• What about qualifying for 2 homes?

    Sometimes, either by choice or for reasons out of your control, you find yourself trying to buy a new house before you sell the one you are living in. This poses two potential challenges, 1) Can you qualify for both home loans? and 2) What is the source of the down payment for the new home loan?

    Let’s take them one at a time.

    Qualifying for two mortgage payments can be a challenge but in recent years has become more commonplace. If you have decent credit, your debt to income ratio can be pushed much higher than was previously possible. If you’re really in a pinch and can’t qualify on your own, you may be able to add a family member to the application as what we call a non-occupying co-borrower until such time as you can sell your home and then look to refinance to get them off of the mortgage in the future. This obviously isn’t an ideal situation but it can be used in a pinch.

    The second challenge is the down payment. This typically can be an easier problem to solve. Let’s assume that you have equity in your existing home that would have been used for the down payment if you had the luxury of selling it first. Since presumably you would be selling this home in the near future, the question is, how can we put our hands on some money in the meantime? Here are a couple of different ideas:

    1. Take a loan out of the 401(k) temporarily. You can borrow up to 50% of the vested balance in your account not to exceed $50,000. Assuming you do this as a loan, there is no tax hit.
    2. Get a gift from a family member.
    3. Get a loan from a family member, assuming that you could qualify for the payment in addition to your new house payment.
    4. Maybe you have an existing home equity line of credit on your existing home you could tap.

    If you have a small amount of money to put down, let’s say 3 to 5%, you could structure the new loan paying private mortgage insurance and them when you sell your home, you coul duse the proceeds to do a “Recast” of your new mortgage to lower the payment and get rid of the PMI. Keep in mind that you will always be require to keep the private mortgage insurance for at least 24 months.

  • Financing considerations when negotiating your contract

    WHO PAYS FOR THE CLOSING COSTS

    As you begin your house hunting adventure, we want to give you a tip that will allow you to minimize your out of pocket cost. We’re talking about seller paid closing costs. You will be provided a Good Faith Estimate which lays out what your closing costs will be, based on the price of the home you are pre-approved to purchase.

    Our suggestion is that as you negotiate the purchase price of the home that you get the seller to pay for all of your closing costs as part of the deal. You might ask, why would the seller agree to do that? In a “buyer’s market” they may have to agree to make it attractive enough for you, i.e. you have leverage in a down market. But what if it is a “seller’s market”? The seller may not have to come off his price at all and certainly will not have much motivation to pay any of your cost of obtaining the loan. In either market, the contract you negotiate can be structured with the seller paying the cost and have it be a win-win scenario.

    If you decide to utilize this tip, don’t forget to pass this information along to your realtor! Or if you don’t have a realtor, call us at 678-483-3300 and we would be happy to assist you in structuring this into your transaction.


    SELLER CONTRIBUTION LIMITATIONS

    The seller can contribute towards the buyers’ closing costs and/or tax and insurance escrow account set up. The amount that is allowable by most lenders varies depending on your credit, program selected etc. But the vast majority of normal borrowers fall in one of the following categories:

    • 0 – 9.99% down payment: Seller can contribute up to 3% of the sales price
    • 10% or greater: Seller can contribute up to 6% of the sales price. On FHA loans, the seller can always contribute up to 6% of the purchase price. On VA loans, seller can contribute 4%.

     WHO SELECTS THE CLOSING ATTORNEY

    In Georgia, the closing attorney is negotiated as part of the Purchase and Sales Agreement. In the standard form used by the Georgia Association of Realtors, paragraph 3 on page 1 of the agreement provides for a blank to make this election. Most people are not aware that they can choose the attorney they work with, nor do they understand the vast difference there can be in the fees that various attorneys charge.

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    We have negotiated special fees with our preferred attorney that will most likely save you hundreds, if not thousands of dollars. Remind your Realtor to consult with you prior to submitting any offer so you do not fall into the trap of going with just anyone.


    EARNEST MONEY DEPOSITS

    Home sellers will generally require some type of Good Faith deposit when you submit your offer to purchase. In the industry, this is called an earnest money deposit. If it is an existing home, the deposit will most often run between $500 and $5,000, however larger homes may require a more sizable amount.

    In new home construction, builders will generally require larger deposits, particularly when the buyer is adding upgrades or has the flexibility of picking colors etc. The earnest money deposit protects the seller/builder in the event that the buyer backs out of the purchase contract after all contract contingencies have been waived.

    Since the seller has lost valuable time in marketing the property, the deposit acts to reimburse them for some of this expense.

