Mistakes that Home Sellers Can Make

You want the home selling process to be as smooth and painless as possible. Thinking about all the things that can go wrong might be overwhelming, but remember that knowledge is power. Here are some common mistakes to avoid when selling your home.

  1. Underestimating the cost of selling. Wait, aren’t you supposed to make money if you’re the seller? Well, yes, but the total cost to sell a home can amount to much more than the 5-6% in agent commissions most people are expecting to pay. As a seller, you must also account for closing costs, repairs, and other concessions to the buyer. The true cost of selling can often be closer to 10% of the sale price of the home.
  2. Setting an unrealistic price can be a huge mistake. What you want from your home can be very different than what the market will pay. Sure, you don’t want to price your home too low and leave money on the table for the sake of a quick sale, but you also don’t want your over-priced house to be listed on the market for months – or worse, years.
  3. You must provide the buyer with legally required disclosures. You, the seller, are legally required to disclose to the potential buyer anything that may affect the value of the property. For example if your home is sitting on a sinkhole, you must disclose this to the buyer. It is considered illegal in most places to deliberately conceal major property defects, so you must put your real estate disclosures in writing.
  4. After you deliver your written real estate disclosures, you must make sure that you receive from them acknowledgement of receipt of these disclosures, also in writing. What good is it that you delivered your disclosures to the buyer if you can’t prove it later? Your agent should handle this for you, but it doesn’t hurt to double check and make sure it’s been done.
  5. Do not accept the buyer with the highest offer without regarding the other contractual terms. Sure, the potential buyer you have your eye on is offering ten thousand dollars more than his counterpart, potential buyer number two, but they also require that you cover all closing costs. That can eat up that ten thousand dollars extra, and fast!
  6. Ignoring necessary major repairs in favor of costly cosmetic renovations is going to be a big mistake. A long list of maintenance issues can mean trouble for you as a seller, and it means nothing that you have a lovely new staircase if no one will buy your home because the wiring in the walls is not up to code. Assert your priorities!
  7. Not preparing your home for sale is another common mistake made by sellers. Potential buyers are almost certainly going to want to tour your home, and generally speaking, the cleaner and less cluttered your home is, the more appeal it will have. Clutter can make your home feel smaller, and the less staged your house is, the harder it is for potential buyers to see themselves living there. Make sure you don’t forget about curb appeal, either!
  8. Choosing the wrong agent can spell disaster for you as the seller! Make sure you select an agent who has good reviews and is properly licensed to do their job. You can interview multiple agents at once to check their credentials and customer satisfaction history, and when you do so, make sure that they have experience buying and selling homes in your neighborhood and at your price point.
  9. Choosing an agent you don’t get along well with is less of a disaster than choosing one who is unlicensed, but it can also be much more stressful for you! Make sure that you talk to your agent about your expectations. Discuss their marketing plan for your home, their negotiation style, how often they plan to communicate with you and how they plan to do it, if they have any current listings that might compete with yours, and whether or not they will require you to sign a contract with them.
  10. Showing your home to potential buyers can feel invasive and troublesome, but limiting these showings can make sure your house never gets off the market. The goal is to accommodate as many buyers as possible, even if their timing is inconvenient. This means you may have to vacate on short notice or during a time that is usually scheduled to be spent in your home.
  11. Do not fail to consider your broader financial situation. Many sellers don’t have a clear idea of their financial health before they decide to sell their home. This can mean some painful surprises! Before you make the decision to sell, assess your income and debts, as well as any upcoming expenses during your move. You can contact your bank or mortgage advisor to find out how much you owe on your current home.
  12. You must get everything in writing from everyone, from your agent to the buyer of your home. No negotiations about the purchase of your house should happen verbally. Anyone who is serious about buying your house will have no problem putting an offer in writing and sending it to you. You should also consult with your agent to make sure that all offers and counter offers you receive are legally binding documents.
  13. Do not agree to a reduced earnest money deposit. There is a lot of uncertainty about what the right amount of earnest money is, and many consider it 3-5%. No matter what you ask for, you want to make sure it is fair for all parties. Of course you want to please your potential buyer, but you should not short-change yourself, either.
  14. Make sure your sales agreement is complete. Use the complete legal description of your home in any sales paperwork. A real estate attorney can assist you with this. It is this description, not your home address, that is recognized by the government and by lenders, so make sure that all of your sales paperwork reflects the exact verbiage of the description of your home as stated on your property taxes.
  15. Not asking for help can cost you tens of thousands of dollars when selling your house. You must have help from a real estate agent and attorney. A real estate attorney can help you ensure that your entire sales transaction, from start to finish, is legally enforceable and is as efficient as possible.
  16. Do not use a template contract that was purchased online for any part of the home selling process. Not all template contracts reflect the laws in your area, and do not have the required provisions or addenda. The failure to include these provisions or addenda can make your contract voidable at the buyer’s option.
  17. You must screen your potential buyer before signing a contract with them. If a buyer has a 30 day finance period and then a 45 day home inspection contingency and then 60 days to close, and they are not qualified from the beginning to purchase your home, they have just wasted four months of your time. You should always require a pre-qualification letter from anyone who is even remotely interested in buying your home from you!
  18. Do you have a contingency plan if you aren’t able to find a new home? You should. As a seller, what are your plans with regard to finding your new home? Do you need to include a provision in the contracts allowing you to remain in your house after the sale for a certain period of time? Do you need a contingency providing that the contract to sell your current house is not valid until you find a new house? Make sure you consider all of this when selling!
  19. Don’t set an unrealistic timeline. You will not have cash in hand for your home in two days. Unless you live in a zip code with highly desirable real estate, it is almost impossible to say how fast the house will sell, so don’t rely on it selling quickly. You should prepare financially for both situations – that your home sells quickly, and that it does not. Budget for both a few more months in your old home as well as being ready to move into your new home immediately and quickly.
  20. Make sure you know the real value of your home. Use recent sales in your area as comparisons, consider a second or third option from other agents, and consider how much you have invested into renovations and maintenance over the years – you may know your home’s value better than a professional realtor thanks to your firsthand experience living there.

Now that you’re aware of some common mistakes to avoid when selling your home, you can be more confident when something doesn’t go as planned.

Rare Real Estate Vocabulary – Terms You Must Know!

When it comes to buying or selling a home, there are simply some terms you must know. Everyone knows what closing costs, titles, appraisals, and pre-approvals are, but what is escrow? Here are some rare or uncommon real estate vocabulary terms that could apply to you!

Amortization

This is the process of combining both interest and principal in payments, rather than simply paying off interest at the start. This allows you to build more equity in the home early on.

Affidavit

A written statement signed and sworn to before a person authorized to administer an oath.

Abstract of title

A condensed version of the history of a title to a particular parcel of real estate as recorded in the county clerk’s records; consists of a summary of the original grant and all subsequent conveyances and encumbrances affecting the property.

Accrued depreciation

The actual depreciation that has occurred to a property at any given date; the difference between the cost of replacement new (as of the date of the appraisal) and the present appraised value.

Assessed value

This is how much a home is worth according to a public tax assessor who makes that determination in order to figure out how much city or state tax the owner owes.

Bilateral contract

A contract in which each party promises to perform an act in exchange for the other party’s promise to perform.

Blanket mortgage

A mortgage that covers more than one parcel of real estate and provides for each parcel’s partial release from the mortgage lien on repayment of a definite portion of the debt.

Cash reserves

The cash reserves is the money left over for the buyer after the down payment and the closing costs.

Comparative market analysis

Comparative market analysis (CMA) is a report on comparable homes in the area that is used to derive an accurate value for the home in question.

Chain of title

The succession of conveyances from some accepted starting point by which the present holder of real property dervies his or her title.

Capacity of parties

The legal ability of persons to enter into a valid contract. Most persons have fully capacity to contract and are said to be competent parties.

Contingencies

This term refers to conditions that have to be met in order for the purchase of a home to be finalized. For example, there may be contingencies that the loan must be approved or the appraised value must be near the final sale price.

