Without a doubt we are a country of do-it-yourselfers. If we can learn how to lay tile, shingle a roof, change the oil in our vehicles or finish a basement, we do it. For many things, if you are willing to spend your time and energy learning a skill, particularly if it is something you enjoy doing, I say fine, go for it.
However, there are still some things that I believe need to be reserved for the experts; people who invested time and money into learning their profession. Most people probably don't want to sue a big corporation on their own-they want a competent attorney. If you have to have surgery, you probably want someone with a medical degree. While even I understand the mechanics of pulling a tooth, it is highly unlikely that I will attempt to do that myself. It just doesn't seem like the smart thing to do.
Likewise, undertaking the task of purchasing a home and financing the purchase is really a job that is best left to people who understand the process-the laws, the potential issues and the solutions to any problems that can occur as events unfold.
Let me give a brief overview of what a good real estate agent does for their client-the job encompasses much more than merely getting you into a home you wish to see. If you are a buyer, you will want to employ the services of an agent that specializes in working with buyers. An agent who works with buyers is one who will negotiate on your behalf to try to obtain the best price and terms on the property you wish to purchase. A good buyer's agent will be able to get you into any home you wish to see that is listed in your area's multiple listing service. (this is an organization that shares information on available housing listed by all real estate companies in a specific area) In many cases a good buyer's agent can also contact For Sale By Owner listings and get their buyers into those homes as well.
How do you find a good agent? Word of mouth is always a good way to go. If you have friends or family that worked with a particular agent and were happy with that person that is a good place to start. From time to time I am asked for a referral to an agent and I always try to place a buyer with someone I trust to do the best job possible as my reputation is also on the line when I refer a client to an agent.
Once you have decided which home you wish to buy, your buyer's agent will research sales in the area to be sure the home is listed at a price that is within the norms of the neighborhood. Your agent can even look up what competing homes are listed at as well as recent sales of comparable properties so that you can have confidence that you will not be buying an over priced home.
Your agent will assist you in negotiating with the seller on the terms of your purchase. You will not have to personally tell the seller-"I really hate your choice in carpet color and I have to consider the cost of replacing all that blue shag carpeting in my offered price." Your agent will do that for you.
Once your offer is accepted, your agent will work with you to coordinate any inspections that your lender requires or that you wish to have to be sure the property has no safety issues or problems that could cost you a significant amount of money to repair. If there are issues you wish to address, your agent will facilitate those negotiations and the follow up to be sure those repairs are made prior to closing the transaction.
Your agent will also be in communication with your lender to be sure your loan is on track. If for instance the appraisal comes back with a lower value than the agreed upon sale price, your agent is the one who will work to find the solution that is agreeable to you.
In most normal real estate transactions there are at least five or six problems that present themselves that need to be solved. Low appraisal, the presence of termites, conflicts about the closing date, who pays closing costs, day of possession, blemishes on the title of the home-are all problems that your agent is busy dealing with while you are packing getting ready to move. Some of the problems that occur you will never even know about. In addition, buyer's agents are paid from the proceeds of the transaction-in most cases-not by the buyer. So there is really no reason not to have your own agent.
Buying a home is the biggest financial transaction that most of us engage in. Don't you want someone who knows what they are doing on your team? I do. Even though I worked as a Real Estate Broker for ten years I wouldn't attempt to buy a home without one.
One last thought-I have had clients suggest that maybe I could help them through the purchase of a home. While I may know a lot about buying homes having worked in real estate for twenty odd years-I am not a licensed real estate agent. I do not keep up on state laws regarding the sale of real estate nor am I in my capacity as a mortgage broker, an agent or representative of the buyer in the sale of property. So if you are choosing to purchase without the aid of an agent I can not assist you in filling out your sales contract, negotiating your terms or commenting on whether or not conditions in the house should be repaired or could be problems in the future. I don't know the neighborhoods, resale value, what taxes are likely to be or if a home is overpriced. My role is limited to financing. I prefer to stay within the confines of what I know, rather than take on an expertise I don't possess. A good buyer's agent is worth their weight in gold. Don't buy a home without one.
Sunday, March 24, 2013
Tuesday, March 5, 2013
Building Your Credit
On e of the most frequent questions that I receive is from young buyers who haven't established credit. Most people know you have to have what is considered "good" credit to buy a home, but many people don't know what "good" credit is.
When a credit report is generated, the lender is reviewing a snapshot of how you handle money you have borrowed,whether that is on credit cards, student loans, previous mortgages or installment loans such as vehicles, personal loans etc. Not only is your credit history being evaluated with regard to paying these debts on time, but also the quantity of open credit lines and how high your balances are in relationship to your credit limit is part of the picture.
Minimally speaking, lenders look for three credit lines that have been in use for twelve months. To achieve a maximum credit score, variety in credit types, and balances that are no higher than one third of credit limits is recommended.
Since the financial issues of 2008, many people don't care to have credit cards. I understand the concern, however for mortgage lending, not having credit cards is not considered a plus. Often I have potential clients call who tell me they are ready to buy a home-they have closed all their credit accounts. While being debt free is admirable, it is not a virtue if you want a mortgage. So for those who don't care to carry credit card balances let me suggest that you pay down your existing credit cards but don't close them. Good open credit works for you in a positive way. Closed accounts do not.