    NEGOTIATING WITH THE  SELLER TO REPAIR DEFECTS

    Often times, the buyer opts to perform a property inspection and then will negotiate with the seller on how to handle any repair issues that arise out of this inspection report. Handling this in accordance with lender guidelines saves everyone time by not having to re-execute documents! We find there are typically two scenarios that generally arise:

    The seller agrees to a certain dollar amount to be credited to you in lieu of repairs. This is allowable as long as it is treated as a contribution towards your closing costs and/or tax and insurance escrows. The total seller contribution towards these items cannot exceed a certain percentage of the purchase price (between 3 – 6%) so it is best to ask your mortgage lender prior to finalizing your amendment.

    The seller agrees to certain repairs and you request checks be written directly to the Vendor of your choosing at closing. This practice is no longer acceptable. There are a few exceptions, so if escrow for improvements is the only option please let us know and we will work to accommodate the need. So, generally speaking, either the seller gives you a contribution toward closing cost to handle it or you must demand the seller make the repairs prior to closing.

  • How do we choose a closing attorney?

    In Georgia, the closing attorney is negotiated as part of the Purchase and Sales Agreement. In the standard form used by the Georgia Association of Realtors, paragraph 3 on page 1 of the agreement provides for a blank to make this election. Most people are not aware that they can choose the attorney they work with, nor do they understand the vast difference there can be in the fees that various attorneys charge.

    For example, the closing attorney will typically issue the title insurance policies for both the lender and the owner. These fees are negotiable and can vary dramatically from attorney to attorney. In addition, the fees they charge for their services and the various junk fees can add up to large differences as well.

    We have negotiated special fees with our preferred attorney that will most likely save you hundreds, if not thousands of dollars. Remind your Realtor to consult with you prior to submitting any offer so you do not fall into the trap of going with just anyone.


  • How does an interest rate lock work?

    We will lock your interest rate as soon as we have a binding purchase agreement.

    Be wary of companies that won’t protect you upfront.

    Interest rates change daily and can increase rapidly depending on market circumstances. There are various periods of time during which you can lock your interest rate to ensure it will not increase prior to your closing date — generally offered in 15 day increments.

    The longer the period of time for which you need the protection, the higher the rate will be. If unforeseen circumstances prevent you from closing prior to your rate lock expiration date, you can generally extend the lock period for a fee. Lenders have a different extension policies depending on the length of time required. If possible, it is nice to have a small cushion of time.

    This is particularly true if you are purchasing a home that is under construction. Delays are extremely common and it often it is better to lock for a longer period than you believe necessary, than risk having to extend the lock.

    For more information on current market conditions please feel free to call us at any time. We monitor the mortgage back securities market in “real time” through a subscription service and are able to assist you in making intelligent decisions Learn about factors that affect interest rates.

  • How does loan qualification work?

    For normal conventional loans (loan sizes from $50,000 – $1,000,000) for borrowers with average to above average credit that can document their income, the pre-qualification is generally an automated process. We take a standard loan application over the phone or via the internet, pull your credit and the file is then uploaded to one of two agencies: Fannie Mae or Freddie Mac (Fannie and Freddie as they are known in the industry).

    Fannie and Freddie set the guidelines for what constitutes a “saleable loan”. In other words, if it meets their guidelines, the lenders who originate the loans can sell the loan to virtually anyone on the secondary mortgage market. They have automated approval systems that give us the ability to give the customer instant approvals. These systems are looking at your overall profile (debt to income ratio, job history, assets, credit, how much of a down payment you’re making etc…) to predict the statistical probability that you will default on the mortgage. If you pass the test, it renders an instant approval. Just remember that it is a “garbage in, garbage out” proposition.

    For example, let’s assume that you have worked for your employer for 5 years and were always paid on a base salary. Six months ago they gave you a “promotion” that restructures your pay to a much smaller base plus commission with “promises” of a lot better pay ultimately. Fannie and Freddie guidelines want to see a 2 year track record of commission income. So if you tell us you make $50,000 and that you are paid on commission and we mistakenly “assume” that you were always paid on commission then we might have a problem. That is why we recommend going through the process of becoming a Certified Homebuyer upfront. If you have less than perfect credit or you are not able to get an approval through Fannie or Freddie, then there are plenty of other options.

    These approvals range from automated systems that are proprietary to individual lenders to having to prepare an entire application package to be presented to the lenders’ underwriters for approval. This generally can take anywhere from 2 – 3 days and is advisable if this is your only alternative. Do this upfront so you don’t waste your time looking for a home that either you can’t qualify for or worse you qualify for but are not comfortable with what will be required to pay for a mortgage payment on a monthly basis.

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