed the property, it can be sold to recover the cost of the mortgage and any
legal costs. If these costs are not covered by the sale of the property, a lender may be able to file for a deficiency judgment for the difference.
A foreclosure is generally a worst-case scenario for both a borrower and a lender. A foreclosure drastically hurts a borrower's credit, becoming a black
mark on a borrower's credit history. Further, even after a foreclosure, a borrower may still retain a significant portion of the debt.
For the lender, a foreclosure is a relatively slow process and entails considerable legal costs. The lender is also then burdened with the task of selling the
* A bank owned property is after the gavel drops and the deed changes names to the bank. This is also called an REO.
Real Estate Glossary:
Below are some terms and their meaning, you may often hear in the real estate industry.
An authorized person who manages or transacts business for another. Laws governing real estate--especially relating to agents--vary considerably from
state to state. While some standardization has been achieved, it is best to check the particulars in each state.
An agent who represents the buyer in a real estate transaction. A buyer agent may be paid by the buyer, seller, or listing agent at closing, provided all
An agent representing both parties in a transaction. In almost every state, dual agency is illegal and unethical without the written consent of both the buyer
and the seller.
The agent who represents the seller.
The agent who obtains a buyer. A selling agent may represent the buyer, or may be a subagent of the seller.
A salesperson who works for an agent.
Features that enhance the value or desirability of a property.
To pay a debt in periodic amounts until the total amount, including any interest, is paid.
A qualified party's opinion of the value of a property. This may include examples of sales of similar properties.
An increase in value
A process where disputes are mortgage to cover processing costs. settled by referring them to a fair and neutral third party (arbitrator). The disputing parties
agree in advance to agree with the decision of the arbitrator. There is a hearing where both parties have an opportunity to be heard, after which the arbitrator
makes a decision.
ARM (Adjustable Rate Mortgage):
A financing technique in which the lender can raise or lower the mortgage interest rate according to a set index, such as six-month Treasury bills.
Assessment / Assesed Value
An official valuation of property for tax purposes. Payments made by condominium or cooperative owners for their share of building maintenance expenses.
A mortgage with monthly payments often based on a 30-year amortization schedule, with the unpaid balance due in a lump sum payment at the end of a
specific period of time (usually 5 or 7 years). The mort-gage may contain an option to “reset” the interest rate to the current market rate and to extend the due
date if certain conditions are met.
Legally declared unable to pay your debts. Bankruptcy can severely impact your credit and your ability to borrow money.
An independent business person who sets real estate office policies, hires employees, determines their compensation, and supervises their activities.
CLO (Computerized Loan Origination):
A computer network of major lenders that allows agents to initiate mortgage applications in their office. HUD has approved the procedure as long as 1) full
disclosure is made of the fee; 2) multiple lenders are displayed on the computer screen to give borrowers a basis for comparison; 3) the fee charged is a
dollar amount rather than a percentage of the loan.
The point at which real estate formally changes ownership. Closing costs are fees paid for services associated with a home's closing such as title
insurance, surveying fees, recording fees, deeds, and affidavits.
CMA (Competitive Market Analysis):
A method of determining the value of a property by comparing the prices paid for similar properties.Code of Ethics A written standard of ethical conduct
embraced by the NATIONAL ASSOCIATION OF REALTORS®, a trade organization of more than 700,000 members representing all branches of the real
Compensation paid to a real estate agent (usually by the seller) for services rendered in connection with the sale, exchange, or lease of property.
Individual ownership of a portion of a building, with common areas shared by all owners. Maintenance fees called "assessments" are paid to the
condominium association to maintain, repair, or improve the property.
A fixed-rate, fixed term loan that is not insured by the government.
An arrangement in which a corporation made up of residents owns a building. The buyer owns a proprietary lease, rather than real property, and a
corresponding number of shares in the corporation.
A new offer as to price, terms, and conditions, made in response to a prior, unacceptable offer. A counter offer terminates an original offer.
CRS (Certified Residential Specialist):
A professional designation awarded to experienced agents who complete an advanced course of study in residential real estate and demonstrate
proficiency in sales and production. CRS Designees are members of the Residential Sales Council, a not-for-profit affiliate of the NATIONAL ASSOCIATION
A legal document transferring ownership of a property from one party to another.
Deed in Lieu of Foreclosure:
The voluntary surrender of property by an owner or borrower to a lien holder (such as a bank) that eliminates the need to continue foreclosure action by the
lien holder. The lien holder can refuse to accept the Deed in Lieu and file a Notice of Non Acceptance with the County Recorder.
Revealing what previously was private knowledge. Any statement of fact that is required by law.
A percentage of the purchase price the buyer pays in cash.
A buyer's partial payment to the seller as a show of good faith in completing the transaction.
The difference between the current market value of a property and the claims--such as the unpaid portion of a mortgage--that exist against it.
The closing of a real estate transaction through a neutral third party who holds funds and/or documents for delivery after specific conditions have been met.
A written agreement in which the seller appoints only one agent to market the property for a specific period of time. If the owner sells the property himself, he
is not required to pay a commission.
Exclusive Right of Sale Listing:
A written agreement between an agent and a property owner stating that the owner will pay a commission to the agent if the property is sold during a specific
time period--whether or not the agent is responsible for the sale.
