Texas Mortgage
Basics
From Refinance Texas Mortgage .com
Today, buying or selling a home
is one of the largest projects many people will
take on in their lifetime. The complicated process
can be made easeir with the help from our staff.
When shopping for a new home we
advise that you prepare yourself before starting
the search. Money and valuable time are not to be
wasted and following our guide will make your home
search experience more pleasurable. You don’t
need to spend any money until you're ready, and
some will find that home ownership is not right
for them.
Once you are informed, we suggest
implementing your real estate search, and eventually
the mortgage process, with the help of a professional
assistant. The small cost of working with professionals
will payoff in the end as you won’t suffer
the mistakes and errors of a first time home buyer.
Should
You Rent or Buy a Home?
Finding
a Real Estate Agent
Factors
Beyond Price
Tactics
for Negotiating with the Seller
Basics
of Financing a New Home
Should
You Rent or Buy a Home?
The advantages of buying a home
compared to renting a home are abundant:
Owning a house, as opposed to renting,
is not only benefitting financially, but it also
gives you a place to really call home. Obviously,
it presents you with the responsibility to maintain
your own property, but it also gives you the freedom
to do as you wish with the property.
In most cases, the money a landlord
spends on rent can deferentiate depending upon the
amount a homeowner spends on a mortgage. However
these elements seem incomparable when you consider
tax deductions, the many benefits you receive when
owning your own home, and the real savings offered.
A monthly mortgage payment in many
cases is fixed during the life of the loan, while
your monthly rent may increase at your landlords
will or at minimum along with inflation.
New home buyers should also consider
appreciation (the dollar value increases your home
value over time). Over the life of your home ownership,
your new home may appreciate tens of thousands of
dollars which will eventually become yours when
you sell it!
Landlords take a percentage of
your monthly rent payment to pay for their own mortgage
along with the other expenses that they incur while
maintaining the rental. Don't forget they rent the
property in order to make a profit, including eventual
property appreciation they will gain when they resell
the home or apartment.
If you purchase a home you pay
the expenses incurred to maintain your home, and
also gain the in tax savings and property appreciation.
Whether to rent or to buy a home
is a difficult question. The rewards are more benefitting
if you are ready to own your own home.
The Internal Revenue Service allows
home owners to deduct mortgage interests, property
taxes and some of the other expenses incurred in
owning your home when filling out their annual tax
returns. Home owners also have a tax benefit when
they sell their homes: the current tax law allows,
in certain cases, the exclusion from taxable income
of up to $250,000/person in capital gained from
the sale or exchange of the property used as a primary
residence.
If
you currently own a home you should consider selling
it first. When you get to the negotiating table
for your new home you will be in a stronger position
if the new purchase is not contingent on the sale
of your current home.
Relocating
your residency may become stressful, and in order
to avoid the pressure and the rush of having to
purchase a home you may want to consider renting
for a short period of time.
Know
were your down payment will be coming from. Savings
account, sale of current home, or a gift as a source
of payment. Don't forget that conventional lenders
will only allow you to use 5% of the down payment
from a gift. Lenders verify the aging of your deposits
to insure that your down payment is not composed
of more than 5% gift funding.
Finally,
consider getting yourself pre-approved for a mortgage.
Most home sellers will take an offer more seriously
if they know you have already been pre-approved
for a mortgage. In fact many realtors won't begin
to show you homes until you have a pre-qualification
letter from a lender.
Finding
a Real Estate Agent
Real
estate agents can offer considerable amount of advantages
to your home search. They have access to the Multiple
Listing Service (MLS) which lists all of the homes
for sale in your area. They may also have some homes
available in their agency which have not yet been
added to the MLS.
With time and money a factor, a
real estate agent's experience should be valuable
to both. Real estate agents knowing the local market
values of other homes that have been recently sold
in the area, and the advantages and disadvantages
of the home you're selecting will improve your position
when negotiating.
And
at no cost to you the real estate agents commission
is built in to the price of the home and paid for
from the eventual sale. In the event that you search
for a home without an agent, in most cases, you
will not save the cost of the agents commission
as normally since it's built in to the selling price
of the home.
Mistakes
can be costly and having your own real estate agent
can prevent them!
There
are three types of real estate agents:
1.
Seller's Agents - who represent the seller
2.
Buyer's Agents - who represent the buyer
3.
Dual Agents - represent both buyer and seller
Usually
real estate commissions range between 5% and 7%
and perhaps higher for raw land and commercial properties.