Community property

A system of property ownership based on the theory that each spouse has an equal interest in the property acquired by the efforts of either spouse during marriage.

Coinsurance clause

A clause in insurance policies covering real property that requires the policyholder to maintain fire insurance coverage that is generally equal to at least 80% of the property’s actual replacement cost.

Conventional loan

A loan that is not insured or guaranteed by a government agency.

Dual agency

Dual agency is when one agent represents both sides, rather than having both a buyer’s agent and a listing agent.

Deed

A written instrument that when executed and delivered conveys title to, or an interest in, real estate.

Discount points

An added loan free charged by a lender to make the yield on a lower-than-market-value loan competitive with higher-interest loans.

Escrow

Escrow is an account that the lender sets up that receives monthly payments from the buyer.

Exclusive-right-to-sell listing

A listing contract under which the owner appoints a real estate broker as his or her exclusive agent for a designated period of time to sell the property on the owner’s stated terms and agrees to pay the broker a commission when the property is sold, whether by the broker, the owner, or another broker.

General contractor

A construction specialist who enters into a formal construction contract with a landowner or master lessee to construct a real estate building or project. The general contractor often contracts with several subcontractors specializing in various aspects of the building process to perform individual jobs.

Interim financing

A short-term loan usually made during the construction phase of a building project, often referred to as a construction loan.

Listing

A listing is essentially a home that is for sale. The term gets its name from the fact that these homes are often “listed” on a website or in a publication.

Listing broker

The broker in a multiple-listing situation from whose office a listing agreement is initiated, as opposed to the selling broker, from whose office negotiations leading to a sale are initiated. The listing broker and the selling broker may, of course, by the same person.

Lien

A right given by law to certain creditors to have their debt paid out of the property of a defaulting debtor, usually by means of a court sale.

Market/data approach

A method of appraising or evaluating real property based on the proposition that an informed purchaser would pay no more for a property than the cost to him or her of acquiring an existing property with the same utility.

Market value

The most profitable price a property will bring in a competitive and open market under all conditions requisite to a fair sale. The price at which a buyer would buy and a seller would sell, each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus.

MLS (Multiple Listing Service)

A service created for the use of displaying listings across many brokers and brokerages.

Notary public

A public official authorized to certify and attest to documents, take affidavits, take acknowledgments, administer oaths, and perform other such acts.

Open listing

A listing contract under which the broker’s commission is contingent on the broker producing a “ready, willing, and able” buyer before the property is sold by the seller or another broker; the principal (owner) reserves the right to list the property with other brokers.

Principal

The principal is the amount of money borrowed to purchase a home. Paying off the principal allows a buyer to build equity in a home. Principal is combined with interest to determine the monthly mortgage payment.

Package mortgage

A method of financing in which the purchase of the land also finances the purchase of certain personal property items.

Plat book

A book containing recorded subdivisions of land.

Piti

Principal, interest, taxes, and insurance.

Refinance

The act of acquiring a new mortgage to replace the old mortgage, oftentimes advantageous to the borrower.

Real property

Real property consists of land, anything affixed to it so as to be regarded as a permanent part of the land, that which is appurtenant to the land, and that which is immovable by law, including all rights and interests.

Renegotiable rate mortgage

A mortgage loan that is granted for a term of 3 to 5 years and secured by a long-term mortgage of up to 30 years with the interest rate being renegotiated or adjusted each period.

Secondary mortgage market

A market for the purchase and sale of existing mortgages, designed to provide greater liquidity for mortgages; also called the secondary money market. Mortgages are originated in the primary mortgage market.

Subrogation

The substitution of one creditor for another, with the substituted person succeeding to the legal rights and claims of the original claimant. Subrogation is used by title insurers to acquire the right the sue from the injured party to recover any claims they have paid.

Title Search

A title company’s review of the deed and the (potential) claims upon it.

Title insurance

Title insurance is often required as part of the closing costs. It covers research into public records to ensure that the title is free and clear, and ready for sale. If you purchase a home and find out later that there are liens on the home, you’ll be glad you had title insurance.

Tenancy by the entirety

The joint ownership, recognized in some states, of property acquired by husband and wife during marriage. On the death of one spouse, the survivor becomes the owner of the property.

Unilateral contract

A one-sided contract by which one party makes a promise to induce a second party to do something. The second party is not legally bound to perform; if the second party does comply, however, the first party is obligated to keep the promise.

Unity of ownership

The four unities traditionally needed to create a joint tenancy – unity of title, time, interest, and possession.

Variance

An exception from the zoning ordinances; permission granted by zoning authorities to build a structure or conduct a use that is expressly prohibited by zoning ordinance.

Writ of attachment

The method by which a debtor’s property is placed in the custody of the law and held as security, pending the outcome of a creditor’s suit.

How to Negotiate Home Price – The Definitive Guide

Have you found your dream home, but the price is a little too high for you? Consider negotiating. Even if you’re comfortable paying what the seller is asking for, negotiate anyway – you never know how low you could get that price tag! Here are some things to consider when negotiating the cost of your new home.

Don’t Negotiate Just About the Money

Perhaps you are the buyer and you want the seller to cover half of the closing costs. Perhaps you, the buyer, want the seller to pay for a kitchen remodel by way of knocking some money off of their asking price. If you are the seller, perhaps you want the buyer to cover the title transfer fee as an exchange for wanting to expedite the closing process. It’s not just about the principal cost of the house – it’s also about each party’s wants and wishes from the other party, and there are a million different things that could qualify for “wants and wishes” in this sense.

Don’t Negotiate on the Basis of Asking Price

This can sound confusing, but once you understand it, you’ll be certain it’s the best way to go – do not negotiate the asking price of the house only. You must negotiate based on the total cost of the transaction and the total cost of owning the home. What does this mean? Getting the house of your dreams for less than it’s asking price sounds like a huge victory, but it can sell out if the house ends up being incredibly expensive to maintain or fix up. Yes, you must consider principal cost, closing fees, points, and other fees, but you must also consider how much it will cost monthly to own the house and negotiate with that number in mind as well.

Don’t Talk Numbers with Anyone But Your Agent

Any agent that is not your own is working for the seller, and is obligated to tell the seller anything that you share with them. If you are toured through the house by the seller’s agent, and tell them about your budget and your home wishes, it can undermine your negotiating power because now the seller knows all the cards in your hand. You must only talk numbers or wishes with your own agent, who will then help you deliver a negotiation to the seller in such a way that it does not undermine your negotiating power. This is especially important as you work through the negotiation process.

There is another side to this that you can consider accessing if you think you’re able to pull it off. Consider this: It’s in the seller’s agent’s best interest to close this home sale deal quickly so they can move on to their next client. If you can subtly convince them that you’re ready to buy, with the deposit prepared, the mortgage hypothetically ready to go with the bank, and the lawyer on-call, the seller’s agent will be highly likely to suggest you as a great option to the seller, even if your offer is lower than the seller had hoped. This removes any need for actual negotiating, but you must play it safe and must remember not to lie or intentionally dupe the seller’s agent – you just want to subtly imply that you’re ready to go.

Ask your Agent to Do it For You

Does the concept of haggling with someone about a large purchase make you sick to your stomach with anxiety? No worries – typically, your agent will be happy to negotiate on your behalf, only requiring you to sign your name to documents and confirm information with them. You should only speak to the seller or the seller’s agent to negotiate if you want to, and an agent who refuses to negotiate on your behalf is not one you should partner with! Be aware, though, that your agent’s job is not to get you the best deal, it’s to have the deal go through in the first place. You must outright ask them to help you negotiate and tell them what your ramifications are, and should not assume they will just do it for you by default. Sure, they will communicate with the seller, but you should ask them if you want them to push for a different or lower price!

Sell Before You Buy

This can be risky and stressful, but can have a huge payoff if it’s done correctly. If you sell your current house before you buy a new one, you are what seller’s agents refer to as “chain free”. This means that the seller will not have to wait for you to sell your current home before you buy their home, and that the process will be much quicker. Sellers will always prefer this, so you may be able to avoid negotiation all-together if you are able to get across to the seller’s agent that you’re a good prospect due to the speed in which the transaction can be completed.

