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Buying real estate is often the biggest decision in one’s entire life. Before doing so, it’s important to understand all potential financing options available to you. There are many factors that go into buying real estate beyond simply finding a home that fits your needs. You must also decide on a mortgage that is best for you. Gate Arty & the Group want you to be aware of all aspects of the home buying process. Why not begin by receiving you own FREE credit report?

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Financing Information

How much home can you afford? There are several loan programs available, and depending on your credit history, debt-to-income ratio, and assets, there is bound to be one that is perfect for you. It is always best to get pre-qualified with a local lender that can assess your needs and long term goals. Your loan officer will evaluate your profile and place you in a loan to obtain the best terms available. They will be able to explain up front what your closing costs and down payment requirements are and also provide you with an anticipated monthly payment based upon what you can afford. A preferred local lender will be knowledgeable of the state and county guidelines to ensure a smooth transaction from application to closing. Find the Ideal Loan for you!

Although this list does not encompass all loan options available, it does include some of the more popular programs offered today:

Zero Down-Affordable Housing Programs

Many buyers may have difficulty gathering money for a down payment and the closing costs in order to purchase a home. Fortunately, there are options available including loans that require little to no money down. Most loans that require less then 5% down payment will have a slightly higher interest rate. Despite the slightly higher rate, the payment is still affordable and can help buyers move out of their apartment and into their own home with nearly the same monthly payment. There may be income restrictions, debt-to-income restrictions, and minimum credit score requirements depending on the loan program.

Reduced Documentation Loans

This type of loan will appeal to individuals who may have difficulty proving their income. A borrower that is self-employed, one that has primarily tip income, or other income that is not sourceable - this would be the loan for them. Programs exist for as little as 5% down payment depending on occupancy type and credit score. These loans may carry a slightly higher rate.

Rule of thumb: The more information that can be documented, the higher the down payment, and the better the credit score, . . . . the lower the interest rate.
This type of loan can be one of the easiest available for buyers today.

Government Loans

The Federal Housing Administration (FHA) offers loans with a minimum of 3% down payment at a very competitive interest rate. This loan has flexible credit score guidelines, allows for gift funds for down payment, and non-traditional credit documentation. Past bankruptcy does not necessarily disqualify buyers from this program. The loan is insured by the Federal Housing Administration and is open to all qualified buyers. While there are limits to the size of FHA loans, they are generous enough for moderately priced homes almost anywhere in the country. Many FHA loans will also partner with many down payment assistance programs and community second liens.

The Department of Veteran Affairs (VA) offers zero down payment and very competitive rates. This loan is guaranteed by the Department of Veterans. If a seller concession is negotiated with the sales contract for closing costs, the buyer is not obligated to have any money into the transaction. To take advantage of this program, borrowers need to be among those listed as veterans and service personnel in the U.S. military with a certificate of eligibility. One of the best benefits of this program is no monthly mortgage insurance which will provide a lower payment then any other 100% financing program available.

Adjustable Rate Loans

With a fixed rate mortgage, the interest rate stays the same for the life of the loan. With an adjustable rate mortgage (ARM), the interest rate changes after the initial fixed period depending on the index it is tied to and the margin and caps associated with it. Generally, lenders charge a lower initial interest rate for the ARM than for a fixed rate mortgage. If you are expecting interest rates to decrease in the future, or if you are trying to maximize your purchase power today, then this loan may be for you. This loan may also fit one’s needs if they were to own the home for only a short time period. This loan may be principal and interest amortized or interest only, depending.

Construction Loan

This is a short term interim loan to pay for the construction or rehabilitation of one’s home. These are usually designed to provide periodic disbursements to the builder as he progresses. Frequently this loan is referred to as a “construction perm” or “CP” loan. The buyer makes payments, on the draws released to the builder during construction. The payments are usually based on prime, or prime plus a margin until the construction is complete. The loan then is modified into a traditional loan program for the remaining life of the loan.

Interest Only Loans

For buyers that are investors that want to cash flow on their property this may be the perfect loan for them. Owner-occupied buyers may utilize this program successfully if they are to own their home for only a short time period, or if they know their income will significantly increase in 5 years or less. An interest only loan may be adjustable or fixed. The payments are interest only on the amount owed for generally 10 years. After the first 10 years, the loan will amortize to a principal and interest payment for the remaining life of the loan calculated on the remaining balance. An interest only mortgage could shave $100- $200 a month from the mortgage payment offering an incredible savings over a 5 year time period.

Tax Tips for first time homeowners

This IRS publication provides tax information for first-time homeowners. Your first home may be a house, condominium, cooperative apartment, mobile home, houseboat, or house trailer.

The following topics are explained:

* How you treat items such as settlement and closing costs, real estate taxes, sales taxes, home mortgage interest, and repairs.

* What you can and cannot deduct on your tax return.

* The tax credit you can claim if you received a mortgage credit certificate when you bought your home.

* Why you should keep track of adjustments to the basis of your home. (Your home's basis generally is what it costs; adjustments include the cost of any improvements you might make.) What records you should keep as proof of the basis and adjusted basis.

