How to Prepare Yourself for Making a Down Payment

On December 21, 2014   /   Finance  
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save for a down payment

Down payments frustrate a lot of would-be homeowners. Coming up with a large sum of cash can seem impossible, but it doesn’t have to be.

Setting up a savings plan now will help you get the down payment you need and show lenders you’re a responsible borrower.

For Down Payments, Bigger Is Better

Sound financial planning can help you amass a large down payment, which has several benefits:

Make Saving a Habit

Saving for a down payment is tough, but there are some strategies you can use to making saving money a habit—not a chore:

  • Budgeting is important, because if you don’t know where your money goes, you won’t know where you can cut back.
  • Set up a payroll deposit into your savings account or set up an automatic checking-to-savings transfer on payday to make things easier.
  • Consider certificates of deposit (CDs), money market funds and other low- to no-risk savings or investment vehicles to help your savings accumulate faster.

Give Yourself a Boost

Saving for a down payment one paycheck at a time can be frustrating. To help you get there faster, use some of these tricks:

  • Cut back on nonessential spending. Do you really need to pay for Starbucks, name-brand items or subscriptions to magazines and cable TV? There could be many items you can eliminate from your budget, and the savings would be substantial.
  • Reduce your credit card debt to save credit cards for emergencies only.
  • Adjust your tax withholding to make sure you’re not overpaying. It may feel good to get a tax refund in the spring, but that really is a free loan to the government. The money you get back is cash on which you could have been earning interest. The IRS website has a calculator to learn how much in taxes you should have withheld from your income.
  • Liquidate expendable assets. Saving for a home may be just the reason you’ve been looking for to unload stamp, coin, baseball card and comic book collections or other items that are collecting dust in your closets, safe deposit box or storage space.
  • Get another job. If you are already squeezed, consider working retail during the holidays, selling on eBay, taking on freelance work or finding some other source of income solely for the purpose of saving for that down payment.
  • Organize. That’s right: Sell all that stuff you never use that won’t be a good fit for your new home. Clear the clutter—an organized home is a time-saving home, and time is money.

Updated from an earlier version by Broderick Perkins.

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How to Negotiate Your Closing Costs

On August 30, 2014   /   Finance, Mortgage  
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negotiate closing costs

By: Craig Donofrio for Realtor.com

At the end of the home-buying process, you will be faced with closing costs, the fees due at signing required to complete a home sale. Closing costs can be expensive, but some of those fees may be negotiable.

Check the Market Temperature

The nature of the housing market may dictate whether the buyer or the seller picks up various closing costs.

If it’s a buyer’s market—a bit cold and homes aren’t selling well—sellers may be more willing to bargain and take on some closing costs.

If it’s a seller’s market—the market is hot and homes are selling quickly—the seller has the advantage and little incentive to give the buyer a break.

However, you shouldn’t accept any fishy-looking fees without asking first.

Which Closing Costs Are Negotiable?

When you apply for a loan, your lender or mortgage broker must provide a good faith estimate (GFE) of fees due at closing.

This is a very useful tool, but bear in mind these are estimates—not guarantees. Compare the GFE to the final closing costs statement and the HUD-1 settlement statement to look for big differences.

Some fees are generated by third parties and typically don’t change very much, no matter where you find your loan. Then there are additional expenses you can’t control, like taxes and government fees.

Other fees may be junk fees—costs that are put in by the lender to pad out the bill. These fees should be able to be negotiated or waived.

Negotiable fees are generally found in the 800s section of the GFE. They may include the following:

  • Title Insurance: The lender will recommend one, but you don’t need to accept it. You can shop around, compare fees, and go with the one that suits you best. However, you can’t have this waived.
  • Commitment fee: These are just there to make sure you don’t jump to another lender. Ask to have it waived. If you can’t, negotiate that if the loan falls through due to the lender, the fee will not be charged.
  • Application fee: Some loans have an application fee. Ask your lender if they will waive or credit this fee towards closing costs.
  • Miscellaneous fees: Ask exactly what these are for, especially if they are high.
  • Courier and mail fees: With almost everything being digital, your lender should provide evidence these fees were necessary.
  • Discount points: These increase your closing costs but reduce your interest rate. If you have discount points and your closing costs are too high, you may want to eliminate them. Talk it over with your lender and be sure to figure out the new monthly mortgage payments if you do.