Be Kind, But Firm

You don’t want to insult the seller by telling them they should lower the price due to all the flaws in their beloved family home. They may not be so inclined to sell their precious house to someone who is unkind to them about it. Instead, be kind but firm. If there is something about the house that is structurally unsound, unsafe, or not livable, you have every right not to budge. If one of your issues is largely or completely cosmetic, phrase your negotiation as less of a demand. And certainly don’t go overboard and tell the seller every single scratch and dent in the home to “nickel and dime” them into a lower price – they’ll almost surely pass you up for another seller that is less trouble to them.

Put Your Offer in Writing

Sellers and their agents both like this, and it shows them that you’re serious, especially if the letter is accompanied by proof of your mortgage offer or pre-approval. You may also find it to your benefit to indicate to the seller and their agent that you can be flexible to suit their schedule and that you’re willing to work with them. The easier you make selling to you sound, the more likely you will be sold to!

A Refusal is Not The End of the Conversation

If your negotiation offer is refused, it isn’t the end of the conversation. The seller simply replied to your offer. You can make another one! The seller may simply be playing a mind game with you to see how high they can get your offer with repeated refusals. Be sure t communicate to your own agent the absolute highest you will go, and then do not offer higher than that number under any circumstances. If your highest offer receives a refusal in return, communicate to both agents (yours and the seller’s) that you remain interested and will be available to talk again if the seller would like to return to you as a potential buyer.

Consider Negotiating Up

Do you really want to get your name in with the seller? Offer more than what they’re asking for. Don’t do this unless you really love the house and if you know that you’ll be able to afford it’s monthly upkeep less what you’ve paid over the original asking price. Make sure your finances offer that sort of flexibility. Be careful, though, because any counter offers should be made in descending order, so the seller knows there is a limit to how much you’ll spend and how long you’re willing to negotiate. Don’t let them talk you into paying even more than your original offer of more than they asked for!

Always Ask for a Home Warranty

No matter what, make sure you do this. It’s common for a seller to pay this expense up front, so do your due diligence to make sure they do. The seller pays the premium for the home warranty, usually between $400 and $600, and then the new homeowner is responsible for the deductible with any claim they make. The home warranty covers the repair of key items that come with the house, such as plumbing systems, appliances, air systems, or heating.

Renting? Ask the Seller to Buy You Out of Your Lease

You don’t have to wait until your current lease is up on your rental home or apartment before you can buy a house. In fact, you can negotiate with your seller to pay to buy you out of your lease. Many times, the seller has no issues with adjusting the price for this, as it’s usually only a few thousand dollars. This works the other way around as well – if a seller needs extra time to vacate due to another home purchase or construction, the buyers can grant them the extra time in exchange for a lower price on the home.

What Does a Home Appraiser Look For In a House?

Lenders, such as your bank, require an appraiser to evaluate a home before they will fund your mortgage. This professional evaluation ensures that the buyer’s desired home exists, that the area supports the loan amount and that the home has the features listed in the listing agreement. A home appraiser’s job is to confirm that the contract price is fair for all parties involved in a home sale – the buyer, the seller, and the bank, who is lending the money.

Neighborhood Characteristics

You could call this “curb appeal”, but that’s not the only thing the appraiser will be looking for in this instance. They’ll also check out the general landscaping of the home – of course they want to see grass and trees, as well as other lovely landscaping concepts, but if your new home has a lot of difficult-to-care-for plants and dead trees, this can negatively affect you home’s appraisal value. Look for a home with an easy to care for and clean landscape design to increase this appraisal value.

Location

Different neighborhoods will increase or decrease the value of your home. The neighborhood’s value will be determined based on a number of factors – the crime rate, the distance from the home to schools, the distance from the home to the nearest hospital, the neighborhood’s school district’s rating, how close the home is to community amenities (parks, pools, gyms), how well maintained the public services are (roads, street lamps), and how busy or safe the immediate closest roads are.

Where your home is positioned within your neighborhood holds some weight. If your house is closer to the main road where you will hear traffic passing all night long, your house might not be appraised for as much as if your house was quietly tucked into the back of your neighborhood, where the ambient volume levels are much lower.

Age of the Home

A newer home won’t always be appraised at a higher number than an older home. New homes that were built in the last one or two decades usually have less major issues, but old homes that are located in historic districts or have been well maintained will also have a high appraisal value. However, if your home is 35 years old and looks like it’s 60, it will likely be appraised much lower than a 35 year old house that “looks it’s age”. It all comes down to how well the house has been maintained in all it’s years, and unfortunately, if you’re having a home appraised so you can buy it, how it’s past owners treated it is out of your control.

Design Style of the Home

There are certain design styles of a home that will likely never go out of style. For example, the choice to position the dining room near the kitchen is one that will likely continue in all new houses, forever. However, some home design trends just aren’t “in style” anymore, and believe it or not, even these cosmetic fixtures have an effect on your home appraiser’s valuation of your new house. If the cabinets are stained an out-of-date color, the permanent light fixtures are no longer in style, and the appliances are from the 90’s, you’ll likely get a lower valuation number than you thought!

Lot Size

Lot size can make a big difference when it comes to a home’s valuation. If there is a large yard, the home will be valued higher than a one without a yard at all, or one with a very small yard.

Evidence of Public Utilities (Heat, AC, Water, Gas, Electricity)

Not only is a house without access to public utilities not considered “usable and livable”, but it will be valued at much lower than a house with access to public utilities. The other thing that must be considered here is that not only does there have to be access to the utilities, they have to work well, too. Does water simply drip from the kitchen sink instead of running in a stream? Does the heat work, but not above 65 degrees? These things will also lower appraiser valuation.

Other things that the home appraiser will consider are how your heat is fueled, the age of the existing systems (regardless of how well they work), ease of use, and whether your AC is central or requires multiple individual room or window units.

Evidence of Driveway or Car Storage

There is nothing wrong with parking your vehicle on the side of the road in front of your house, but your house will simply be worth more if there is a driveway, and even more if there is an enclosed garage. The number of vehicles a garage can hold will also be taken into account, as well as the extra storage space in the garage. If the garage is detached, this will also affect the valuation of the home, and if it is separate from the home, it’s structural integrity and building materials will come into consideration as well.

Measurements (Room Size, Total Square Footage)

Total square footage is one of the first things a home appraiser will compare to the selling price of the home. They won’t let someone get away with trying to sell a tiny, cramped house for half of a million dollars. The selling price of the home and the space available in the home must make sense based on average home sales in the last year or two.

A home that has a tiny kitchen but huge bathrooms is going to be appraised lower than a home with room sizes that make sense. It’s not just about space in the home, but how it’s distributed. You want room sizes to be comfortable and good uses of the home’s total space without the ratio getting too wide. The appraiser will also look at how much of your square footage is actually livable and usable space. For example, if the basement is counted in the home’s square footage, but is not refinished, there is a lower percentage of the home that is considered “livable and usable”, which means the home’s appraisal value will be lower, too.

Number of Bathrooms and Bedrooms

What’s the first thing most people look for when viewing house listings? The number of bedrooms and bathrooms available! The more bedrooms and bathrooms, the higher the appraisal value will be. A one bedroom, one bathroom home will be valued at much lower cost than a home with five bedrooms and five bathrooms. In fact, one bedroom one bathroom homes sell for far cheaper than even a two bedroom, two bathroom home, because most families aren’t interested in them as they want a guest room, a home office, or a child’s room in that second bedroom.

Evidence of Any Past Remodeling

It’s very likely that the home you are having appraised has been appraised before, when it’s last owners bought it or built it, so your home appraiser almost certainly has files and paperwork on the house already. If they note that there has been remodeling, additions, or upgrades to the home, this will raise their valuation of the home.