If you are just starting out and want to build a credit history let me make some suggestions:
1) If you don't have any credit cards I suggest you open some little ones at places you patronize such as a gas card, big box retail, or a department store. If you have no credit it is possible that these will not be easy to get. In that case if you can ask a family member to be a joint owner of the card the effect will be the same. Barring that, you may be able to open a secured card or obtain a secured loan from your bank. This involves putting up a sum of money -$500-$750- to secure the card or loan. This does involve advance planning in that you want to begin this process about a year prior to buying your home.
2) Student loans count towards your credit score. It is especially important that you pay student loans on time as they are federal debt. Failure to pay federal debt is devastating to credit scores. But, if you had a credit card in college as many students do, the addition of a student loan that is in repayment is a boost. It is much easier to get that third credit source.
3) Rent payments are a part of the credit picture but rent payments don't show up on your credit report so can't help your score.
I have seen credit reports with nothing on them and I have seen credit reports with nothing but negative credit on them. Credit reports that have many negative items such as collections, judgments and tax liens are difficult to rectify, Many of these negative items if unresolved, remain on the credit report for up to ten years and will continue to have a negative impact.
There are some lenders that make exceptions to the "3 credit line" rule which once again is why a mortgage broker may be more flexible than a bank.
As a rule of thumb the lowest credit score that qualifies for mortgage financing is 620. Ideally, credit scores are 640 or above (on a 350-850 range) as the interest rate will be better.
If you think your score isn't good for one reason or another, don't be afraid to have your mortgage broker check for you. I have spoken to many people who thought they must have terrible credit and their credit was fine. And I have had some who have thought their credit was terrible-and it was- or those who thought their credit was great and it wasn't. For some, credit must be like beauty, in the eye of the beholder.
When a credit report is generated, the lender is reviewing a snapshot of how you handle money you have borrowed,whether that is on credit cards, student loans, previous mortgages or installment loans such as vehicles, personal loans etc. Not only is your credit history being evaluated with regard to paying these debts on time, but also the quantity of open credit lines and how high your balances are in relationship to your credit limit is part of the picture.
Minimally speaking, lenders look for three credit lines that have been in use for twelve months. To achieve a maximum credit score, variety in credit types, and balances that are no higher than one third of credit limits is recommended.
Since the financial issues of 2008, many people don't care to have credit cards. I understand the concern, however for mortgage lending, not having credit cards is not considered a plus. Often I have potential clients call who tell me they are ready to buy a home-they have closed all their credit accounts. While being debt free is admirable, it is not a virtue if you want a mortgage. So for those who don't care to carry credit card balances let me suggest that you pay down your existing credit cards but don't close them. Good open credit works for you in a positive way. Closed accounts do not.
If you are just starting out and want to build a credit history let me make some suggestions:
1) If you don't have any credit cards I suggest you open some little ones at places you patronize such as a gas card, big box retail, or a department store. If you have no credit it is possible that these will not be easy to get. In that case if you can ask a family member to be a joint owner of the card the effect will be the same. Barring that, you may be able to open a secured card or obtain a secured loan from your bank. This involves putting up a sum of money -$500-$750- to secure the card or loan. This does involve advance planning in that you want to begin this process about a year prior to buying your home.
2) Student loans count towards your credit score. It is especially important that you pay student loans on time as they are federal debt. Failure to pay federal debt is devastating to credit scores. But, if you had a credit card in college as many students do, the addition of a student loan that is in repayment is a boost. It is much easier to get that third credit source.
3) Rent payments are a part of the credit picture but rent payments don't show up on your credit report so can't help your score.
I have seen credit reports with nothing on them and I have seen credit reports with nothing but negative credit on them. Credit reports that have many negative items such as collections, judgments and tax liens are difficult to rectify, Many of these negative items if unresolved, remain on the credit report for up to ten years and will continue to have a negative impact.
There are some lenders that make exceptions to the "3 credit line" rule which once again is why a mortgage broker may be more flexible than a bank.
As a rule of thumb the lowest credit score that qualifies for mortgage financing is 620. Ideally, credit scores are 640 or above (on a 350-850 range) as the interest rate will be better.
If you think your score isn't good for one reason or another, don't be afraid to have your mortgage broker check for you. I have spoken to many people who thought they must have terrible credit and their credit was fine. And I have had some who have thought their credit was terrible-and it was- or those who thought their credit was great and it wasn't. For some, credit must be like beauty, in the eye of the beholder.
Sunday, March 3, 2013
The Mortgage Minute
Becoming Mortgage Ready
By Casey Shipley, Licensed Mortgage Broker
As a mortgage loan originator who has worked with countless first time buyers I cannot emphasis enough the importance of preparing yourself financially to become a homeowner.
Once the decision is made to purchase a home, most people want to skip immediately to the sexy part, viewing homes. Without a doubt this is the most exciting part of the process, but moving from a dead standstill to touring potential purchases skips a very important step; preparing yourself to actually buy the house of your dreams.
