A mortgage is how most consumers acquire the cash to purchase homes. You secure the mortgage with the property you purchase, you usually repay a combination of interest and principal until the balance is zero. After that, you own the home outright or you can refinance and take the wealth you have accrued. As the borrower, you enter a contract with a bank or finance company that lends you the money. The lender has a right to the title of the home if you do not make your scheduled repayments.

Every state has laws and regulations governing how to deal with this kind of contract. Technically, your home loan is either a mortgage or a non-judicial trust deed certificate with a simplified path to foreclosure. Whether you sign a mortgage or a trust deed depends on your state. The documents for the title to your home and your mortgage are both included in your state’s public record.

These Are The Mortgage Basics

Home Loan Approval – Your lender advances the principal of the loan based on an assessment of your credit reports and the verified value and condition of the property. Your credit history and other factors in the policies of the bank determine the interest rate that you pay. Conventional home loans are either fifteen or thirty-year terms of monthly payments.

Your Equity – The value of the property that is greater than the mortgage is your share. Equity is your deposit and the principal that you pay during the term.

The Deposit – Lenders want at least twenty percent as a deposit or insurance and third party guarantees. Government programs guarantee loans with small deposits; you have to pay an insurance premium on low deposit loans

Escrow and Closing – There will be fees for loan origination and third-party services that confirm the quality of that you either pay when you close on the home or which will add to the balance of your loan. You will purchase title insurance against any claims by previous owners or their heirs.

How it works – The funds go from the lender to the seller via the escrow or title company along with your deposit contribution. You have set payments that pay interest on the balance you owe and a small amount to repaying the principal of

When you start paying a new mortgage the interest takes most of the payment, only a small part contributes to your repayment of principal. As time goes by, your principal accumulates as equity; the interest becomes a smaller fraction, and you repay more principal each month. Toward the end of the term, you are paying mostly principal, and the balance diminishes until there is no more interest to pay and you are done.

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The Start Of An Investment Portfolio

When you take on landlord responsibilities, you move from the mindset of a consumer to being an investor. Owning investment real estate will improve your economic standing in the long term. Eventually, you will have the experience and assets to build a rental property portfolio that will generate income.

Moving out to a second residence is less expensive than remaining and buying a rental property. If you purchase an investment property with the intent of putting in a tenant it changes how banks see you. Your lender will have different lending criteria that qualify you for a mortgage.

Qualifying For A Second Home Loan

This strategy of buying a second home and renting out the first revolves around one precondition critical factor; coming up with the funds to do it. If you have the cash to buy the second home, you’re in great shape as sellers love cash buyers and you will be in an exceptional position to negotiate the deal that you want.

Most consumers do not have the necessary cash to buy a second home on hand, however and you will have to begin the qualification process with an existing mortgage that skews the debt-to-income calculation against you. If you have experience managing properties and a lease agreement in place, you will be able to count some of the rental receipts as income.

When you enter the investment property realm for the first time, you will need to qualify for a loan on the second home. Be careful that you don’t undermine your plans inadvertently. For example, you might trigger an acceleration clause that makes the balance on the first home due immediately.

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Buy A Second Home And Become An Investor

For homeowners who can purchase a second home, this is an excellent opportunity. If you have a high income about your present borrowing, then this may be a pathway to an investment portfolio. Starting with a single property that you know intimately is an advantage while you learn how to manage a property. There are tax advantages to rental properties, such as depreciation and 1031 sales.

As with all real estate transactions, build a relationship with a local broker or Realtor who understands your objectives. Find a tax professional and do the research to be confident in your decision. If you can get that first rental paycheck, you may find that, when you buy a second home and rent out the first, it signifies the start of a prosperous new phase of your life.

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When real estate holdings transfer from a seller to a buyer, earnest money deposits get the ball rolling, they’re the good faith payment that says the purchaser means business. Earnest money deposits are typically 1% – 2% the sale value but can vary depending on the specifics of the home and region.

The law of contracts and the principle of caveat emptor govern real estate, which means be careful and don’t believe anything until you get it in writing. For sellers, that means you don’t do a deal until you’ve got a signed contract. You need to confirm that the buyer has deposited the earnest money into the appropriate escrow account.

Lenders And Sellers Understand Deposits Differently

Don’t confuse the earnest money with the deposit your bank wants you to put down. Your earnest money locks the seller into the sales contract. Although this payment contributes to your equity and therefore the full deposit, you’ll have to provide additional funds to fulfill the lender’s requirements when you close.

Banks typically expect buyers to provide a deposit a fixed percentage of the sale price depending on the type of mortgage being taken out. It may be possible reduce the deposit with a government-backed loan program such as an FHA loan. If you don’t have the equity, you can also purchase private mortgage insurance for the excessive portion of the loan.

Once you’ve ironed out out the details of the deal and signed the contract, you send a check or wire transfer to escrow for all or part of the agreed earnest money deposit. The amount you agree to put down depends on what was negotiated. If the seller has other offers, your realtor may advise you to provide a larger sum as earnest money than you would if no one else is bidding.