Some of the most valuable home renovations are new garage doors, new and more secure front doors, a grand entrance room, new siding, and hardwood floors installed to replace carpet, but any type of remodel or upgrade will be accounted for.

Materials Used in Building

If the house was built in the last five or ten years, it will have better materials used in it’s skeleton than a home that was built 40 or 50 years ago. If the age of the house is older than the appraiser would like, they can typically be swayed by old materials being phased out with updates, such as a new roof, siding, windows, or wiring systems. If the home is structurally unsound, the appraiser will likely advise your bank not to fund your mortgage loan – this is for safety reasons.

The highest value structural updates that an appraiser will look for are updated electrical (especially when corrective), removal or non-existence of asbestos or other dated materials, a deeper basement creating potential living space (if not already refinished), new roofing, new siding, new windows, solar panels (where conditions permit), additional insulation, and high-quality entry and exit doors.

Condition of the Home (Interior and Exterior)

The general condition of the house will also be taken into account by the home appraiser. Does the house look dingy and old, or does it look well taken care of and pleasant? Is the outside of the house dirty and falling apart, or is it cleaned and kept up after? If carpet is peeling at the corners and the paint is chipping off the siding, the house will be valued lower.

Evidence of Amenities (Pool, Energy Efficient Appliances, Privacy Fencing)

Does the home have a lot of storage space? Is the basement refinished? Is the garage sized for two cars instead of one? These little things add up to a higher appraisal valuation. Much like when a home has recently been upgraded, the addition of amenities can boost a home’s valuation by a lot, but not quite as much as necessary upgrades such as those done for safety reasons.

Understanding Closing Costs – A Definitive Guide

When buying their first house, everyone tends to focus on saving up money for the down payment. After all, it is a huge amount of money to save up for, can take a long time, and can seem like the main goal towards new homeownership. However, when becoming a homeowner, you must also consider closing costs.

What are closing costs? They are the expenses, besides the principal cost of the house, that buyers and sellers incur to complete a real estate transaction. They come up when the title of the property is transferred from the seller to the buyer. The exact dollar amount depends on where the property is being sold and the value of the property being sold. The average amount of closing costs that homebuyers pay is around $4,800.

How expensive are they? Well, closing costs typically amount to between 3% and 6% of the total purchase price of the home. On a $100,000 house, that’s around $5,000 in closing costs. On a $600,000 house, that’s around $25,000. It can add up! If you want a more concrete estimate of what your exact closing costs will amount to, there are many closing costs calculators online that will help you, although they do require a little more information than just the purchase price of your new home. There is no way to know an exact number without talking to your mortgage lender or your real estate agent.

When are closing costs due? Typically, they are due at the end of escrow when your loan closes. Which closing cost is paid by what party (buyer or seller) is negotiable to some extent and can vary between specific situations. For example, if the market is swayed towards the buyer, you can often get a seller to pay for more than their usual share of closing costs. You can talk to your real estate agent to learn more about negotiating closing costs.

What is included in closing costs? These things typically vary from house to house, and they also very from region-to-region. The full list of closing costs you’ll be expected to pay will be delivered to you in the loan estimate provided by your lending agents. It is law that you must receive this information from your lending agent within three days from the time you submit your loan application.

Potential Closing Costs:

  • Real Estate Commission: The commissions for both buyer and seller’s real estate agents are typically paid for by bother the buyer and the seller, each paying half. The total amount for both commissions combined is around 5% of the total deal, but this number is not concrete. You can discuss this number with your real estate agent before you even agree to work with them, so make sure you do so!
  • Pro-Rated Property Taxes: This cost will likely be pro-rated unless you move into your home on the first of the month, but either way, it is standard for buyers to pay two month’s worth of county and city property taxes at the time escrow closes.
  • Pro-Rated Homeowner’s Association Fees: Like the property taxes, this fee will likely be pro-rated unless you move in on the first of the month. If your new house is in a neighborhood with a Homeowner’s Association, you’ll likely have to pay HOA fees at closing time.
  • Any Recording Fees to Satisfy the Deed of Trust: When a new deed is written, it must be recorded. The fee for this could be between $12 and $15. Some agencies charge differently than others (per document vs per page), so be sure you ask for more details so you know what you should expect.
  • Attorney Fees (Including Faxes, Copies, and Courier): There is always an attorney involved with getting a new house. This fee is typically covered by the seller and can amount to a total of 6% to 10% of the selling cost of the house – but it won’t come out of the seller’s pocket, it will be deducted from their profit on the home.
  • Assumption Fee: If you “assume” someone else’s existing mortgage, there could be a small fee (based on the balance remaining on their principal). This fee will be due at closing time.
  • Lender Fees: These fees can widely vary. You can ask potential lending agents about their lender fees before even agreeing to work with them, so you should have some idea of what to expect.
  • Home Warranty (Negotiable): A home warranty covers the cost to repair your major appliances and important home components from normal wear and tear. It provides protection against appliance failure. Contracts are normally good for one year. The cost is usually between $300 and $600 per year. Sometimes these costs are paid during closing time.
  • Appraisal Fees: Typically, this fee is usually between $300 and $500. It is a  mandatory part of the escrow process required by your lending agent. An appraisal is meant to ensure that your home is actually worth the sales price you are paying for it, so it’s in your best interest.
  • Attorney’s Fee for Closing: Attorney’s fees typically include things like paying notaries, government filing fees, escrow fees, and other legal expenses. To find out more details about your attorney’s fees, ask your lending agent.
  • Title Insurance: Title insurance covers either a homeowner or the lender that financed the mortgage for the property. Lenders require buyers to pay for title insurance as a part of your closing costs. The cost for title insurance varies.
  • Title Fees: These are the costs accrued in transferring the house’s title from the seller’s name to your name. This should be a small cost.
  • Survey (Optional): You can elect to have a property surveyed at any time, but you’ll want it done before you buy a home. Most mortgage companies do require a property survey.
  • Home Inspection Costs: The home inspection is different than the home appraisal. This cost will usually total between $300 and $500. While technically not due at closing time (this fee is paid in person to the home inspector themselves), it must be considered while saving for closing costs.
  • Earnest Money: This is a small amount of money (usually between 1% and 3% of the purchase price of your home) that ensures your escrow account as soon as your deal is accepted by the seller. This amount is eventually subtracted from your closing costs, so you’ll owe less at the end of escrow.
  • Escrow Fees: Escrow fees can include a number of factors. For example, you may be asked to pay your insurance up front, or contribute portions of your yearly property taxes ahead of time. This money goes into your escrow account and counts as a closing cost.
  • Private Mortgage Insurance (PMI): Private mortgage insurance is required when you do not put at least 20% down on your new home. This is not required by law in any other circumstance. Instead of paying this fee monthly, you can opt to pay it in full with your other closing costs.
  • Loan Interest: Sometimes there is a small space of time between the closing date and the first day of the next month. If this is the case with your home purchase, you will need to make a small payment of pro-rated loan interest to cover this time.
  • Loan Discount Points: Purchasing a loan discount point is entirely elective. Loan discount points are the best way to decrease your overall interest amount for your loan, and by paying this fee at closing time, you lock in this lower interest rate. Talk to your lender for more information.
  • Flood Certification: If your new home is listed as “near a floodplain”, you must get a certification from FEMA (The Federal Emergency Management Agency) to confirm it’s status. It should only cost between $15 and $20, but it is an important step if your home is at a flood risk.

Kindly note that not all of these costs and fees will be required with ever home purchase. As mentioned previously, closing costs differ house-by-house and region-by-region.

Typically, a  buyer (that’s you!) will usually pay form all fees that are directly related to getting your home loan, appraising and inspecting your new house, the title, the underwriter, the survey fees, and the commission for your real estate agent, at minimum. A seller will typically pay for the attorneys, if they used one, taxes on the sale of the home, title transfer fees, and their real estate agent’s commission fees.

No matter what, you will end up paying closing costs, but there are ways to lower them. To know what you’re responsible for, talk to your real estate agent or your mortgage lender. They will be able to guide you to your next steps so that you can be properly prepared to take on closing costs and everything that they entail.

