Top Six Down Payment Mistakes

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About to make a down payment on a home? Here’s how to avoid the six most common down payment errors. Deciding how much of a down payment to make on a home is one of the most crucial steps in the mortgage process. The amount you pay up-front is a major factor in determining how much your monthly payments will be, which makes it a decision that could affect you for years to come. Here are six of the most common down payment mistakes home buyers make and advice on how to avoid making them yourself.

Mistake #1: Making too small a down payment
While lenders do offer mortgages with down payments of less than 20 percent of a home’s sale price, these loans require you to pay private mortgage insurance (PMI) — an additional fee tacked on to your monthly payment to help protect the lender in case you should default on your loan.

In addition, low- and no-down-payment loans frequently carry higher interest rates and so can end up costing you considerably more over the life of your loan. Conversely, a down payment greater than 20 percent may earn you a more favorable interest rate if you have a less-than-stellar credit rating.

Mistake #2: Making too large a down payment
While common sense dictates that the more you pay up front, the better off you’ll be, that’s not always the case. One mistake first-time homebuyers sometimes make is using such a large portion of their savings for their down payment that they end up not having enough left over to cover closing costs and other expenditures for their new home.

Mistake #3: Not making a down payment at all
Some lenders offer mortgages that require no down payment but these loans can be risky. Paying no money down puts you in the position of having no equity in the home (i.e. you don’t own any part of it). Should the value of your home fall, there is the risk that you could end up owing more to the lender than your house is worth. This situation could also make it difficult to refinance your mortgage in the future.

A no-down-payment mortgage may be an effective strategy in certain situations. However, you need to be economically responsible and financially sound to be able to handle the inherent risks involved.

No-down-payment loans often come with a higher interest rate than loans with a conventional down payment. As a result, your monthly payments will be higher, leaving you with less money available for bills and emergencies.

Since you’ll be paying less than 20 percent of the home’s purchase price, you will also have to pay PMI or be required to take out a second loan (known as a “piggyback loan”). Each of these options increases the monthly cost of owning the home.

Mistake #4: Paying with unseasoned funds
In most cases, a down payment is a pretty substantial chunk of money, and not everyone has the ready cash to cover it. A gift from a friend or family member can help, but don’t think that just because you’ve come up with the full amount that you’re necessarily in the clear.

All funds — whether they’re gifts from relatives, loans against an investment portfolio or your own savings — that have been in your account for longer than two months are referred to as “seasoned,” meaning that they’re considered your money. If your bank statements indicate a large cash deposit that’s less than two months old, your lender will need to know where those funds came from and whether they’re gifts or loans. Gift-givers may be required to provide a letter to the lender indicating that they are in a financial position to offer the gift. Also, generally speaking, the larger your overall down payment amount, the less concerned the lender will be about where the money is coming from.

The lender wants assurances that the money you’re putting towards your down payment is actually “yours,” since it’s assumed that if you’re investing a significant portion of your own money into the down payment, you’re less likely to default on your loan.

Mistake #5: Neglecting to bring a cashier’s check to closing
Along with figuring out how much of a down payment you should make, you also need to ask your closing agent exactly how much you will be required to pay at closing. It’s not enough to simply bring your personal checkbook to closing. You will a cashier’s check to pay the amount of your down payment and your closing costs. Find out ahead of time exactly what the final total will be and obtain a cashier’s check for that amount.

Mistake #6: Incorrectly assessing your debt comfort level
No one knows better than you how much debt you can handle. Trust your instincts; if you’d rather pay as much as you can at the start and have the benefit of lower monthly payments, don’t let anyone dissuade you from that. The worst thing you can do is lock yourself into a mortgage that ends up costing you more per month than you can comfortably afford to spend.

Michael T. Moulton

Broker-In-Charge/Investor/Realtor

Bee Home Solutions, Inc.

The Creative Realty Firm.

Phone: 704-885-0488

Fax: 704-896-2802

Visit us on the web: www.BeeHomeSolutions.com

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How Much Should You Put as Your Down Payment?

Question: I have been renting the same townhouse for the last six years. My landlord now wants to sell the property and he has asked if I want to buy it. He is offering to sell it to me for $220,000, which I think is a great deal. I have a good salary, good credit and a good savings account. My question is this: How much cash should I use as a down payment and how much of a loan should I apply for? Some people tell me I should put at least 20 percent down to eliminate Private Mortgage Insurance (MI). Others have said I should keep my cash and take the largest loan possible to get the tax deduction. Is there a rule of thumb that I should follow when it comes to a down payment?