Take
some time in selecting your real estate agent. Visiting
open houses or, asking your friends and relatives
if they know of someone they would refer you to
are all ways to seek a suitable agent. If you have
already selected the area you prefer, you may find
that one realtor has a stronger presence in this
area compared to another realtor.
Once
you have targeted a specific agent, ask the real
estate agent what area of town they specialize in?
How much experience do they have? How many homes
they have sold in the last year in your price range?
Are they a Realtor? Realtors are members of the
National Association of Realtors and have agreed
to conform to their code of ethics. Try to find
someone you can be open with, as you will need to
tell them all of your likes and dislikes when viewing
prospective homes.
When
& Where To Search for Your New Home
Homes
look their best in the spring and summer therefore
prices may be a bit higher. However in the fall
and winter when leaves have fallen and gardens are
no longer in bloom sellers are generally more flexible
when negotiating since they know they will have
to wait until spring for their home to look its
best.
Some
think they should wait for mortgage interest rates
to drop. However, this plan doesn't always work
because home sellers also follow the interest rates
and may ask a higher price when they know the lending
market is advantageous to the buyer.
Remember the more open you are to the areas and
plans in a given town this will better your chances
to find what you're looking for.
Have
your agent research the Multiple Listing Service
(MLS) based on the specifications you've outlined
for your new home. Take a look in real estate books
found at the supermarket, the classified ads of
the local newspaper, and the internet as many realtors
list homes for sale on their websites.
House
Hunting Strategy
Get
a map and select your preferred area of town you're
interested in. Look in these areas first and then
expand these areas in the event you don't find what
you want.
Save
time by speaking to your agent or the seller before
visiting prospective homes. Simple conversation
may save you a visit to an inappropriate home. Have
your agent give you the addresses of the prospective
homes they have found on the MLS and do a drive
by. A visual is worth a thousand words and you may
save time once you've seen the outside. Viewing
the outside may decide whether you are interested
enough to tour the inside along with your real estate
agent.
Express your likes and dislikes to your real estate
agent that way they can focus better on your real
desires before going forward.
If you pay multiple visits to the
same home try to go at different times of the day.
Things may seem different in the daylight then they
would in the evening and vise versa. Try to visit
during the week and again on the weekend to see
the changing character of the neighborhood. Pay
particular attention to noise in the area and don't
forget traffic on the street front.
Before
And After Negotiating
Before
beginning negotiations you need to know the local
market. Know the selling price for every comparable
home in the area over the preceding year, and ask
your realtor to prepare a list for you.
Don't
tell the seller more than you have to! Why you're
looking and when you need to move in by can be big
negotiating advantages to the seller. This information
can be easily given away to the seller by casual
friendly conversation.
Find out why the home is for sale. How long has
it been on the market? How long has the current
owner owned the home? How much did they pay for
the home? Have they made any improvements? How much
does the current owner owe on their mortgage?
Who built the home and what is their reputation?
Make note of any flaws the home may have and have
your realtor insure that they will be remedied.
Once the purchase process begins appraisers will
visit the home and may point out anything that you
may have missed which the seller must remedy prior
to the actual sale.
Price
of The Home
Housing
prices are different from prices of almost everything
else. Many things are factored into the eventual
selling price, and the final price is determined
by the home seller and buyer. Appraisers can give
an estimate of a homes value however, the final
price can only be determined by you and the seller.
The
sellers asking price may not be a good indicator
of a homes real value. Some sellers are realistic
about the value of their homes and others are not.
Some need to sell quickly while others can wait
You
can make a low offer if you think the selling price
is out of line, however you should be prepared to
site examples of similar homes which sold for the
price you're offering to support your bid.
On
the other hand if the home is priced low, move quickly
before another buyer has an opportunity to put a
sales agreement in place.
Once
you have a sales contract for the home in place
the seller is legally bound to sell you the property
for the contracted price. However, you aren't bound
to pay this price until all of the contract contingencies
have been removed. The seller isn't obligated to
reduce the price if problems are found during subsequent
inspections but you are free to walk away from the
deal.
Have as many professional inspections
done as reasonably possible. The cost of inspections
is relatively inexpensive when compared to the savings
you may realize by having problems corrected prior
to the sale or by reducing the selling price.
Factors
Beyond Price
When buying a home you can negotiate more than
just the price. You can include any conditions
you consider important, these conditions are called
contingencies. Be careful to be reasonable. If
your not, the seller may decide not to sell you
the home.