Closing Costs Clarified

Below is an overview of the items you may incur as part of your closing costs. Some items are one time fees, while others reoccur over the life of the loan. Once you make formal application with your lender of choice, you will receive a Good Faith Estimate of Settlement Charges (GFE) within 3 business days. Your lender should review with you in detail what each charge represents, which ones are guaranteed not to change, and which ones are considered third party fees and may fluctuate.

Loan Origination Fee

This is a one time fee that represents a percentage of the loan amount. It is charged by the lender or broker connected with originating the loan. Not all loans will require an origination fee. An example would be 1 point for a $100,000 loan would equate to $1000 in origination collected at closing.

Loan Discount

Often called “points”, a loan discount is also a one time charge used to adjust the yield on the loan to what market conditions demand. One point is equal to 1% of the loan amount. Generally discount fees are collected to buy down one’s rate. An example would be 1 discount point (1% of the loan amount) paid at closing may equate to lowering the interest rate by .25%. Depending on one’s tax bracket, points paid as part of closing costs may be tax deductible.

Application Fee

Application fees, or broker’s fees, are typically collected up front in order to provide a loan commitment to a potential buyer. Many times these fees can be non-refundable, where at other times they may be credited towards the cost of the appraisal. Application fees tend to be more common with brokers, rather then direct lenders (banks).

Appraisal Fee

This is a one time fee that pays for an independent appraisal. An appraisal is an opinion of market value as of a specific date prepared for the buyer and the lender. The appraisal completed by an independent appraiser and can cost a standard $350-$600, depending on the home’s size, location, and occupancy type. At times, with good credit and a large down payment a full appraisal may not be required. In lieu of an appraisal the lender may only require an internal database review of the value of the home.

Credit Report Fee

This one time fee covers the cost of the credit report request, that is run through an independent credit reporting agency. The credit report provides your lender with your credit profile from three credit reporting agencies including your credit scores so that your lender can make a loan decision. Your lender collects the cost which can vary between $15-$75.

Title Insurance Fee

There are two title policies; a lender’s policy (which protects the lender against loss due to defects on title) and a buyer’s title policy (which protects the buyer). These are both one time charges. It is most common for a buyer to only pay the lender’s policy, unless purchasing a bank foreclosure or a new construction home. The lender’s policy can cost on average $350.

Miscellaneous Title Charges

The title company or attorney’s office may charge fees such as a title search, title examination, document preparation, notary fees, recording fees, settlement/closing fees, wire transfer and courier. These are all considered one time fees and can be expected to vary from one closing entity to another. Because these fees are considered third party fees, they can be expected to vary from $200-$450.

Lender Fees

Lender fees can vary greatly from one lending institution to another. They should be accurately represented on your good faith estimate and not change without up-front notification prior to closing. Be an informed buyer, and compare not only the rates, but also the lender fees when deciding on a mortgage. Some lenders may promise a “too good to be true” interest rate, while they may be over charging you in their lender fees or points. Lender fees can include an underwriting fee, a flood certification, tax service fee, processing fee, or document preparation fee. These fees can range from $595-$1200 or more.

Prepaid Interest

Depending on the time of the month your loan closes, this charge may vary from a full month’s interest to only one day of interest if closing on the last day of the month. This is interest that is charged to the buyer at closing to pay for the cost of borrowed funds for a balance of the remaining month. For example, if a loan closes on the 19th of the month and payment is due on the first of the following month, the lender will charge 12 days of prorated interest at closing.

Survey

A survey is generally ordered by your closing agent or, if applicable, provided by the seller if less then 4 years old with no changes made to the property. The survey is a map made by a licensed surveyor who measures land and charts boundaries. It shows the location of the land with reference points, dimensions, and the location and dimensions of any buildings.

Transfer Charges

Transfer Charges will vary form one state to another. In the state of Florida there is the intangible tax, documentary stamps on the deed, and documentary stamps on the mortgage. Commonly, the seller will pay for the “doc stamps” on the deed, where the buyer would pay the doc stamps on the mortgage and the intangible tax. The transfer taxes represent taxes paid to the city, county, state or other government entity upon sale of a property. These are up front one time fees that will be fixed to either the amount financed or the sales price.

Escrow - Impound Accounts

An impound or escrow is frequently referred to as the prepaid section on a Good Faith Estimate. They are items that are pre-paid at closing. Prepaid impounds can consist of mortgage insurance (MIP), property taxes, and home owner’s insurance. It is common for a lender to escrow up to 1 year plus 3 months for home owner’s insurance. Property tax impounds will vary depending on the month the transaction closes and when the property taxes are due. One should expect that a lender will collect a minimum of 4 months taxes as part of their prepaid section of closing costs. In the monthly mortgage payment, the lender will continue to collect a portion for the taxes and insurance to replenish the escrow account that was established. This ensures that future taxes and insurance can be paid. If a 20% down payment is provided, the lender will waive the requirement of the impound account.

Reminder: For closing, you must bring a valid driver’s license or State provided photo ID and a cashier’s check for your funds to close provided to in advance form your lender. This cashier’s check should be made payable to your closing agent. If the closing does not occur, you can deposit the cashier’s check back into your own account.

There is certainly a lot to know! Have additional questions?
Contact us about buying a property at 863.680.9988 or info@gatearty.com

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