In real estate school they teach new real estate agents that a buyer is three things: ready, willing and able. Many, many people fulfill the first two criteria, ready and willing. It is the third factor that can pose the biggest issue. With websites devoted to displaying homes on the market,and payment calulators on each website, potential buyers are able to go online and pick out properties that they feel meet their needs and their pocketbooks. In fact, it is not uncommon for a buyer to call a real estate agent with a pre-selected list of homes they desire to see. A real estate agent, whether working on behalf of the buyer or seller, has a legal duty to the sellers that. That duty is to be as certain as possible that potential buyers are actually qualified to purchase the homes they tour. That means that the borrower must be pre-approved by a lender as credit worthy to buy a home. Many real estate agents will show a potential buyer one or two homes prior to asking for a pre-approval letter from a lender, but any successful real estate agent will require the buyer to do this before getting too deep into the showing process.
Why? Real estate agents are paid on commission. Until the buyer and seller are seated at the settlement table the real estate agent makes no money. All the gas and time consumed during a housing search are on the agent's dime. An agent doesn't make a penny until the property changes hands and the mortgage is finalized. Busy agents can't afford to show properties to people who are a question mark when it concerns their financial abiltiy.
So as excited as you might be at the prospect of purchasing your first home, your first call should be to a mortgage broker to become pre-approved. Why do I suggest a mortgage broker as opposed to your bank? Doesn't it make sense to begin where you have your bank accounts?
The difference between mortgage brokers and banks is that a bank normally has one source of money. If your financial profile does not fit the profile of their money source your pre-approval will be denied. Mortgage brokers have multiple sources of money so if your financial profile doesn't meet the criteria of one money source, there is another who may approve you. And, because a mortgage broker has several sources of money, a mortgage broker can offer highly competitive interest rates and closing costs.
The first area that the broker will look at is your credit. Since the great recession of 2008, credit rules for borrowing mortgage money have tightened considerably. With good reason. Housing almost destroyed the economy. No doubt you have heard about "bad loans" and you may even be considering purchasing a foreclosure at a bargain price that was a result of one of those loans.
Credit is made up of several components:
1) What you owe: total minimum payments and your credit balances vs your actual balance
2) Timely Payments-do you pay on time?
3) How many credit lines you use
4) Do you have outstanding legal obligations such as collections, judgments, bankruptcy proceedings or child support arrearage?
Mortgage lending today requires that most borrowers have at least three credit lines that are open and active for a minimum of twelve months. These can be credit cards, auto loans, student loans, or installment payments. There are exceptions, but this is the standard.
A credit score of 620 or above with the three credit lines will qualify you credit wise for a mortgage loan. If you score is below a 620, you will need to do some work with your credit. Future blogs will address how you can improve credit.
The second criteria that the lender will look at is your income. How much is your gross income vs how much you pay out to creditors. Typically lenders do not want to see more than 43% of your income tied up in consumer payments (what is reporting on your credit report) plus your proposed house payment.
The third important area that lenders look at when pre-approving a buyer is employment. How long have you been employed and are you likely to remain employed? In future blogs I will cover each of these area in detail.
The spring buying season is almost here...interest rates should remain low; now is an excellent time to buy a home!
So as excited as you might be at the prospect of purchasing your first home, your first call should be to a mortgage broker to become pre-approved. Why do I suggest a mortgage broker as opposed to your bank? Doesn't it make sense to begin where you have your bank accounts?
The difference between mortgage brokers and banks is that a bank normally has one source of money. If your financial profile does not fit the profile of their money source your pre-approval will be denied. Mortgage brokers have multiple sources of money so if your financial profile doesn't meet the criteria of one money source, there is another who may approve you. And, because a mortgage broker has several sources of money, a mortgage broker can offer highly competitive interest rates and closing costs.
The first area that the broker will look at is your credit. Since the great recession of 2008, credit rules for borrowing mortgage money have tightened considerably. With good reason. Housing almost destroyed the economy. No doubt you have heard about "bad loans" and you may even be considering purchasing a foreclosure at a bargain price that was a result of one of those loans.
Credit is made up of several components:
1) What you owe: total minimum payments and your credit balances vs your actual balance
2) Timely Payments-do you pay on time?
3) How many credit lines you use
4) Do you have outstanding legal obligations such as collections, judgments, bankruptcy proceedings or child support arrearage?
Mortgage lending today requires that most borrowers have at least three credit lines that are open and active for a minimum of twelve months. These can be credit cards, auto loans, student loans, or installment payments. There are exceptions, but this is the standard.
A credit score of 620 or above with the three credit lines will qualify you credit wise for a mortgage loan. If you score is below a 620, you will need to do some work with your credit. Future blogs will address how you can improve credit.
The second criteria that the lender will look at is your income. How much is your gross income vs how much you pay out to creditors. Typically lenders do not want to see more than 43% of your income tied up in consumer payments (what is reporting on your credit report) plus your proposed house payment.
The third important area that lenders look at when pre-approving a buyer is employment. How long have you been employed and are you likely to remain employed? In future blogs I will cover each of these area in detail.
The spring buying season is almost here...interest rates should remain low; now is an excellent time to buy a home!
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