How To Get The Best Mortgage Rate

Buying a home? We bet you want a low mortgage rate. Of course you do! Paying less in housing costs each and every month is the ideal situation that anyone would choose, and housing costs are arguably going to be the biggest expense in just about anyone’s life. After all, buying a home is one of the most expensive purchases most people will ever make. 
 
The median home value in the last year is around $231,000 and most people don’t have that kind of cash sitting in the bank, which necessitates mortgage loans as a necessary part of buying a home. When you sign your mortgage agreement, you’re voluntarily submitting to the terms it outlines in full – including your mortgage rate, which determines how much you’ll pay each month in housing costs. 
 
You want these costs to be as low as possible – The mortgage rate, type of mortgage, and length of time you have to repay the mortgage can make a huge difference in how long you are making monthly payments. Even lowering your rate by one percent can save you thousands of dollars in interest over the life of your loan. Sound like something you want to do? Of course it does! 
 
But how can you ensure that your mortgage rate is lower than average? Is there anything at all you can do to have any effect on this? What steps should you take to make sure your monthly housing costs are not overwhelming on your finances? We’ll dive deeper into these questions here. This is how you can get the best mortgage rate of everyone that you know! 
 
Improve Your Credit Score
This is, arguably, in almost every “how to get a mortgage” article on the internet, and for good reason. Your credit score is one of the most important factors as far as your mortgage rate goes. It can mean the difference between getting a low rate or a high one from the very beginning. Lenders use credit scores, first and foremost, as a benchmark in deciding a potential home buyer’s ability to repay the debt of their mortgage loan. If their credit score is high, it signifies to the lender that the potential home buyer is responsible financially, and they’re more likely to have their loan application approved – and offered better rates. 
 
Improve Your Employment History 
If you want a lower mortgage rate, you should also look into improving your employment history. It plays into the same kind of idea as improving your credit score. Think of it from the point of view of a lender. Someone who has stayed with their job for a very long time is likely more responsible than someone who jumps from job to job every few months. You’re more likely to be offered a reasonable mortgage rate if you’re an employee, too. Those who are self-employed or work as freelancers or independent contractors are considered a higher risk than those who are employed by a company. It can also be more difficult to qualify yourself as a lower risk home buyer if you have multiple part time jobs instead of one full time job. If you are planning to buy a house soon and willing to upgrade your employment in order to get a better rate, now is certainly the time to start that process! 
 
Save Up For the Down Payment
Yes, even this makes a difference in your mortgage rate. The more money you put down, the lower your mortgage payment has the likelihood to be. If you have enough money on hand to fund a 20% down payment, you should absolutely budget that money to do just that. Lenders do accept down payments lower than 20%, of course, but we’re talking mortgage rates, here. The sooner you can pay down your mortgage to less than 80 percent of the total value of the home (the principal), the sooner you can get rid of mortgage insurance, which reduces your monthly bill. Also, having saved up for a larger down payment than others is yet another way to prove to your lender that you are certainly going to be a responsible home owner! 
 
Consider an ARM (Adjustable Rate Mortgage) 
Yes, you’ve heard all about Adjustable Rate Mortgages… Their rates can change on a set schedule, opposite from a fixed rate mortgage, which guarantees the same monthly rate throughout the life of the loan. Wouldn’t this be a bad route if you want a lower mortgage rate? Not always. It might save you money if you lock in a lower rate for a shorter period of time, such a s five or ten years. Adjustable Rate Mortgages are a financial tool that can be extremely beneficial for some. If you know that the home you are about to buy is not your “forever” home, you can lock in a low rate for a few years and then simply move when those years are up. Typically, Adjustable Rate Mortgages offer lower rates than Fixed Rate Mortgages generally do, so it’s certainly a route to investigate, but remember, it’s not right for everyone. Make sure you do your research and confirm that this type of mortgage is right for your finances before you commit to it. 
 
Shop Among Multiple Lenders
When you’re searching for the best mortgage rate, you want to shop lenders, too. Two lenders very rarely offer the same rate, so there could always be someone offering the same loan with cheaper interest rates. You absolutely must do the necessary research to make sure that you’re getting the best fit for your financial situation. Don’t speak to your personal bank and assume that their offer is the best you’re going to get just because you have been their customer for a long time. Make sure you talk to independent lenders and other lending institutions as well. Shop and compare the loan estimates you receive to work out where you can get the best deal in general. Of course, things can change depending on your financial situation and other personal details, but typically the mortgage lender who offers the best rates on day one still has the best rate for you on closing day. It’s just how it works!
 
Aim for Fifteen Year Fixed Rate
Yes, the most common loan type is a 30 year fixed rate, but if your goal is lower mortgage rates, you must look into fifteen year fixed rate type mortgage loans. While it’s true that your monthly payments could be higher, if they are, it’s simply because the life of the loan is shorter and there is less time for you to pay off the same amount. However, in return for this, you will save thousands of dollars at minimum in interest, because you’re paying off the loan much faster. Generally, those who go with fifteen year fixed rate mortgages save around $100,000 more in interest costs than those who go with thirty year fixed rate mortgages. That’s a ton of money! The national average for a fifteen year fixed rate mortgage is 4.15 percent. This route may not be right for everyone, much like considering an adjustable rate mortgage, but if it’s right for you, it’s going to be hugely beneficial to your finances. 
 
Lock In Your Rate
The closing process can take way longer than you thought it would. Sometimes it can take weeks, or, at worst, months. While this is not the usual experience of those buying a home, or even common place, it can happen. After you sign your home purchase agreement and you have secured your loan, make absolutely sure you ask your lender to lock in your rate. Sometimes there is a fee involved with doing this, but it is well worth it. The fee will pay for itself if rates rise – because your rate won’t budge one inch. You can typically lock in your promised mortgage rate for any amount of time, but the longer you ask for the rate to be locked in for, the more you’ll pay for the fee we mentioned. You must make sure that the cost of the fee does not outweigh the money you’ll save by locking in your rate, so be sure that you do a little research and forecasting for the near future of mortgage rates before you decide how long you wish to lock in your rate for. 
 
Ensuring that your mortgage rate is low is one of the best things you can do to ensure that your monthly home payments remain low and manageable over a long period of time. It can save you anywhere from a few thousand to a hundred thousand dollars over the life of your mortgage loan – and that’s unquestionably worth it. Taking these steps can be a great start to that process. Make sure the terms and conditions of your mortgage loan meet your needs and that you have set yourself up to ace the mortgage application process.

Why It’s Better to Buy Than Rent

To rent, or to buy? This is the question that follows many adults in this day and age, and it’s a good one to ask. Is renting cheaper? Does buying call for too many pre-requisites and responsibilities to sign up for? Does renting rob a person of the joy of having a home to call their own? Is a mortgage worth it? Should you rent or buy your next home? It’s a legitimate question that is important to ask, and you should educate yourself on which route is the best. We know the answer, and if you continue with this article, you will too! 
 
Point #1:
Renters are at the mercy of their landlords. This is simply fact! A renter cannot make updates or changes to the home, and if the appliances or the building is outdated, there is not much they can do about it. Large remodeling projects are forbidden, and the local economy’s influence on their landlord plays the biggest role in their monthly housing payments – not a country wide market rate that is the same for everyone. Therefore, someone in a big city could be paying more than 10 times the amount of a person who lives in the country – for the same size rental property – simply because the landlord decided that it should be so. A landlord can also decide at nearly any time that their tenant is going to be subject to a rent hike – and there isn’t much the tenant can do about it but move into a different rental property. 
 
Point #2:
The Urban Institute has recently found that renters deal with greater money uncertainties than homeowners. Typically, a homeowner will have a fixed rate mortgage, meaning that their housing costs are the same almost every single month, and therefore quite simple to forecast. As we mentioned previously, renters are at the financial mercy of their landlords, who can raise the rent at virtually any time. It has been found that more renters than owners lack confidence in being able to save a mere $400 to cover an emergency expense – over 10% more. It has also been found that renters are more likely than home owners to have problems paying for housing, food, medical needs, or utilities. Freddie Mac reveals that two out of three renters found it difficult and stressful to pay their monthly bills over the last two years. With the way the rental market changes and fluctuates, it is no surprise that homeowners typically have a much easier time forecasting their finances – they have a set rate that never changes! 
 