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Getting Your Funds Back When Agreements Fall Through

As the buyer, you are making a serious commitment and parting with funds when your realtor posts the deposit. Real estate transactions can be suspenseful, with the potential that even a simple deal can fall through.

Here are the three most likely outcomes when a deal doesn’t go through:

• If the seller pulls out of the deal, then the buyer should to get the funds back
• The purchaser changes their mind and cancel the transaction; they’re probably not getting the earnest money back
• When it’s the lender that backs out the question is more complicated and may come down to timing
• In any case, you should get advice from your Realtor

Only hand over the deposit when you are sure that you want the home and understand the risks. As with many other aspects of real estate sales, your individual state sets the laws that determine the finer details. Earnest money deposits are no exceptions how states regulate property transactions. Consult your realtor to confirm their personal approach and the process in your state.

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Three Lower Mortgage Payment Options

The place where there may be room for improvement is refinancing your loan. The longer the time since taking out the loan you wish to replace, the more you may be able to save by refinancing.

Leverage Your Equity

You might get lower mortgage payments by taking out a new conventional mortgage. This option requires that you find a lower rate than the original loan or smaller amount due to your previous payments of principal that now have increased your equity.

Alternatively, you might be able to save on the mortgage insurance. If your equity has increased, either by repayments, rising home values or both, you can apply to end your policy, stopping the payments. If you can refinance with equity for a combined smaller payment and without premiums, you will double the savings.

Interest Only

Loans for real estate usually combine repayments of principal and interest on the outstanding balance. Refinancing with a loan that only pays interest every month is a short-term solution at best.

A few lenders may offer an extended period of interest only payments. The down-side is either a future balloon payment or payments of interest and principal.

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Adjustable Rate Mortgages

Another option for lowering monthly payments is an adjustable rate mortgage. The initial fixed period may be as much as five years followed by yearly changes, relative to some index. If interest rates stay low, you pay a lower mortgage payment every month.

Alternate Option: Pay More Now, Pay Less in Interest

Another approach is to pay less interest over the long run. If you have increased your equity and your payments are already low, perhaps you can refinance for a shorter term. So, if you make larger payments over fifteen years instead of thirty, you may get a lower interest rate. The payment will be higher, but you will pay much less over the lifetime of the new loan.

A Final Consideration When Seeking Lower Mortgage Payments

One consideration when you are refinancing a home loan the the reasons mentioned above is that you will have new closing costs associated with the new loan. You want to be sure that the ends justifies the means in terms of costs for a new loan to meet your goals of lowering your monthly payments or lowering your overall interest paid.

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Any offer to purchase a home begins a process that is both formal and potentially chaotic at the same time. That being said, the home buying process goes through stages that are also regular and predictable. State regulations, precedents, and contract law determine how the offer counter-offer process plays out in your region.

Real estate buyers and sellers negotiate the prices and terms that suit them. This back-and-forth exchange of documents between the parties ultimately ends either with or without a sale.

The Tools Of Powerful Negotiation

Buyers who have cash and sellers who have patience are more formidable real estate negotiators. Cash offers have the strongest appeal to selling owners because they remove the greatest element of uncertainty in the transaction, which is whether or not the lender will approve the financing for the deal. Mortgages require time for processing, which raises the risk of any number of surprises or bank objections that delay or disqualify the transaction.

Sellers who have the time to be patient have the advantage, the resources to create charming, move-in ready show homes. Flexibility in receiving payment, the attention and interest of multiple buyers puts the power in the hands of purchasers, assuming their pricing expectations are realistic.

When sellers are impatient to sell, the negotiating power goes to the savvy buyer. When property owners need to dispense with a piece of real estate they are much more likely to acquiesce to the demands of bargain-hunting buyers.

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A Multitude Of Reasons For Counter Offers

Haggling over the price of purchase is not a typical part of daily activities for most consumers. That is why, as a buyer, you look to your real estate agent for the knowledge and experience to make an offer to purchase suit your intention; it might be your best offer or a low-ball offer. What happens next depends on how motivated the sellers are, and whether they have other offers.

The extremes are that the seller will either accept your bid or reject it. Alternatively, if they think they can get a better deal than anything that’s on the table, they may make a counter offer. A counter offer can be for any number of reasons. The most important choice is working with a Realtor; a property professional will organize the sale of your home or find the right one to purchase, often doing both for clients. When you find a property that appeals to you, put in a bid.

Your Options To Respond To A Counter Offer

You can refuse a counter offer and make a counter to their counter offer, but as a buyer, you to be ready with an exact price and the terms that work best for you as being able to act quickly is critical.

Your agent will help you throughout the process and through the offer process, submitting all of the forms that go with the negotiations on your behalf. The flow of offer and counter offer can be fast-paced and exciting, usually resulting in a fairly fast process for sellers and buyers. If you can anticipate objections and counter offer from sellers, you can be a strong negotiator and your offer to purchase will make the adventure of buying your home a rewarding one.

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Your credit history may seem vague and abstract but to banks the numbers and entries are critical pieces of data that determine what type of borrower you are and how trustworthy you are as a creditor. What lenders find in your credit report will determine how they respond when you apply for a mortgage.