Answer: First, congratulations on purchasing your townhouse. Over the long run, your investment of ownership in your dwelling is likely to be very profitable. Remember at the end of the journey, a homeowner pays off his mortgage and owns a house. A renter has zip.

Now, let’s get to your question. Although many experts will say it’s wise for income earning folks to have a large mortgage because of the low rates and tax deduction, it’s not right for everyone. Here are some things to think about:

  • Private Mortgage Insurance (PMI). PMI is a monthly fee that the borrower pays if the first trust loan exceeds 80 percent of the purchase price. Since a lower down payment results in a statistically higher risk to the lender, PMI insures a portion of the loan to reduce the risk to the lender. Thanks to creative lenders, however, a borrower can still put as little as no money down and avoid PMI by taking out two loans. Ask your loan officer about loan packages with no PMI, sometimes called “piggy-back” financing.
  • Monthly payment “comfort level”. This is a very important issue. If you have good credit and income, most lenders will qualify you for a larger loan amount than your would want. The first thing you should do is assess your personal spending and saving habits and try to come up with the maximum mortgage payment that would fit into your budget.
  • Taxes. Understand the benefits of mortgage interest and real estate tax deduction. Since you will own the home, you will be able to deduct all the interest and taxes you pay on the home. Consult a tax expert on these issues, but it’s important to get an idea of how much of a tax break you will receive if you own the home. This will help you decide your mortgage amount.
  • Opportunity costs. Analyze the “opportunity cost” of a large down payment. In other words, if you put down 20 percent, or $44,000, what are you giving up? Is the $44,000 earning a good rate of return? Do you have to sell securities and pay capital gains taxes to liquidate the money? Get an idea of how much it will cost you to put down $44,000.
  • Other debts. Take into consideration other debt you may have. For example, if you are carrying substantial credit card debt, it would probably be better to pay the cards off instead of putting down a large down payment.

Hopefully this is a start in the right direction when determining what mortgage balance you should carry. But as I said, congratulations on purchasing a home.

By Henry Savage
RealtyTimes

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Things You Need to Know to Pass Your Home Inspection

Nearly all buyers will hire a professional home inspector to take a closer look at their new home before closing. In some cases home inspections are done before the home goes under contract.

A home inspection covers several areas and systems within the house, but there are a few that actually worry buyers the most…. Will the roof end up leaking? Is the wiring safe? What about the plumbing? These, and others, are the questions that the buyers looking at your home will seek professional help to answer.

It is important to not wait until inspection day to assess the condition of your home and make necessary home repairs before you sell. Small problems can turn into major issues which could end up costing more in the end and possibly lower your homes value.

In most cases, you can make a reasonable pre-inspection yourself if you know what you’re looking for.

Here are some of the most common items to consider when preparing for your home inspection:

  1. Mold and Mildew
    Mildew stains and odors scare buyers, especially now that toxic black mold is such a hot topic. Chances are you won’t even get an acceptable offer if mold and mildew are present. Even if the mold in your house is the normal variety and not stachybotrys chartarum, it is important that you take care of it immediately. Kill the mold and mildew and fix the source of the problem.
  2. Defective Plumbing
    Defective plumbing can manifest itself in two different ways: leaking, and clogging. A visual inspection can detect leaking, and the inspector will check water pressure by turning on multiple faucets and flushing toilets at the same time. Appliances such as dishwashers and clothes washers may be tested, too. Leaks and clogs will be apparent during these checks. When checking the faucets if the water appears dirty when first turned on, this is a good indication that the pipes are rusting, which can result in severe water quality problems.

    The home inspector may also check the septic system. During one method dyes are flushed and the inspector waits to see if the dye surfaces on the drainfield, indicating a drainage problem.

  3. Damp or Wet Basement or Crawlspaces
    An inspector will check your walls for a powdery white mineral deposit a few inches off the floor, and will look to see if you feel secure enough to store things right on your basement floor. A mildew odor is almost impossible to eliminate, and an inspector will certainly be conscious of it.  The inspector might use a meter to determine how much moisture is present in these spaces, because moisture deteriorates building materials and attracts insects.

    It could cost you a few hundred dollars or several thousand, depending on the problem. You will have to weigh these figures into the calculation of what price you want to net on your home.