Point #3:
Buying can help you build equity. Putting money down to pay for your home rather than paying rent is the same as investing money in an asset. The asset is what builds you equity (the difference between the value of the home and the value of the mortgage). As you pay your mortgage, you increase your equity in the property. If you are paying rent, you don’t build equity with every payment. Really, you don’t build anything. There is absolutely no negligible reward or achievement gained from paying rent – even if it is dutifully paid in full and on time every single month. 
 
Point #4: 
Eventually, you don’t have to make payments anymore. When you pay off your house, that’s it – you no longer have monthly housing costs to pay. When that happens, your overall monthly bill total is going to plummet. When you rent… Well, you never stop paying rent for the entire time you live at the rental property. There is never a “finish line” when you rent as there is when you buy. Eventually, buying a home will save you money. There is no question about it. Another thing to think about that is in this same vein: When you put down a down payment on a home, you pay only a portion of the home’s value but still get to access 100% of the home. When you rent, you pay the full amount every month for access to the home, and almost always have to offer multiple fees up front – the first month’s rent, a deposit, a cleaning fee, a pet deposit, the last month’s rent, application fees, processing fees…. and not a penny of it benefits the renter. It is one hundred percent profit for the landlord. /
 
Point #5:
Homeowners are allowed to deduct mortgage interest and property taxes when they file their tax returns every year. Yes, we’re serious! Renters get no tax deductions. For example, on a $300,000 home, owners typically receive up to (the equivalent of) $335 per month in tax deductions. To apply this to an average monthly mortgage cost of $1,731, you would be left with a total monthly mortgage cost of $1,396. That’s a huge difference, can make a big dent in your monthly expenses, and it is certainly a perk that renters simply do not have access to! This significant savings from tax benefits can often make owning your home much cheaper than renting – especially when you pair your savings from tax deductions with your savings from having your monthly mortgage cost remain the same every month instead of being at the whim of local market rates. 
 
Point #6:
The entire portion of a renter’s monthly payment goes to the landlord – always, and no matter who you rent from. There is no benefit to the renter at all in this situation, and absolutely zero return on the renter’s sizeable investment in monthly rent costs. When a homeowner makes their mortgage payment every month, however, a large portion of that payment is paying down the loan’s principal each month, giving the owner more equity in their home – and therefore, a return on their investment. The loan pay-down each month is required as part of the mortgage agreement, of course, and there is no getting around it – but instead of that money going towards another person, it goes towards an investment by the owner into their own home – almost like forced savings that benefit the owner. In the end, the financial situation of the homeowner is better off than the financial situation of the renter, simply because renting a home is profitable for the landlord, and buying a home is profitable for the home buyer. 
 
Point #7:
Stability is something that most adults crave – even subconsciously. When you own your property, it belongs to you, outright, until you choose to sell it. The only way you can legally be forced to leave a home that you own is if you stop making payments on the mortgage and the house goes into foreclosure. If you have found the perfect home in the perfect neighborhood, this can be great news. However, if you are a renter, you could be subject to being asked to leave the property within 30 days, at nearly any time – whether the reason is fair or not. It is not uncommon at all for landlords to sell rental properties to other landlords, and for the new landlord to then immediately evict the tenant or tenants so that they can totally remodel the building(s) and then start over with new tenants of their choosing. You simply have less stability when renting, and more security when buying. This can mean keeping your kids in the same school district, ensuring that your commute remains the same, and enabling you to not have to travel to access your local grocery stores, libraries, gyms, or friends. Some people would simply state that they don’t mind occasional changes of pace – but wouldn’t you rather know that your living situation is one hundred percent up to you, and not the whims of your landlord? 
 
We’ve seen here that it’s a simple answer: Buying a home is a much better financial prospect than renting one. But what can you do if you can’t afford the large down payment that is required when buying a home – or if your credit is not good enough to pass the loan application overview by the underwriter? Well, the simple answer is that help is out there. There are programs in place (both by lenders and the federal government) meant to help prospective home buyers by forgiving percentages of their down payments, their low credit scores, or their self-employment. There are lenders that will custom design a mortgage for their prospective home buyers with trickier circumstances, and government designed loan programs that are tailor made for those with issues that otherwise would stop the mortgage process in it’s tracks. 
 
No matter what situation you are in or how troublesome your finances have become, you must always work towards buying a house – even if you can’t buy one right now. Work on your credit, pay off your debt, or move to a business industry with more promising work – whatever you have to do to start preparing your financial health for buying a home. Like we discussed above – it’s surely worth it!

What Is a Reverse Mortgage and How Does It Work?

Sometimes, those in retirement can become stressed about where their money is going to come from. When a person is looking for extra income during the retirement phase of life, they may consider a reverse mortgage. This can be a great way for seniors and retirees to solve that problem quickly! 
We all know about regular mortgages – you find the house of your dreams with your real estate agent, apply for the loan to buy it, and, if accepted, pay back the loan over, typically, 15 or 30 years plus interest. But what is a reverse mortgage? Don’t take it literally – a reverse mortgage is not where you give the loan for someone else to buy a home! When someone takes out a reverse mortgage, the money comes from the equity built up on the home so far. You are basically borrowing back money you’ve paid into your original mortgage loan. 
 
What is a reverse mortgage? 
The official definition of a reverse mortgage is  a mortgage loan, usually secured by a residential property, that enables the borrower to access the unencumbered value of the property. The withdrawn equity is turned into cash and handed to the home owner, a line of credit for the homeowner to use at their will, or a scheduled income stream (usually monthly) – typically the homeowner will live off of these funds during retirement in place of a retirement fund. The loans are typically promoted to older homeowners and usually do not require monthly mortgage payments, but borrowers are still responsible for property taxes and homeowner’s insurance. 
 
Reverse mortgages are meant to allow elderly people to access their long-time home’s equity that they have built up over the life of their loan so far. The home is used as collateral. The payments on the loan are deferred until they pass, sell, or move out of the home – and since there are no required mortgage payments on a reverse mortgage, the interest is added to the loan balance every month. The borrower is typically not required to repay any additional loan balance in excess of the appraised value of the home. In Canada, the loan balance cannot exceed the fair market value of the home by law. 
 
You can use the money from a reverse mortgage however you like, but typically, people use them for debt consolidation, living expenses after retirement, home improvements, helping children with college, or buying another home that will better meet your needs as you age. 
 
What are the benefits of a reverse mortgage?
Your heirs won’t have to repay the loan! In your absence, your heirs can sell the home to cover the debt. They also have the option of paying off the debt to keep the home. Reverse mortgage incomes are often tax free, as well. This is another big plus. You are not required to sell your home, down size, or move to a different part of town. 
The loan gives you a lot of financial freedom. You can use the money from your reverse mortgage however you want to. There are no rules for how it must be spent or when it is allowed to be spent. 
You remain the owner of your home. A common misconception of reverse mortgages is that the lender will take ownership of your home – this is not true. You maintain ownership of your home as long as you comply with the terms of your loan and pay your property taxes and homeowner’s insurance. 
You are protected, even if the housing market declines! Your reverse mortgage is insured by the government, which means ultra high levels of security. If your loan ever surpasses the value of your home, government insurance will cover the difference, meaning the loan will be paid in full using only the money that your home sold for, and nothing additional.
 
