credit – Purchase, refinance, renovation, reverse, Downpayment assistance, VA, FHA

Seller Buydown (For Buyers)

February 1, 2020February 1, 2020 loansbyjoanna

More Tips and Tricks on the LoansByJoanna Guide

Coming soon: Seller Buydown (For Sellers)

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When you qualify for a home loan, you’re actually qualifying for the monthly payments

We know that for a home buyer, nothing takes priority quite like having an affordable mortgage payment. The price you’ll be approved for depends entirely on both your down payment and the maximum payment for which you qualify. And the most significant factor in determining what that payment will be is your interest rate.

For those buyers who opt to use an interest rate reduction mortgage, your real estate agent will negotiate with the seller to accept a fair price if they will give you credit to permanently reduce, or buydown, your interest rate.

Just a reduction of 0.25% in your interest rate could mean tens of thousands of dollars of interest that you will save over the term of your home loan. And this, of course, can mean the difference between affording your dream home and going with option B.

At the end of the day, this is a win-win situation for both the buyer and the seller of a home.

Using this credit (also known as a seller’s concession) to permanently lower your interest rate will lead to a reduction in your mortgage payment, allowing you to afford a higher sales price while keeping your payments right where you needed them to be all along.

The seller benefits as much as the buyer in that the seller gets the offer they wanted, and your below-market interest rate means a lower total payment— even though you offered a fair purchase price at market value.

You may be thinking, “Why don’t I just ask the seller to reduce the price of the home?”

That’s a great question, and most buyers are going to default to assuming this is the way to go. But using an interest rate reduction mortgage means your offer will stand out from the competition. A higher offer gives you a higher chance of sealing the deal.

Because it’s been established you aren’t trying to take any precious money out of the seller’s pocket (by having to make a lower offer), your far more desirable offer will inevitably stand out from all of the other buyers trying to get the lowest price possible.

While a desperate seller may take a low offer, most sellers are going to take the offer that will allow them to make the most money from the sale. Period.

If your offer keeps your payment where you want it to be while the seller also gets what they want, then everybody wins.

A successful negotiation is when all parties feel like they got the best deal. You get your payment. The seller receives their money. Everybody wins when everybody wins.

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More Tips and Tricks on the LoansByJoanna Guide

Coming soon: Seller Buydown (For Sellers)

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Seller Credits: How They Work, How They Benefit you in the Home Buying Process, How Much you Really End Up Spending on Your New Home?

September 30, 2019September 30, 2019 loansbyjoanna

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Imagine trying to buy a Starbucks Frappuccino and having to separately compute what it costs to make the coffee, to pay for the coffee bean collectors, distribute the inventory, and stock the store. Wouldn’t it be nice if houses came with a bottom-line price tag, from upfront fees to ongoing monthly expenses, so that a buyer could easily compare “all-in” costs?

The costs of buying a home can very quickly add up. After you decide that homeownership is your best bet, you’ll need to convince a lender of that too. That means that your credit is in good shape, you aren’t struggling with debt, and you have a sizeable cushion for expenses that may arise.

For financed deals, in addition to a down payment, you pay loan-acquisition costs and for services used during the escrow process. You may ask the seller to credit you a specified amount at closing to help with many of the expenses.

Homeowners anxious to sell their homes will sometimes entice buyers with seller credits. These credits are a loan option that allows buyers to finance their closing costs and be able to purchase their home with less cash down. The seller concession must be included in the sales contract, and the amount and terms of the credit can be negotiated.

Homeowners anxious to sell their homes will sometimes entice you with seller credits. These credits are a loan option that allows you to finance your closing costs and be able to purchase their home with less cash down. Here are 4 things that you should do (and know) as a buyer:

1.) Review closing costs

To settle the transaction, you and the seller will pay your own share of closing costs including escrow fees, title insurance, and property taxes. The allocation of fees depend on market customs. Buyers are typically required to pay only the fees that are considered customary and reasonable for a particular market, and the seller credit covers fees that fit the description. Lenders cap the amount of fees a seller credit may cover at 3-9% of the loan amount.

