Tired of making your landlord rich? Tired of throwing your money away? You see these ads everywhere, but what do they really mean? Is there some conspiracy out there that we should know about? Maybe there are some secrets. Hopefully we can shed some light on these secrets. In this world, there are people who know, people who dont know, and people that dont know they dont know. What category do you fall in? Get the facts on owning your own home. It could possibly save you thousands of dollars. Maybe you should seriously consider owning your own home. After all, it is the American Dream. FACT 1: Qualifying for a mortgage is easier than you think Did you know that qualifying for a mortgage is just as easy as renting? In most cases the same qualifications apply. Of course, there is a great deal more paperwork, but the rules are roughly the same. The only difference is, you are on the hook for the mortgage payments, and not your landlord. You may have to come up with pay-stubs, and W-2s, but you are trying to borrow large sums of money from a bank. The bank wants to make sure you can afford payments. The more money you make, the more you have in the bank, and the better your credit rating all determines your level of credit risk. Whoever makes mortgage payments is possibly eligible for the tax breaks. These tax breaks are significant over the long haul. Im not a tax advisor, but I recommend that you consult one if you are renting and want to own your own home. If you are finding this out for the first time after renting all these years, you may want to give yourself a swift kick in the butt. Set yourself in motion. You may be missing opportunities today. FACT 2: It takes money to borrow money There is a catch-22 when it comes to owning your own home. Most people live paycheck to paycheck, but owning your own home requires that you become good stewards of your money. You need to develop the habit of saving. There are 2 main reasons why. First, you may not be able to get 100% financing on your mortgage, so youll have to make a down payment. Sometimes those down payments are significant. You could pay 10% to 20% down, just to qualify for a home. Second, even if you get 100% financing, you need to show that you have cash reserves of equal to, or greater than 3 months worth of mortgage payments. The minimum in most cases is 3 months because most banks foreclose on homes that miss 3 months of mortgage payments. You see, banks are smarter than you realize, once you miss payments for 90 days they escalate the foreclosure process, which is called forbearance. Forbearance is a place you never want to end up. The bank makes a deal with you to get you caught up on your mortgage payments after youve been behind for 3 months. They will tell you, after you have came up with every legitimate or illegitimate reason why you missed your payments, that you can pay 1 of your current mortgage to get caught up. Once you blow that agreement they start the foreclosure process. Now Im no rocket scientist, but if you couldnt pay your mortgage payments alone, how could you possibly pay 1 of your mortgage payment? I get visions of yard sales and furniture repossessions, while the bankers in black top hats watch with glee. That sounds a little fantastic, but truth be told, banks dont ever want to foreclose. They want to be able to sell your loan on Wall Street for a pretty penny, so it has to perform well. Good loans make the economy grow and the world stay round. FACT 3: Good Credit Scores Does Not a Homeowner Make The credit score is NOT the only factor in determining your qualification. It is a very important indicator, but not the only one. You have a myriad of elements that determine credit worthiness such as: job stability, rental history, debt-to-income ratio (DTI), Loan-To-Value (LTV), Combined Loan-To-Value (CLTV), and Derogatory items on credit report (derogs). All of these items combined have a layering affect on credit worthiness. Credit alone does not guaranty a free ride to homeownership. You must be in tip-top shape to convince a bank that you are credit worthy to own a home. Owning your own home will be the single largest purchase you ever make your whole entire life. To be able to afford a $400,000 house, for example, you need about $50,000 in cash, which assumes a 10% down payment, plus 2.5% closing costs. That $50,000 must be in a savings account for about 2 to 3 months because you will have to prove it with your bank statements. With a 6.50% mortgage your monthly income should be at least $11,000 and your monthly payments on existing debt should not exceed $900. The numbers are estimates mainly because of variations in closing costs, taxes, and insurance. Job stability is very important, too. If you have had 5 jobs in the last 2 years, you may be a credit risk. If you changed career paths in the last 2 years, you may be a credit risk. It is very important that you try to stay in the same industry for the job you currently maintain. In addition, your rental history for the last 2 years is important. The bank wants to know that you have a habit of paying your rent on time. They will verify with your landlord your payment history. If you lived at home with Mom and Dad and paid rent, they will want copies of canceled checks for the last 2 years. Now most of these banking guidelines Ive discussed are based on Fannie Mae and Freddie Mac guidelines for most conventional loans. Keep in mind there are hundreds of loan products that are non-conventional. Non-Conventional loans may have loose guidelines, but their rates are generally higher in most cases. For instance, you can do Stated-Income, No Doc, and No Ratio loans. These loan products are designed to ease up on paperwork, but increase the interest rate. FACT 4: Now is the best time to buy! Since 2001 we have been in a bonanza of low interest rates with residential mortgages. We have seen 30 year fixed rate mortgages plunge as low as 5.00%. Weve seen 3/1 Libor ARMs down to 3.25%. Well, those days are over because analysts predict rates will be as high as 7% by the years end. So act now, do not hesitate. Timing is everything, and now is the time to act. If you fall asleep during this current time in history, you may pay the same rates they paid in the 1980s. Rates climbed as high as 10% to 12% during the oil and gas crisis. Today, we are paying $3 per gallon of gas. Sound familiar? It is almost worth paying for 2-point buy-downs just to keep the rate low on your mortgage. You may never get to own your own home if you procrastinate. Last year around this time, there were bidding wars on properties. Realtors would hold open houses on Sunday, and have a dozen or more contracts by Tuesday. Today, you could under bid by $30,000 to $50,000, and ask the seller to pay closing costs, and probably be the only contract offered on that property. That may sound like a bold statement, but here in the Washington DC metropolitan area you can do that today. Every Sunday around 12:45 p.m. you might see traffic jams around every entrance to a decent subdivision because there are so many properties for sale. Realtors frantically putting those open house signs out in hopes that the market will pick up like last year. I predict that it will not be like last year with gas prices as they are. Like the song says, Times Are A Changing Its a BUYERS MARKET! |