Are there any downsides to a reverse mortgage? 
Perhaps, but they’re largely conditional. If you ever want to leave your home, you must pay up on your reverse mortgage loan – in full. Sometimes, due to circumstances out of the homeowner’s control, the amount they are offered for a reverse mortgage loan is less than what they wished for or anticipated. The interest on reverse mortgage loans can sometimes be a little higher than the interest on a regular mortgage loan, but this largely depends on the state of the housing market at the time the homeowner inquires about the reverse mortgage. It can also seem complicated if one is not well educated in how a reverse mortgage works. With a traditional mortgage, you borrow money up front and repay the loan over time. With a reverse mortgage, you accumulate the loan over time and repayment is only due when you no longer live in the home. There is also no tricking your lender in a reverse mortgage situation – if you are found to have your primary residence in a home other than the one you took out a reverse mortgage on, you may be subject to foreclosure. Sometimes, your loan terms may indicate that you can set up a primary residence elsewhere for short periods of time (think a long vacation, or for those who “winter” in warmer places), but this can be uncommon if not directly requested by the homeowner during the reverse mortgage loan process. 
 
What are the different kinds of reverse mortgages? 
There are two different kinds of reverse mortgages – fixed rate and adjustable rate mortgages. Sounds familiar? It should! That’s how regular mortgages work. Things are almost the same between the two types of mortgages. A fixed rate reverse mortgage consists of a one-time, lump sum cash payment to the home owner. But adjustable rate mortgages get a little bit more complicated. There are five options for adjustable rate reverse mortgage. They include tenure, term, line of credit, modified tenure, and modified term. 
 
Tenure reserve mortgages set monthly payments to the homeowner, as long as they or their eligible spouse remain in the home. Term reverse mortgages set monthly payments to the homeowner for a fixed period. Line of credit reverse mortgages offer the homeowner unspecified payments when the homeowner needs them, until they have exhausted their max funds. Modified tenure reverse mortgages offer the homeowner a line of credit and set monthly payments for as long as the homeowner and their eligible spouse live in the home. Modified term reverse mortgages offer the homeowner a line of credit and set monthly payments for a fixed period of the homeowner’s qchoosing. 
 
Who benefits from a reverse mortgage?
To apply for a reverse mortgage, you must be 62 years old or older. If you have a spouse, they must be named on the loan even if he or she is not a co-borrower. You both must live in the home as a primary residence. You may not have any delinquent federal debts. You must own your home outright, or have a considerable amount of equity in the home. You must attend a mandatory counseling session with a home equity conversion mortgage counselor that is approved by the Department of Housing and Urban Development. Your home must meet all FHA property standards and flood requirements. You must also be willing to agree to continue paying all property taxes, homeowners insurance, and other household maintenance fees, as long as you or your eligible spouse lives in the home. 
 
How does one get a reverse mortgage?
There are many places that one could get a reverse mortgage, but many major international banks, such as Wells Fargo or Chase, do not offer them. You will speak with a lender and they will calculate the combination of many factors, such as what amount of equity is already built up in your home, your age and your spouse’s age, the age of your property, and your current income to decide how much they can lend to you. You go through a closing type process, similar to when you take out a regular mortgage, and then receive your lump sum of cash, begin receiving your scheduled payments, or gain access to your line of credit. 
 
What else should I know about reverse mortgages? 
When you are in the process of getting a reverse mortgage, your lender will check your credit history, verify your monthly income versus your monthly financial obligations, and also order an appraisal on your home. It is highly recommended to wait until at least retirement to obtain a reverse mortgage, lest you run out of money too early into retirement. Nearly all reverse mortgages are originally issued as home equity conversion mortgages by the Federal Housing Administration – which comes with strict borrowing guidelines and, usually, a loan limit. There are closing costs, just like with a regular mortgage, and they do tend to be a little costlier than with regular mortgages. Receiving income from a reverse mortgage might affect your eligibility for various other retirement benefits, so be sure that you make a mention of your reverse mortgage if you are interested in other retirement benefits.

Important Questions to Ask Your Mortgage Professional

Mortgages are complicated, and it’s important that all of your questions are answered in a way that’s clear and concise. Your mortgage lender or broker is there for you when you have a question, but what happens when you don’t know what to ask? We’ve got you covered! Here are the most important questions you can possibly ask your mortgage professional.
How Does a Mortgage Work?
This sounds like an obvious question – but do you really know? And if you think you know, are you sure you’re right? It’s important that you don’t just know the general concept of how a mortgage works, but also the smaller details of it, such as what documents you can expect to have to offer and what APR is.
What Types of Loans Do I Qualify For, and Which is Right For Me?
You may qualify for more than one type of loan, and you need to know all the details of each one – even the most minute fine print! You need to know whether the rates of each are fixed or adjustable, as well as the interest rate, term lengths, and more for each loan type. You may qualify for a special type of loan, such as one that is government backed or one that is specially designed for those with credit troubles or low down payment savings.
What Does My Monthly Mortgage Payment Include?
There’s more to it than just the repayment of principal and interest! If you put down less than 20% on your down payment, you are required to pay what is called “Private Mortgage Insurance”. What you pay monthly will also differ if you have an escrow account for your taxes and insurance or not. At minimum, your monthly payment will include principal and interest, but there are other factors you must consider. Your mortgage professional will be able to lay everything out for you.
Is Down Payment Assistance Available?
If you want to avoid being forced to pay Private Mortgage Insurance, but weren’t able to gather up 20% to put down, you can ask about down payment assistance. Some lenders accept down payment grants, and if you need them, it’s worth asking about. If you don’t know who to contact about down payment assistance, your mortgage professionals should be able to guide you towards where you can find the grants.
What is the Loan Estimate?
You are required to receive a document from your potential mortgage lender within three business days of your completed loan application submission that states a breakdown of the costs associated with your loan, including closing costs. This breakdown is just an estimate, but it will give you a better idea of what to expect. Don’t be intimidated about asking the lender to clarify certain expected charges, or to further break down your loan estimate.
Do You Offer Rate Locks?
Rate locks can be a great thing during the mortgage loan process. Rate locks allow you to “freeze” or “lock in” your interest rate for a period of time before closing, so you can protect yourself from market fluctuations. Rate locks are commonly offered, but there are only certain times that you are allowed to use them. Some lenders allow rates to be locked for up to 90 days, and some only allow rates to be locked for up to 30 days. Also consider that most lenders will rate match – if, after the rate lock period is over, market rate on interest has gone down, so too will your rate. If the market rate on interest has risen, your rate will not also rise.
Do You Handle Underwriting In-House?
When you have sent in all of your loan application information and relevant documents, the underwriter will verify that information and make sure you qualify for the loan you are asking for. Sometimes, mortgage lenders work in the same office as their underwriter. This is not a requirement, but it can make the loan process proceed faster if everything is handled in house. You can also ask what to expect during the underwriting process, whether the underwriting is handled in house or out of house.
What is Your Loan Processing Time?
Some lenders have a goal time that they aim to process loans in. Others will tell you that it takes as long as it takes. Either way, it’s worth asking! Depending on which loan type you need and how much assistance you’ve taken out, as well as how ready you were to take out a loan, your processing time could take longer or not long at all. Once your mortgage professionals have the information they need, it’s fair to ask how long they expect the loan to take to process. From the mortgage lender’s point of view, they want to process your loan as quickly as possible, enabling them to be able to move onto helping the next borrower – so that is in your favor!
What Happens if my Appraisal Comes in Low?
You should know what to expect if your appraisal comes in low. A low appraisal can affect how much a mortgage company is willing to loan you and how much you are going to have to pay all by yourself, on top of your down payment. For example, if the home you want is being sold for $100,000 but the appraisal only totaled $75,000 it is likely that your mortgage lender is only going to loan you the $75,000 and the other $25,000 is on you to come up with. In this case, you can usually renegotiate with the seller to try and close the cap between selling price and appraisal price.
Will You Sell My Loan?
We bet you didn’t know that this was possible. Sometimes nowadays, it’s almost expected. The answer to this is likely yes, and it may not be a bad thing for you. In the old days, you would stick with the same lender over the life of your loan. Now, your original lender may sell your loan to a major mortgage investor. However, this doesn’t mean that your connection to your original lender has been severed. Knowing your loan’s new manager is important, though, because if you ever need payment delay or assistance, you’ll have to call them instead.
What Do I Need to Prepare for Closing Time?
This is important – You don’t want to mess things up during closing time when you’re almost home-free, so make sure that you are perfectly clear on what to expect from and what to have prepared for closing time. Sometimes you are only required to bring your cashier’s check for closing costs and your government issued identification, but other times there are certain miscellaneous things you must have with you.
Will You Communicate With Me After Closing?
Another important question is how often you can expect to communicate with your mortgage lender after closing time. They should still be willing to check in with you and make sure you’re doing well financially after you obtain your mortgage and move into your new home – typically two or three times per year over the life of your loan. Communication with your lender after closing allows you to get your questions answered and to make sure your current mortgage is still beneficial to your long term financial goals and dreams.
Are You Doing A Hard or Soft Credit Check?
The short of it is that a “soft” credit check does not show up on your credit history, but a “hard” credit check will. You have the right to know when a hard credit check is going to be performed on you, and it must happen when you are getting a mortgage. Lenders need to do a hard credit check to give a more firm interest rate quote. If you’re shopping with more than one lender, try to time everything so that these hard credit checks happen all around the same time – within about a week or so total – so that the impact on your credit score is smaller.
The amount of these questions may seem staggering, but you have the right to answers – especially when you’re signing up for the biggest financial agreement of your entire life. Don’t worry, your mortgage professionals are happy to answer every question you have. That’s part of their jobs! It is your responsibility to make sure you know all of the details as far as your mortgage goes – try to become as educated as the mortgage professionals themselves! It can save you a lot of pain and stress later, because you are now stuck in an issue that could have been avoided if you had just asked for some clarification before closing time. If you were stumped on what is appropriate to ask your mortgage professionals, hopefully this condensed list helps, but remember that this is not a complete list of what you should ask. Do your research to make sure there is nothing else you need an explanation for!