As it turns out, the way that you use your credit gives very distinctive clues about you and how you might utilize credit in the future. Your credit card usage also shows how you are likely to behave when you pay a home loan.

If you have credit cards and use them regularly, your behavior is likely to fall into one of three categories. You pay off your cards completely each month, a substantial portion of your balance or just enough to stay in good standing.

Consumer Predictability

In a 2013 study, TransUnion conducted a study that concluded there are three types of credit card payers. The TransUnion Study showed that these categories also indicated the likely future behaviors of borrowers. The study referred to consumers who made full payment monthly as transactors. The term that describes card members who pay only part of the balance or the minimum as revolvers.

By analyzing tens of millions of consumer habits with credit cards, car loans, and mortgage payments, TransUnion found that revolvers have three times the mortgage default rate of transactors.

Using credit cards will build your credit score precisely because the credit agencies want a detailed history of your activity. Charges and payments will show a statistically measurable record that shows the experts how you are likely to behave in the future.

Lenders now use software that includes analytics that discovers information about transactors and revolvers into their lending decisions. This new approach is excellent news for many homebuyers. The metric will raise the number of applicants who win approval for the best terms and lowest interest rates. Borrowers who pay off credit card balances the most quickly will have the best access to home loans.

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Apply For A Mortgage Like A Transactor

So what does this mean for consumers thinking of purchasing a new home or refinancing? Anyone who thinks they might want to buy a home at some point in the future should craft their reportable credit activity accordingly. Become mindful of how you use credit. The earlier you can develop the practice of living within your means, making purchases on a credit card but paying off the balance every month.

Using a credit card sensibly demands self-discipline. The temptation to over-spend will always be there. If you can cope with this challenge, you can enjoy the benefits of the features that credit card companies promote, without the costs of interest payments.

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Getting Pre-Qualified

Begin by taking a detailed look at your personal finances and checking your credit reports. Then it’s time figure out what your budget looks like and what type of down payment you can afford. Fortunately, there are FHA-backed loans with lower down payment requirements plus costs. You may qualify for even better terms if you are a veteran or serving member of the United States military.

Once you know your budget, we can help you understand where credit stands and can help you pre-qualify. Pre-qualifying marks a milestone in home buying because it shows realtors, lenders, and sellers that you’re serious and, in principle, you have the capacity to purchase a home. From this point, you’re beginning the real journey of becoming a home owner.

Getting the pre-qualified and understanding the home buying process can help make the buying process less stressful and more productive.

Understanding the Costs Involved

Owning your home means you make monthly loan payments which include payments toward principal, interest, property tax, and insurance. If you go FHA and make a small down payment, you’ll also pay mortgage insurance premium on the extended loan each month.

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Homeowner association (HOA) Fees

Other fees to be aware of are homeowner association (HOA) fees or condo fees. If you are buying into a community or building that has shared responsibilities you will likely pay HOA fees. HOA covers the cost of maintenance, some utilities, and the property management contract. An HOA fee is a given for condos, if you are purchasing a house, you should still budget a similar amount for the cost of maintenance and repairs and set it aside each month.

Get Ahead of The Game

If you can save for a larger down payment and improve your credit score you may qualify for lower interest rates on your mortgage and have lower monthly payments. Becoming a homeowner will not only free you of endless rent payments, but will help you build equity in a long term asset that can accumulate value over time and help build your credit as you go.

The post Tired of Renting? Maybe It’s Time To Buy Your First Home appeared first on Amerifirst Home Loans, LLC.

Our mortgage professionals can give you FREE loan advice to help you understand the mortgage process.

Wondering which loan is right for you? Not a problem! We can help determine which loan will fit your needs for your home purchase, refinance or debt consolidation needs.

If you have any questions, please contact us or call us!

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As the Real Estate and financial markets continue to move up and down, mortgage rates can also be affected. Since mortgage rates are more closely tied to the bond markets, an up or down move in the stock market may not have the result in mortgage rates that one might expects. In fact, many times the resulting mortgage rate changes are counter-intuitive.

More importantly, rates change daily and they can change quickly. Some mortgage professionals have recently noted that their rate quotes have only had shelf lives of three to four hours before market changes have deemed them inaccurate.

How does a consumer navigate fast changing markets in order to refinance their existing loan or purchase a home with the most favorable terms possible?

1. Plan – Define your needs ahead of time, do not wait until the last minute. This is especially true of home purchases.
2. Consult – Talk to your mortgage professional on a regular basis so they can interpret recent market events to you and communicate how those events can affect you.
3. Execute – When you have defined your needs and have determined that now is the best time to move forward, don’t shop yourself out of a good loan! What does this mean? It is easy to get caught up in shopping for the best rate, but it is not uncommon for home owners to miss locking their loan at a great rate because they are in search of better rates that do not exist or that they do not qualify for. It is important to shop to insure you are getting the best rate possible, but set limits to the number of companies you are going to consider doing business with and be careful of having your credit report needlessly and more times than is necessary!

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