In your offer you should specify
exactly what is being purchased, the home, the
fixtures, and the appliances should all be documented
in the offer. Specify the amount of your deposit,
which is normally refundable if your conditions
are not met and the sale does not go through.
A financing contingency must be included if you
will be getting a loan. Also you should specify
that you have the right to perform all reasonable
inspections and finally the closing date.
A
liquidated damages clause allows the seller to
keep your deposit in the event you default on
the purchase agreement. It doesn't mean the seller
can keep your deposit in the event inspections
find something that you want corrected, but the
seller is unwilling to pay for the correction.
The
duration of your offer should be for one day maximum
two. This prevents the seller from shopping your
offer to other potential buyers.
Include
a home warranty in order to cover any problems
you may find after the fact. It's worth the money
so you can sleep soundly.
Avoid
unusual conditions that make your offer less attractive.
Often sellers will be accepting of your conditions
in the beginning of negotiations, however after
the agreement is made they tend to fight over
small issue.
Tactics
for Negotiating with the Seller
Buying
your home will exercise your patience and will
often payoff if you can muster it. If you sense
the seller needs to move quickly don't rush. Allow
the house to be on the market for a while.
The
longer the home goes unsold the more pleased the
seller will be to finally receive an offer. Be
aware though if the house is a great deal it may
not stay on the market long and you risk potentially
losing the home to another buyer.
You
can also make your offer immediately. If you move
quickly the seller may not have been made other
offers that they would consider in conjunction
with yours.
Your
negotiating strength lies in how long the home
has been on the market, how quickly the seller
needs to sell, and how willing you are to walk
away from the home if your offer is not accepted.
Don't
forget that the seller may likely make a counter
offer to your offer if they consider it unacceptable.
You can always challenge their counter offer with
what you think would be another suitable price.
For example, you could ask to have some appliances
included if you accept their new price.
Have
a signed agreement prior to performing any of
your inspections in order to avoid spending money
on a house you may never purchase.
The
Basics of Financing a New Home
The
funds used to purchase a home come from two sources,
you and your lender
Conventional
lenders have two limits on the amount of money
they will provide.
Loan-To-Value
(LTV) limit. This is the amount of money the
investor will lend expressed as a percentage
of the house's value. LTV varies depending on
your credit and employment history, the loan
program.
Loan
Amount Limit. Conforming loans can not be higher
than $417,000. Loans higher than this amount
are called Jumbo loans and have different programs
available than conforming loans. Conforming
loans are favored by lenders as they are easily
sold on the secondary mortgage market.
Mortgage
interest rates usually follow the bond market
and you should not find large variances in interest
rates between one lender and another. Variances
appear in the total cost of the loan which includes
all of the fees added to the closing cost of
the loan. Fees like origination fees, document
review fees, and processing fees may vary widely
from one lender to the next. In order to properly
compare one loan offer to another you will need
to have "Good Faith Estimates" from
both lenders. This is the only way to compare
apples to apples.
Lenders prefer borrowers that have a large down
payment, income sufficient to make the monthly
mortgage payments, a good credit history and
credit score, and sufficient cash reserves in
the event you fall on hard times.
Lenders
use two ratios to evaluate your borrowing power.
Your front end ratio and your back end ratio.
Your
front end ratio is the percentage of your income
to be used for housing expenses.
Your
back end ratio is the percentage of your income
used to pay all of you monthly reoccurring debts
(like car loans, credit cards) including housing
expenses.
Every lender has different ratios
which they consider acceptable.
Conforming loans have the guidelines of 28% front
end ratio and 36% back end ratio. These ratios
are only exceeded when the individual lender considers
other factors which may outweigh the exceeded
ratio and they believe the loan will be able to
be sold on the secondary mortgage market.
Lenders
can make money from borrowers in three different
ways. Origination fees are fees lenders charge
to setup the loan. Interest rate spread is the
difference between the interest rate the lender
offers you, the borrower, and the actual cost
of the funds. The lender may also service the
loan, in which case they earn a fixed monthly
fee for sending notices and collecting payments
related to the mortgage.
With
many lenders you may be able to negotiate on the
origination fee and interest rate spread. For
example, you may be able get a loan with a 6%
interest rate and pay one percentage point origination
fee or get a 5.5% loan for two percentage points
origination fee.
return to top of page