2.) Negotiate the terms

If you are the buyer, you and the seller will typically negotiate the terms of a seller credit early in the transaction. You will request an amount, as a percentage or dollar amount, in the offer to purchase. The seller may accept, reject, or counter the seller credit. The seller pays the credit as a lump sum at closing, and limitations to what the credit covers may apply.

3.) Enjoy The Benefits

Seller credits can be beneficial to both sides of the transactions. As a buyer, you may be offered seller credit that can reduce your out-of-pocket expenses at closing. You can even request a seller credit, and increase the sales price to entice a seller to accept. A seller credit allows you to finance your closing costs into the new loan amount, however, your lender must approve the credit, and the value of the home must merit the increase in sale price.

4.) Know The Limitations

Limitations on what the buyer and a seller credit can pay for are placed by lenders. Prohibited items are known as non-allowable fees. If you overestimate our closing costs, a credit surplus may occur. Then, you should renegotiate the sale price for the unused amount so that the seller does not end up with more net proceeds at closing for the unused portion.

Whether the seller markets the home with an offer to credit some of your closing costs, or you request that the seller assists in your offer, the process for applying the credit is generally the same: the amount of the credit is noted in the sales contract as a dollar amount or as a percentage of the offer price, then, it’s added to the offer price.

Because the buyer adds the concession to the offer price, he increases the amount he pays for the home. For example, a buyer who needs $3,000 in concessions for a $100,000 home requests 3 percent seller assist and offers $103,000 for the home. Although the buyer is paying $103,000 for the house, the seller nets only $100,000 – the remaining $3,000 is loan money the buyer applies to his closing costs.

Sellers often feel as though they’re “giving” the buyer the amount of the assist. However, the assist amount is built into the offer price. The buyer is offering the seller $100,000 but asking the lender to originate a loan based on a $103,000 purchase price.

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6 Ways to Take Control of Your Credit

October 12, 2018October 12, 2018 loansbyjoanna

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I know that it can sometimes feel like you have the worst credit out of everyone in your circle. In truth, most people don’t have great credit. In fact, the average score is just 675, which is slightly lower than what most financial experts consider a good score. With student loans still haunting you and collection agencies blowing up your phone, t’s easy to feel like you’re neck in debt and drowning fast. Don’t worry! I’m here to help! Here are 5 great ways to start managing your credit score.

#1 – Learn What Your Credit Score Actually Is

Of course you want to get this credit score taken care of yesterday. However, before we can begin working on your score, you need to know how much debt you’re in exactly and who you owe. It’s important that you also check to see if your debts have been sent to collections or if you have any late payments on your credit report. Request a copy of your report so that you can see exactly where you stand. You can get a free report from each bureau every year from AnnualCreditReport.com.

Then, there are a variety of ways to get both your credit score and your FICO score. You can use free tools like Credit Karma (but sometimes credit card companies might offer a free score as well). After you review your report and score, be sure to follow this guide to disputing errors on your credit report as sometimes errors can account for a low credit scores.

#2 – Beware of identity theft

Once identity thieves have your personal information, they can drain your bank account, run up charges on your credit cards, open new utility accounts, or get medical treatment on your health insurance. In extreme cases, they can file a tax refund in your name and get your refund, or even give your name to the police during an arrest.

The more your credit improves, the more susceptible you are to identity theft, so always be on the lookout. Check your report periodically to make sure that there aren’t any unauthorized accounts in your name. If there is something you don’t recognize or anything strange you notice, contact a reporting agency and have them look at it right away.

#3 – Take Care of that Debt

We all know that high-interest debt can be taxing on both our wallets and our stress level. However, did you know that it can also hurt your credit score? The longer you carry that debt, the more your “utilization ratio” increases which also lowers your credit score.

