One of the causes for the housing crisis, in my opinion, is that most home buyers did not understand the differences in the types of mortgages.
There are really two main types of mortgages; a fixed-rate mortgage and an adjustable-rate mortgage.
Fixed-Rate Mortgages have one set interest rate with a fixed monthly payment and is fully amortizing, which means that the loan will be paid in full over a given number of years. The most common terms are 15 and 30 year lengths. A portion of each payment goes towards the principal balance and the remaining goes towards the interest of the loan. Most loans allow you to make additional payments toward principal as you wish.
Adjustable-Rate Mortgages are often referred to as ARM's. They have interest rates which go up or down based typically on the Prime rate. Therefore, your interest rate has the ability to change from year to year based on the movements of the prime rate. ARM's help lenders cover the cost of lending money in an changing economy by transferring a portion of the interest risk to you. So instead of having a 6% fixed rate loan on their books when prime is at 8%, they entice you with a lower initial interest rate which could rise to help cover cost.
So the question is which one should you get? My general rule of thumb is to stick with a Fixed Rate Mortgage. Adjustable rate mortgages definite serve a purpose and can be very valuable for people expecting a pay increase or an influx of cash. This way they would get a lower interest rate and qualify for a large loan at the present time. For most clients, the fixed-rate mortgage is a required peace of mind knowing that your principal payment will not change in the future.
The only thing left to determine is the length of the fixed-rate mortgage. The most common is 30 years because it allows you to qualify for a larger loan amount. Here is the difference in what you repay.
30 Yr Fixed Rate Mortgage at 6%
15 Yr Fixed Rate Mortgage at 6%
That's a 42% difference in the end!
Bottom line, sit down with qualified professionals for the small details but hopefully you have gotten a better idea of what your options are.
This Blog is written by:
Nick@FindMyKyHome.com
Just about every client that I meet with now days ask me the question, should I consider buying a foreclosure? Without question, there are some great stories about people getting wonderful deals on foreclosures, but there are just as many stories of people ending up with an unfinished house and no money to finish it.
The process of selling foreclosures has changed over the last year. Before that, most banks would take foreclosures to the court house steps and have an absolute auction. This meant that the highest bidder wins. The downsides are that you rarely are able to inspect or even see the house before the auction, you have to put down 10% at the auction, and you had a limited number of days to close on the property.
Court House Auction
· 10% Down (often non-refundable)
· No Inspection
· Typically Buyer is going in with limited knowledge on property
With the increase in foreclosures, banks have seen increased the number of homes that they put into the hands of realtors. This does allow you to view the property before hand and even have the opportunity to have a home inspection, but in general you are paying more than at auction, hence why banks do it.
Bank Repo's with Realtors
· Typically 1% down
· Allowed to view before making offer to purchase
· Buyer permitted to have Inspection
· Offers are typically required to be As-Is (no repairs)
· Generally need some repairs
So should you consider a foreclosed home? A lot of it depends on the client. Are you financially able to make repairs if they are needed? There are very few of these properties that are left in pristine condition. Do you have the cash to make these repairs?
Common needs include:
· A new heating and air system
· New flooring throughout most of the house
· Replace a roof
· Electrical issues
My personal belief is that foreclosures, especially at auction, are meant for investors with capital to make the repairs. First time home buyers often find themselves overwhelmed by the amount of work and the cost required to fix up one of these homes. Don't let get fooled by a tv show.
This Blog is written by:
Nick@FindMyKyHome.com
Today is going to be a little less educational and more personal impression.
There has been alot of talk about what the market is and whether or not it's a good time to buy or sell or refinance. Real estate is definitely a hot topic right now. What is my opinion?
First, about a week ago, I decided that I'm so tired of watching the national media focus on Detroit, Phoenix, and Las Vegas that I refuse to talk to anyone that mentions those cities. Those are the EXCEPTIONS to the market. Things aren't perfect, but we had 3 consecutive years of historical sales, it had to go down at some point.
