Four Things You Need In Order to Buy a Home: #4

4) Collateral – The Home or Property


This is the fun part. Now we can talk a little about your new home. For starters, the home you purchase must be:

• A residential property (someplace to live)
  
• Structurally sound (we’ll talk about home inspections later)
  
• Worth what you are paying for it (what appraisals are for)
  

Just so you know: we mortgage lenders love to lend on single family homes. We like condos and even an occasional two-family property. We also finance three- and four-family properties, but a lot of the rules are different with respect to cash and credit.

Four Things You Need in Order to Buy a Home: #3

3) Capacity: For how much do you qualify?

That depends on two things: how much your income is and how much monthly debt (auto payments, credit cards, child support, student loans etc.) you have.

As a rule, lenders use a "ratio analysis" which means you should not have more than 30% or 40% or 50% of your reliable monthly income going toward monthly debts including the total mortgage payment. Depending on other factors, you may be able to qualify for a "no income verification loan". Getting answers to these questions is what getting "pre-qualified" or "pre-approved" is all about.

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It's fast, easy, and FREE to get preapproved for a loan. To begin,
click here

Four Things You Need in Order to Buy a Home: #2

2) Credit

Credit history shows your willingness to pay your debts. A credit report will provide a creditor (mortgage lender) with a seven - 10 year history of your credit.

Lenders use your credit history to determine if you have paid your other creditors on time and if you are likely to pay them back. The more credit history you have of paying your creditors on time, the better your financing choices will be. (It should be noted that you don’t necessarily have to have traditional credit history to get a mortgage: we may be able to use landlord and utility references.)

Less than perfect credit? A few “dings” on your credit will not prevent you from getting a mortgage. Most importantly, your good credit history may better represent you as a favorable risk than a few late payments. Even if you have significant derogatory credit, there are temporary mortgage solutions that you can later refinance as your credit improves over time.

Four Things You Need in Order to Buy a Home: #1

Purchasing a home is an attainable goal for most people. There are several loan programs available in New Hampshire that are designed to maximize the opportunity and affordability of home ownership for all who desire to do so. Even so, there are a few things you'll need, and over the next several posts, I'll discuss them, starting with:


1) Cash

How much will you need? You'll need cash for:

• Down payment - Usually a percentage of the purchase
• Closing costs - One-time fees like: transfer taxes, attorney, appraisals etc.
• Pre-paid expenses - Insurance, property taxes, and maybe condo dues

No Money? Not a big problem. Even if you don’t have a 401K or and you can’t get a gift from a friend or relative, you may be able to buy a home. There are many first-time home buyer programs designed specifically to minimize your cash requirements. For instance, 100% finance programs are common and a few even allow you to roll your closing costs onto the amount you are borrowing – usually called 103% or 105% or 107% programs.

Stay tuned to learn what else you'll need in order to purchase your next home....

Avoid PMI on a New Mortgage

If you’re considering a new mortgage, you may not have to pay private mortgage insurance(PMI). Here are some options to consider:

• Put 20% down. If you don’t have 20% to put down, you can avoid PMI by getting a piggyback loan -- a second mortgage that allows you to make the equivalent of a 20 percent down payment by borrowing part of the down payment in the form of a 2nd mortgage. (For example, you might want to put 10 percent down on your new home. To finance the rest, you obtain a first mortgage of 80 percent, and a second mortgage of the remaining 10 percent.) What’s more, a piggyback loan has an income tax advantage: You can deduct the interest from your taxable income, whereas the cost of PMI isn't deductible.
• If you accept a higher interest rate on your mortgage loan, you could avoid PMI. (The rate increases generally range from 1/2 percent to 1 percent, depending on your down payment.) Because non-conforming or sub-prime loans do not conform to standard guidelines, they do not require PMI. And again, the mortgage interest is tax deductible.
• Consider a purchase Home Equity Line Of Credit (HELOC). A HELOC is like a cross between a conventional mortgage and a credit card. With a HELOC, you qualify for a line of credit based on the amount of equity in your home. For purchases, the lender "pretends" that you own already own the house and gives you a line of credit for 100% of its value. You then use the money to actually purchase the property.

Stop paying PMI

With current laws, both consumers and lenders share responsibility to how long PMI coverage is required. If you have private mortgage insurance on your existing mortgage and you now have 20% equity (the difference between the loan amount and the market value of your home), you can get rid of PMI in two different ways:

• Contact the PMI department at the toll free number shown on your mortgage statement. Tell them you have 20% equity and want to drop the PMI. They will explain the requirements of doing so, including instructions on how to secure an updated appraisal.
• Refinance to a new mortgage program that won’t require PMI.
  

Tomorrow, I'll let you know how you can avoid PMI on a new mortgage.

What is PMI?

Many New Hampshire home buyers make down payments of less than 20 percent and have to pay private mortgage insurance (PMI). PMI is a type of insurance policy that reimburses your lender if you default on your mortgage.

Private mortgage insurance charges vary depending on the size of the down payment and the type of loan. Example: A borrower buying a house with no down payment will pay a higher PMI than a borrower putting down 10%. PMI adds thousands of dollars to the cost of your home over time.

PMI isn’t necessarily a bad thing because it enables home buyers with less than a 20% down payment to get an interest rate that is just as low as if they did have the 20% down.

Tomorrow, I'll tell you how to get rid of PMI.