Sometimes that light at the end of the tunnel is quite dark, but there are several ways to address your debt. Consolidation is one option. Balance transfers is another. However, although both may work for some, the best course of action is one that addresses the debt and gives you a concrete plan to manage your finances more effectively. Look for a Debt Management Program. Do your research and find one that works best for you. As you pay under this program with a concrete plan of action, your credit score can recover at a steady pace.

#4 – Pay Off Anything Keeping You in the Red

Want to pay off your debt fast? The best way to do so is by reworking your budget, trimming unnecessary expenses and boosting your income to free up more cash to put toward what you owe. If you’re paying off debt on your own, without any professional service, then there are two primary ways to get rid of your debt: The first way is to pay off your smallest debts first—which will allow you to eliminate some of that debt quickly and get rid of the stress and anxiety of knowing what to pay first. The second is to pay off your cards and loans with the highest interest rate first—this will save you a significant amount of money long-term, and is most efficient.

#5 – Know That You CAN Request a Higher Credit Limit

This may seem counterproductive, but sometimes a higher credit limit can lower the utilization ratio we talked about before (assuming you won’t be using more credit once you have a higher limit). If you ask to have a higher line of credit, you have to be self-disciplined and avoid using it. This strategy, if used carefully, can help you meet your credit goals and may actually be one of the fastest ways to get the score you want. If you have a higher credit limit and pay your balances down or in full, it can even be more beneficial. Of course, this is up to you, but it’s definitely worth considering.

#6 – Seriously, Stop Stressing!

Having bad credit isn’t the end of the world, and isn’t the end-all be-all to your future and how close you’re able to come to your goals. Millions of Americans are either in considerable debt and/or hold low credit scores, and many of them have been able to pull themselves out of their rut. You can successfully manage your score in no time if you plan correctly, pay down your debt, check for errors, avoid identity theft, and improve your utilization. And remember, I’m always here to help!

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10 Signs You’re Ready to Purchase Your First Home

October 6, 2018October 6, 2018 loansbyjoanna

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We’ve already talked about how to prepare for your first home loan. Like I’ve mentioned before, buying a home will be one of the biggest and most important purchases of your life. That said, it’s important to consider whether it’s the right time for you. Here are 10 signs that may tell you you’re ready to buy into the American dream of owning a home.

#1 You’ve Wiped Out Your Student Loan Debt

First time home buying can be expensive. Being debt-free means that you can now cover your new homeowner expenses, property tax, insurance, and maintenance with that extra cash flow not going toward your debt.

It’s also about knowing yourself. Since you’ve have destroyed those outstanding credit card bills, slayed that disgusting car payment, crushed that horrendous student loan, you have proven to yourself that doing the work that goes into owning a home isn’t an impossible feat. Go you!

#2 You Have a Job (That You Actually Enjoy)

Experts say that you’re more likely to stay at a job that you enjoy doing, though we all know, it doesn’t take an expert to know that. While it’s important that you have a steady income in the present, knowing that you’ll have a steady job in the future, and that what you’re doing now is something you’ll be able to maintain long-term, is validation that you’re ready to make an ownership commitment.

#3 Your Credit Score has “Glowed Up”

You just pulled your credit score and found it strangely high. Can this be right? Has all of your hard work really been paying off? Then, great! Congratulations! This process will be much easier for you.

If you aren’t in this boat, there are steps you can take to change this. Before applying for a mortgage, request a copy of your credit reports — Experian, Equifax, and TransUnion are credit report agencies you can use. You’re entitled to a free credit report from each of the agencies once a year. Review them for inaccuracies or incomplete information. You can also check you credit score (for free) on CreditKarma.com. Then, make your payments on time and pay down your debt. Once you have done this, you’re in a much better position to purchase. Increasing your credit score means that you can now get a better interest rate, enjoy a lower monthly mortgage, and have the financial freedom to own a home.

#4 You Got That Raise You Finally Asked For

A rise in income can make the option to become a homeowner an affordable prospect. With a higher paycheck, you don’t have to put as large of a percentage into your mortgage budget. In fact, you never want to put more than 38-43 percent of your monthly income toward a mortgage payment (some loans go as high as 50%). The extra income can erase your financial vulnerability and make it possible to afford that home.