As of last week, my new slogan is, I create "My Market." Since doing this, I have actually recieved phone calls on 4 different listing. One has already turned into an offer, I'm awaiting another offer, and I have two and possibly three showings for tomorrow.
Part of this is the practices in which I put in place and the state of mind that I have forced myself to be in. If you are going to be negative, the people around you will be. I don't see any reason for us to be negative.
It is the first time in history (that I can find) that has produced a buyer's market with interest rates BELOW 6%. What more could someone want? Especially a first time home buyer.
So next time you want to know how the market is, define the market. Because I'm determine to make "My Market" the best around in 2009.
This blog was written by:
Nick Ratliff, Realtor
Keller Williams Bluegrass Realty
Your Center for Real Estate Information
Another topic that so many home buyers get confused with is the mortgage. The first aspect of the mortgage that "we" the real estate community is guilty of throwing around some of "our language" is with Pre-Qualification and Pre-Approvals. What is the difference and which should you have when?
Pre-Qualification simply means that you have contacted the bank, either by phone, internet, or in person, and you have told them some of your personal information. With the information that you told them, the loan officer has ran those numbers through his/her computer and come out with a number that they think you could afford. There has been no verification of any of the numbers and typically your credit report has not been drawn.
Pre-Approval is the next step. This is when the loan officer has asked you to bring in paystubs, W2's, and bank statements and you have given them permission to pull your credit report. Therefore, all of the numbers you have given them is verified with very little left to confirm. Typically banks will do a verification of employment and of funds before closing.
So what do these terms mean to a home buyer? Or even a home seller?
I always like to make things as simple as I can, so this is how I explain it to my clients.
If I walk up to you and say I want to buy your car. I look at it and say, I will give you $20,000 for it. What's your first question, do I have $20,000?? Well no, but the bank will give it to me (right??). If I haven't don't have the loan ready, then you don't know if I can get money or not, but if I say, the bank is waiting let's go do the paperwork, which one excites you?
If you walk up to a home seller and offer an amount but tell them you don't know if you can get the money or not, it isn't that exciting and they aren't going to negotiate much on their price. Why should they, you may not even be able to get the money!
So in my opinion, the prequalifcation is merely for the home buyer. That let's you decide if you want to preceed with the process or not. If you are going to make an offer on a property then you need to be pre-approved. I high discourage my clients from making offers without a pre-approval. You won't get the best deal.
Be prepared and knowledgeable when you write an offer to purchase. Otherwise you can be leaving money on the table.
This blog was written by:
Nick Ratliff, Realtor
Keller Williams Bluegrass Realty
Your Center for Real Estate Information
One of the most common misconceptions that I see right now is about the first-time home buyer tax credit. I want to take a moment to do my best to explain this. I am not an accountant, so please if you think you are eligible, go talk to your accountant, but here is some general information on the topic.
First, let me say that it is a really good thing. If you qualify, you get a $7500 interest free loan. Yes you read that correctly, it is a loan. What the government is willing to do is to give you up to $7500 on your tax return. It is a "tax credit" and not a "tax deduction" so you get the entire $7500. Let's assume that you eligible and take out the full amount. If you do this, then you will be require to repay the loan over the next 17 years. The first 2 years, they do not require any payment, then at that time you would pay $500 towards the loan when you file your taxes. So if you were going to get $2200 in a tax refund, you'd get $1700.
If you happen to sell your house during the time of repayment, then you would required to pay the balance at that time with the profit from the home sale. If there is insufficient profit, then the remaining credit payback is set to be forgiven.
Here is the Tax Credit "at a glance"
If you feel that you are eligible then please visit http://www.federalhousingtaxcredit.com, and definitely consult a tax accountant.
This Blog is written by:
Nick Ratliff, Realtor
Keller Williams Bluegrass Realty
Your Center for Real Estate Information
www.FindMyKyHome.com
Dedicated Full Time Realtor in Central Kentucky refuses to stop until you are happy! www.FindMyKentuckyHome.com
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