Fannie Mae (Federal National Mortgage Association):
Fannie Mae purchases home mortgages, thus serving as a source of funds for mortgage lenders. It is a privately owned corporation whose shares are traded
on the New York Stock Exchange, but it is subject to the strict supervision of the secretary of the U.S. Department of Housing and Urban Development (HUD).
Federal Fair Housing Law Refers to Title VIII of the Civil Rights Act, and stipulates that discrimination based on race, color, sex, familial status, handicap,
religion, or national origin is illegal in connection with the sale or rental of most dwellings.
FHA (Federal Housing Administration):
A federal agency established to improve housing standards and conditions. The FHA provides mortgage insurance to approved lending institutions.
An agreement between a mortgage holder and a borrower that specified a loan payment plan and halts the foreclosure action if borrower meets
requirements and terms of the agreement. The payment plan generally includes provisions for repayment to the mortgage holder of all delinquent interest
and fees and could include extending the life of the mortgage beyond it's original term.
The legal process by which property that is mortgaged as security for a loan may be sold to pay a defaulting borrower's loan.
Freddie Mac (Federal Home Loan Mortgage Corporation):
A federally chartered corporation established to purchase mortgages in the secondary, or resale, market. Freddie Mac's policies are designed to serve
the needs of savings and loan associations. It is subject to oversight by the U.S. Department of Housing and Urban Development (HUD).
A pledge made by one person (the guarantor) to ensure that another person (the obligor) will fulfill an obligation to a third party (the obligee).
HUD (U.S. Department of Housing and Urban Development
A federal department active in a variety of national housing programs including urban renewal and public housing.
Additions intended to increase the value of a property.
An examination of a property by the buyer, agent, title insurance company, or other interested party.
A charge or claim by one party on the property of another as security for the payment of a debt.
A written agreement between a property owner and a real estate broker authorizing the broker to find a buyer.
Banks and lenders look to limit losses on delinquent mortgages by working out solutions with borrowers through a Loss Mitigation Department, generally
operated by the bank or lender to deal specifically with delinquent accounts.
The price a property will command on the open market.
MLS (Multiple Listing Service):
A means by which agents are informed of the properties offered for sale by other agents.
A legal document pledging property as security for the payment of a loan.
An insurance plan that protects the lender if the borrower does not repay a loan. Mortgage insurance is required when a home buyer makes less
than a 20%down payment at the time of purchase. Private mortgage insurance (PMI) covers conventional (fixed-year, fixed-rate) loans. The Federal
Housing Administration charges a mortgage insurance premium (MIP) on FHA loans.
NATIONAL ASSOCIATION OF REALTORS ®:
A trade organization serving over 700,000 members from all branches of the real estate industry. Members subscribe to a strict Code of Ethics
which governs their conduct.
Abbreviation for Notice Of Default.
Notice of Default:
An official notice filed and recorded by a designated trustee at the request of a lender indicating lender has commenced foreclosure action.
A proposal to purchase property at a specified price and terms.
The common real estate practice of showing "For Sale" homes to the public during established hours.
A lender's charge for establishing and processing a new mortgage loan. It is generally computed as a percentage of the loan and may be tax
Owner of Record:
The person named in the public record as the owner of a property or mortgage.
A one-time charge paid to the lender for issuing a loan. Each point equals one percent of the loan amount and is used to obtain revenue in addition
to the interest rate.
The amount of money upon which interest is paid.
A buyer who has demonstrated the financial ability to afford the asking price of a home. Prequalifying with a lender can expedite the home buying
A registered trade name that may only be used by members of the NATIONAL ASSOCIATION OF REALTORS®, an organization with over 700,000
members who represent all branches of the real estate industry. REALTORS® subscribe to a strict Code of Ethics which governs their conduct.
Obtaining a new loan to pay off an existing loan. Refinancing is a popular practice when interest rates drop.
Residential Sales Counci:l
A not-for-profit affiliate of the NATIONAL ASSOCIATION OF REALTORS®. The Council awards the Certified Residential Specialist (CRS) Designation,
to experienced members who have completed an advanced course of study in residential real estate.
A single-family mortgage that is 90 days or more past due, or a multifamily mortgage that is two months or more past due.
Short refinance is the replacement of a mortgage, usually with a reduced mortgage, when the borrower is already in default. This is done to transition the
borrower to a more affordable payment structure. The lender has to write off the difference between the old mortgage and the new mortgage, but in some
cases this may
be preferable to foreclosure.
To sell a home through negotiation with the bank or lender, who agrees to accept less than the full amount owed to satisfy the debt allowing the debt to be ‘
paid off’,short. Short sales are subject to bank approval and are often used as options in lieu of foreclosure.
Lawful ownership of property.
An insurance policy that protects against losses arising from title defects such as forged or misfiled documents
An examination of the public records to determine whether the current title is clear or defective.
Also known as a row house, generally refers to a type of dwelling having two floors, with the living area and kitchen on the first floor, and the bedrooms
on the second. Town houses share a common wall between units.
VA (Veterans Administration)
A federal agency designed to
help veterans enter the housing market.
A loan guaranteed by the U.S. Department of Veterans Affairs (VA). VA loans are made to honorably discharged veterans or their unremarried widows
or widowers.Such loans require a minimal or no down payment and offer lower interest rates.
A final inspection of a property before it changes ownership