#5 Your Future Plans Aren’t Up in the Air

Not that you shouldn’t reach for very dream you have, but it’s important to be realistic in how many things you can accomplish at once. If your future goals involve any larger expenses than your new home does, you may want to regroup or determine which goal is most important to you.

Make sure that goals like starting a family, starting a business, or buying a hot air balloon to travel the next two years in, actually align with you owning a home. Having too many ideas can turn into too many expenses and may lower your chances of being able to afford a mortgage payment.

#6 You’re Thinking Long Term

If you’re planning on moving to a new city in a year, or your job likes to move you around from place to place, you may want to consider holding off on the house buying. Buying a house is a massive investment and considering most mortgages are 30 years, a home purchase is meant for the long-term.

I’m not saying that you have to decide to plant your roots firmly in the soil, but it’s definitely not something to take lightly. You should be able to reside in a place for at least five to ten years so as not to lose on your investment. Also consider what the rental market is in your neighborhood. Could you manage any negative rental cashflow if you did need to move? If you have a career that you enjoy, a relationship where you’re both able to stay planted, and kids who are grounded in a school and friends, this could be the perfect time to buy a home.

#7 You Know What You Want (and What You Can Afford)

Here’s the truth. People who get what they want tend to be the people who put in the effort to know what they want. At least, that’s what Oprah says. She calls it steps to the “aha” moment.

Knowing what you want is important because it can help remove some of the emotional stress that home ownership consideration can cause. It’s certainly exciting to fall in love with a home, but it’s crucial to have as much information going in as you can to prepare you for anything and keep you grounded about what you want in a home.

Proportional to knowing what you want, is knowing what you can actually afford. You can budget your mortgage payment, but other factors such as it being close enough to your job, what the neighborhood is like, weather and the wear and tear that could occur are all factors that should be considered when determining what you want.

#8 You Aren’t Struggling for Cashflow & Living Paycheck to Paycheck

Owning a home is not worth not being able to do some of your favorite things. If you can’t eat out once in awhile, go out with friends, take weekend vacations, or spend money on day-to-day items, purchasing a home is probably not something you want to do just yet. In fact, you need to factor in the hidden costs of owning a home. Put away a good amount of savings to ensure that you’ll still be able to take care of yourself before you tackle on the extra financial stress.

#9 You Can Afford that Hefty Down Payment

That savings you put away should be enough to cover your day-to-day and provide the deposit for the down payment. It’s important to meet with a mortgage professional to determine whether a minimum downpayment program will work for you. There are programs that require a minimal down payment (government down payment assistance grants).

Once you understand what you will need to invest in a down payment, there are closing costs and reserves, for your savings and emergency fund, to consider. Once you do, you are ready to buy a house. If you want to put 20 percent down, it can be even more beneficial because you can avoid the PMI (private mortgage insurance)* requirement.

#10 Your Emergency Fund Isn’t Starving

Your emergency fund should not be hungry. Like I said before, there are always hidden, or unexpected costs that come with owning a home, that’s just life. It only makes sense to plan for this with a savings account and emergency backup.

It’s important that you consistently feed your emergency fund before owning a home. In other words, you don’t want to have to rely on a monthly income to cover those unexpected costs–your monthly income has already been calculated and is needed for the mortgage and your day-to-day bills and expenses. Having an income set aside that is the an equivalent of at least a year of monthly bills is a good position to have before buying a house.

If, after reading this, you can still answer “yes” to each of these factors, then congratulations–you may be ready to move on to the next steps of getting prequalified, realtor, and visiting potential homes. However, it’s always a good idea to consider letting a Mortgage Professional help you determine whether you are actually ready to buy. If you have any questions regarding any of the steps above, contact me and I will be happy to help.

**Private Mortgage Insurance: what borrowers have to pay when they take out a mortgage from a commercial lender and pay a down payment of 20 percent or less. PMI insures the mortgage for the lender in the event that the borrower defaults.