  4. Inadequate Wiring & Electrical
    The electrical panel and circuit breaker configuration should be adequate for the needs of the house. A 125 amp electrical panel works for most homes. Individual circuits should not be overloaded. Wire should be copper or aluminum.

    The inspector will look for receptacles with ground fault circuit interrupters (GFI) in bathrooms and kitchens. These receptacles have little test-reset buttons on them. The home inspector will likely make sure the receptacles are what they appear to be, and not “dummies” that aren’t wired to work. Some of the grounded receptacles (with 3-pronged plugs) will be checked too.

  5. Poor Heating & Cooling Systems
    Insufficient insulation, and an inadequate or a poorly functioning heating system, are the most common causes of poor heating. While an adequately clean furnace, without rust on the heat exchanger, usually has life left in it, an inspector will be asking and checking to see if your furnace is over its typical life span of 15-25 yrs. For a forced air gas system, a heat exchanger will come under particular scrutiny since one that is cracked can emit deadly carbon monoxide into the home. These heat exchangers must be replaced if damaged – they cannot be repaired.
  6. Roofing Problems
    Water leakage through the roof can occur for a variety of reasons such as physical deterioration of the asphalt shingles (e.g. curling or splitting), or mechanical damage from a wind storm. When gutters leak and downspouts allow water to run down and through the exterior walls, this external problem becomes a major internal one.
  7. Damp Attic Spaces
    Aside from basement dampness, problems with ventilation, insulation and vapor barriers can cause water, moisture, mold and mildew to form in the attic. This can lead to premature wear of the roof, structure and building materials. The cost to fix this damage could easily run over $2,500.
  8. Rotting Wood
    This can occur in many places (door or window frames, trim, siding, decks and fences). The building inspector will sometimes probe the wood to see if this is present – especially when wood has been freshly painted.
  9. Masonry Work
    Re-bricking can be costly, but, left unattended, these repairs can cause problems with water and moisture penetration into the home which in turn could lead to a chimney being clogged by fallen bricks or even a chimney which falls onto the roof. It can be costly to rebuild a chimney or to have it repainted.
  10. Unsafe or Over-fused Electrical Circuit
    A fire hazard is created when more amperage is drawn on the circuit than was intended. 15 amp circuits are the most common in a typical home, with larger service for large appliances such as stoves and dryers. It can cost several hundred dollars to replace your fuse panel with a circuit panel.
  11. Adequate Security Features
    More than a purchased security system, an inspector will look for the basic safety features that will protect your home such as proper locks on windows and patio doors, dead bolts on the doors, smoke and even carbon monoxide detectors in every bedroom and on every level. Even though pricing will vary, these components will add to your costs. Before purchasing or installing, you should check with your local experts.
  12. Structural/Foundation Problems
    An inspector will certainly investigate the underlying footing and foundation of your home as structural integrity is fundamental to your home.

When you put your home on the market, you don’t want any unpleasant surprises that could cost you the sale of your home. By having an understanding of these problem areas as you walk through your home, you’ll be preparing yourself against potential problems in the selling process.

Before the Inspection
Do everything you can to get the house in good condition before you attempt to sell it, but don’t be discouraged if the inspection report contains negative statements. Home inspectors make note of everything they see. No home is perfect.

Remember that the home inspection report is not a wish-list for buyers. Read your contract carefully–it probably states which systems should be in good working order at closing. For instance, if the roof is older, but doesn’t leak, it is in good working order. If there’s a leak, and fixing just the leak is possible, the roof will be in good working order.

Your contract may also state that you are under no obligation to make any repairs at all–although the buyers can then likely withdraw from the contract. Don’t feel you must comply with unreasonable demands for repairs.

Michael T. Moulton

Broker-In-Charge/Investor/Realtor

Bee Home Solutions, Inc.

The Creative Realty Firm.

Phone: 704-885-0488

Fax: 704-896-2802

Visit us on the web: www.BeeHomeSolutions.com

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What are the different stages of foreclosure, and what do they mean?

I’m interested in buying a home in foreclosure, but I don’t know what the different stages are or what they mean. I’ve seen “notice of default”, “real estate owned”, “notice of foreclosure sale”, and “pre-foreclosure.” Can someone please tell me the stages (from beginning to end) and what that means to me as the potential buyer? Thanks.

By: juicyfruit

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CharlotteForeclosureSolutions.com

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