Just Ask If You Have Questions

It is your right to question anything on your HUD-1 and GFE documents, so do ask questions if you feel a cost is too high or doesn’t make sense.

Simply asking the lender to explain certain fees might be enough for the lender to waive them, particularly if they were junk fees to begin with.

Don’t Get Intimidated by Closing Costs

Even if your closing costs rise significantly beyond your GFE, you may feel pressured to accept them to avoid losing the home to another buyer.

Don’t!

Many lenders would rather close a deal instead of going through the process again with another buyer. Use that to your advantage and be prepared to walk away from the table.

As you review your closing costs, be your own advocate. It’s a good idea to visit a few different lenders and compare GFEs.

Always make sure you receive a thorough explanation for any fees that seem unusual, unnecessary or just too costly.

Updated from an earlier version by Emmet Pierce.

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Must-Know Info for the Self-Employed Home Buyer

On August 24, 2014   /   Finance, Mortgage  
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happy couple

By: Anne Miller for Realtor.com

In today’s work universe, we are a nation of independent employees, and it’s the “age of the freelancer,” Fortune magazine has declared.

The self-employed workforce should total 40% of the whole by 2020, says another study—that’s 60 million people!

Are you a self-employed home buyer needing a mortgage? Loans can be tricky to get when something as straight-forward-seeming as what you earned last year gets bogged down in a pile of pay stubs from various clients.

Self-Employed Home Buyer Blues

Julie and Michael Kurtz can’t prove it, but they’re pretty sure their independent status delayed their expected home loan approval by a few weeks this summer—which called into question whether they could close on a new condo in Chicago.

Julia is a freelance editor of technical journals, and Michael is an attorney. He also referees high school and college football; she has a shop on the handmade Web portal, Etsy, as well.

Their story has a happy ending, albeit a stressful one—they ended up getting the keys a few days later than originally planned (which also caused some hiccups for the sellers), due to last-minute requests from the bank.

“It would have been better if we’d worked with a loan company where we could have had a personal relationship with the loan officer or broker,” Julia says.

Self-Employed Home Buyer Challenges

Quicken Loans Vice President Bill Banfield notes the unexpected paperwork requests can trip up the prospective self-employed home buyer.

“The challenge for those who are self-employed can be in verifying the legitimacy and stability of their income,” Banfield says.

And new regulations enacted earlier this year mean that the self-employed face even closer scrutiny, according to the New York Times: “Borrowers who have been self-employed for less than two years will find it difficult if not impossible to obtain financing.”

Self-Employed Home Buyer Sticking Points

These are the details that a self-employed home buyer needs to prepare for when seeking a mortgage.

  • Debt-to-income ratios. If your business carries debt and you are the sole proprietor, that could impact how much of a personal loan a bank will extend.
  • Earnings. Freelancers especially often have business deductions that come out of their overall pay. Banfield uses the example of someone who earned $100,000 last year but technically took home only $60,000 after all the business deductions.
  • History. This is the aforementioned “two year” rule. Lenders now want to see you’ve got a somewhat reliable income history, so they know you can make your payments. One year of solopreneurship isn’t much of a history. If you just started out on your own this year, you may want to wait another one before buying.

Self-Employed Home Buyer Tips

Here are some ideas to start you off on the right path when seeking to purchase a home as a self-employed worker.

  • Find good people. Use a mortgage broker and/or underwriter familiar with the challenges of securing loans for the self-employed. We all need someone who can guide us through the process with consistent communication and guide us through the potential paperwork pitfalls.
  • Prepare for paper. You will likely have to submit more paperwork and proofs of income, debt rations and business expenses than someone who is more traditionally employed. Forewarned is forearmed.
  • Drop your debt. That debt-to-income ratio can be a big deal with lenders. Make yours as friendly as possible.
  • Get pre-approval. Yes, we suggest everyone do this. But especially for freelancers—who can struggle to understand where they stand in the mortgage world for all of the above reason—this is a vital step.

The reality is there are going to be a lot of self-employed home buyer mortgage applications as we move forward in this new economy, and the mortgage lenders have to understand this as well if they want to stay in business.

So knowing what you need to do—in advance—will go a long way towards a successful home-buying experience.

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