Picking the Right Mortgage – It’s Easier Than You Think

Picking the right mortgage is a big deal. After all, you’ll have it for the next 15 or 30 years. You want to make sure you get this decision right. If this is not your first mortgage, you may have some of an idea what to expect and of how to determine a mortgage based on your needs and requirements. If this is your first mortgage, have no fear! Things may seem quite complicated and you might not know where to go or what to choose. Don’t worry – Today we’ll be discussing the three most important factors of deciding if a certain mortgage is right for you. You will leave this article feeling much more confident in your decisions. 
 
What To Look For In a Mortgage
Do you need an assistance program such as a first time home buyer’s program or a program for those with a low down payment or low credit? Some lenders and government headed finance agencies offer these assistance programs. If you need one, make sure that you get a mortgage that offers it. Government loans generally offer more relaxed qualification requirements anyway, so if you just need a little boost, you may direct your search in that direction. 
 
Look for low interest rates, of course. You can use online rate comparison tools to see current interest rates from multiple different lenders. Compare annual percentage rates, or APR, as well. This will give you a more complete picture of what you’ll pay over the loan term. Also compare application fees, appraisal fees, title and loan origination fees, and closing costs. Don’t sign anything before each of those numbers has been explained to you and you are comfortable with each of them – there are tons of details involved with a  mortgage and one missed could mean thousands more dollars paid into your loan. Ask for a lot of clarification! 
 
Look for a mortgage with an agreeable term length. A short term mortgage will cost you less over time, but more up front and more per month. A long term mortgage will cost you more over time but less per month, and likely less up front. Which is best for you depends completely on your financial situation, but you must do your research on both options. Your lender can compare term lengths with you to show you how much, estimated, you would pay per month with each choice. When choosing the length of your term, also consider if you plan on moving in the next ten years as well as if you want to have the same payment for a longer period of time.  
 
Another thing you should look for is a mortgage with your preference in rates – fixed or variable. Fixed rates stay the same for the entire term. Variable rates change on an agreed upon schedule, and can go up or down. When you decide which type of rate is best for you, remember that the rise and fall of interest rates is hard to predict, and consider how much of an increase in mortgage payments you could afford if interest rates rise. If the idea of your interest rates skyrocketing stresses you out, perhaps consider a fixed rate mortgage. This type of mortgage will be better for you if you want to know in advance what your monthly payment will be, or if you expect interest rates to rise over the term of your mortgage. Whichever rate type you decide is best for you, make sure your loan type offers it. 
 
What Type of Mortgage Loan is Best for Me
The first thing you need to do here is assess your situation. What is your credit score and history? This is arguably one of the most important numbers involved when getting a mortgage. Consider your financial well being and try to forecast your financial future. Also consider your life plans – will you stay in this house for the rest of your life, or do you want to flip it and re-sell? What loan types do you qualify for? What interest rate types do you prefer? Once you have the answer to all of these questions, you will have an easier time determining which type of mortgage loan is best for your situation. If you are stuck on any of the questions above, your broker or lender should be able to help you out. 
 
Mortgages are like finger prints. Every one is unique. Just because a certain type of mortgage loan worked for your friends or your parents, it may not work for you – at all. Your financial situation is different than theirs, and requires different amenities from a mortgage loan program. A loan program one person uses may even be completely unavailable to another person. Your lending advisor will help you make the right call. 
 
Consider these factors when you are speaking with your lending advisor: Which loan has the lowest monthly payment? Which option requires the least amount of money up front, and do the lower payments now equal larger payments later? What option will cost me less over time? How does my income affect the loan programs for which I am eligible?
 
There are no bad mortgage loans, only mortgage loans that aren’t right for some people. You and your lender will work out which loan program is your best choice to help you reach your goal of owning a home affordably and comfortably.
 
How to Choose a Mortgage Lender
Request quotes from multiple lenders – not just one or two. This costs you nothing and doesn’t hurt your credit score. Pay attention to more than just the interest rate. Look at the annual percentage rate, origination fees, and other fees they may require. Don’t hesitate to ask a lender to “price match” another lender or to ask them about any fees that seem duplicitous or confusing. You have the right to negotiate and to ask questions. Be sure you are clear and comfortable with all the terms you must agree to.
 
Look for a mortgage lender who offers free pre-qualification. A pre-approval letter will assist you in staying on budget and tells sellers that you can get a loan and were responsible enough to take the extra step. Pre-qualification will not ding your credit score and requires less information given on your part to determine your pre-approval amount than if you went through with the mortgage. Once you get your pre-approval letter with your loan estimate, you can then agree to move forward with this specific lender or not – so getting pre-approved is not a promise that you will work with a certain lender. Any lender you go with should offer pre-qualification. 
 
Never immediately sign with the first lender you come into contact with. You must always compare your options. Sure, the first lender you meet given may sound fantastic, but there may be an even better one around the corner. You can ask family and friends for recommendations, and then take a look at online reviews that can help you compare customer experiences. Besides getting a good rate, you want to choose a lender that has great customer service. You want a lender who is prompt to respond, friendly and educated, willing to assist, and honest.
 
Use the two qualifications of “great rates” and “stellar customer service” to make a short list of mortgage lenders for you to choose from. Get pre-approved with all of them – it’s free and will give you a better picture of what working with each lender will be like. After that, make your decision of which lender you will go with. Highly trained and experienced lenders will be able to help you get great rates and choose the best financing options. They will be passionate about what they do and you should feel comfortable asking them for clarification on anything that happens during the loan process that confuses you. 
 
Another thing you should do is ask each lender for their specific experience with the type of loan you are looking for. Your lender should have a lot of experience with situations similar to yours. It pays to ask each of your potential lenders this question as it is another way to let you know if the lender you are in contact with is wrong for you. You’ll be working closely with them, so you want them to know what you need. 
 
Getting a mortgage loan is a lot of work and can be confusing, especially for first time buyers. One thing a buyer can do to help themselves when getting a mortgage is to make sure they understand the options and features of each lender available to you as well as each program they offer their clients. Your mortgage professional will also be able to assist you in choosing which loan style best fits your needs. Choosing what type of mortgage is best for you can be easy and fun, especially if you know what to expect.