Are you ready to buy a house?

Buying a home offers many advantages, one of the most significant being that it allows you to build equity (ownership) when you pay your mortgage each month. A common myth is that monthly mortgage payments are more expensive than rent. But, in many cases, mortgage payments can be even less than rent. When considering homeownership for the first time, you need to decide whether buying makes financial and practical sense for you right now or if you are better off renting. Consider both the advantages and disadvantages to renting as well as buying, and weigh the pros and cons for your particular situation.

How much can I afford?

The first step toward finding the right home is to quickly compute your purchasing power and determine how much you can afford to pay each month. This saves you time by allowing you to focus on homes in your price range.

In addition, you should consider both the up-front and ongoing costs associated with purchasing a home in the planning stage.

Some upfront costs include:

Downpayment: Typically ranges from 3-30% of the cost of the house. The more you can put down, the greater equity you will have in your home and the lower your monthly payment will be. For downpayments less than 20% you may also need to pay mortgage insurance.

Closing Costs: Typically range from 2-6% of the loan amount depending on your area.

On-going Costs: Your housing costs can include the following: Property taxes, home owner's insurance premium and mortgage insurance if required

I would like to refinance only the existing loan(s) on my home, debt consolidate and/or take out cash

Here are some things to consider before refinancing:

1. Consider the interest rate you are currently paying before refinancing and compare it against the existing interest rate to see how much you would save by mortgage refinancing.

2. Check the current interest rate. To recieve the benefits of a lower rate, you may have to pay fees associated with the loan unless your lender is doing a no fee loan. Before committing to a refinance, be sure you have discussed the fee options with your loan officer.

3. The average length of stay in a home is 8.2 years. However, you may have a better idea of how long you will be in your home. If you do not plan on owning your home for much longer, the lower payments associated with the refinancing may not cover the mortgage refinancing fees. If you plan on staying in your home for a long period of time, refinancing could be an excellent way to reduce your monthly payments. Also, if you are planning on moving into a new home while retaining the old home as a rental property, refinancing is a great plan. You can lower your monthly mortgage payment and in turn, increase your rental income.

4. If you have several outstanding bills, you may want to consider mortgage refinancing your home and in turn, consolidating and paying off your other debts. If you have equity in your home, you may be able to access that equity through a "cash out" refinance. You could choose to apply that equity to a debt consolidation plan, a new car or home improvements.

I would like to obtain a second mortgage or equity line on my home

Second Mortgages or Home Equity Closed-End Loans

A close-ended loan is one where a set amount of money is borrowed and repaid within a specific period of time. There are a multitude of second mortgage products available and lender guidelines vary widely. Generally, loan amounts, interest rates and fees are tied closely to equity in the property and credit scores. Whether to do a first or second mortgage or whether to take a line of credit or closed-end loan depends largely on the purpose of the loan.

Second mortgages are ideal products for the following situations:

Debt Consolidation: This is the most common purpose for acquiring a second mortgage. Typically, a second mortgage is paid off in a shorter period of time than a first.

Home Improvements: The greater the equity in a property, the better the deal on a mortgage. Often, a borrower will take second mortgage to complete improvement projects. After the improvements are completed, the borrower refinances the first mortgage.

Cash Out: Many borrowers use the equity in their properties to obtain cash to pay for college expenses, vacations, or any other purpose that requires a fairly sizable amount of cash.

Eliminate the requirement for Mortgage Insurance.

Equity Line or Line of Credit

A home equity line of credit loan is a line of credit that is secured against real estate. The amount of the credit line is dependent upon the amount of equity in the subject property and the lender's guidelines. Each lender has its own specific guidelines and limitations. Lines of credit are typically designed for borrowers who intend to pay back the borrowed funds within a short period of time. Equity lines of credit are processed and underwritten similar to traditional mortgages; however, lender guidelines vary widely.

Home equity lines differ from traditional mortgages that provide funds up front, then require repayments of principal and interest each month. With a home equity line, a borrower may draw against any available credit on the line while continuing to make monthly payments during the "draw period." The draw period usually lasts 15 years. At the end of that time, the borrower has a set number of years to repay the remaining balance in full without further draws. The "repayment period" is typically 15 years.

Interest on home equity lines accrues similar to interest on credit cards and payments are based on payment factors.

When is a co-borrower required?

A co-borrower may be required under the following circumstances:

If another person will be jointly obligated with the borrower on the loan
If the borrower is relying on the income or assets of another person as a basis for the repayment of the loan
If the borrower is married and resides in, or the property is located in a community property state (AZ, CA, ID, LA, NV, NM, TX, WA)

A co-borrower may not be required in a community property state if the property is the borrower's sole and separate property.

What Is a Single Family Home?

A single family home is simply an individual residence that houses one family. It is a freestanding, unattached dwelling unit, typically built on a lot larger than the structure itself, resulting in an area surrounding the house, or in basic terms, a yard.

What Is a Multi-Family Home?

A multi-family home has multiple separate housing units within one residential building. A good example of a multi-family home is a duplex. In a duplex, an individual house is divided into two homes. One family lives in the upstairs and one family lives in the lower or main level. Both levels have all of the necessary aspects of a home and have a separate entrance.

What Is a Condominium?

A condominium is a multi-unit dwelling in which each unit has separate ownership. The owners of all the individual units are jointly responsible and equally share costs of maintaining the building and common areas. Usually the shared costs are included in the homeowner’s association dues which are included in a monthly mortgage payment.

What Is a Site Condominium?

A site condominium is a method of land division. The homes are unattached, may not look identical on the exterior, like most condominiums, because the owner is responsible for not just interior, but also for the exterior maintenance of their home. This is not to be confused with a Planned Unit Development (PUD) because PUD zoning is usually created through the State Subdivision Plat Act.

What Is a Planned Unit Development?

A planned unit development (PUD) is a project or subdivision that consists of common property and improvements that are owned and maintained by a homeowner’s association for the benefit and use of the individual units within the project. For a project to qualify as a planned unit development, the owners’ association must require automatic, non-severable membership for each individual unit owner, and provide for mandatory assessments. This contrasts with a condominium, where an individual actually owns the airspace of his unit, but the buildings and common areas are owned jointly with the others in the development or association. Planned unit developments offer varied and compatible land uses, including housing, recreation, commercial centers, and industrial parks, all within one contained neighborhood.

What Is a Cooperative (Co-Op)?

A co-operative is a multi-unit housing dwelling which allows multiple owners that share in the cooperative corporation that owns the property. In other words, each resident in the co-op is a shareholder and the relative size of the unit determines the proportion of the corporation’s stock that the resident holds. Each shareholder, or tenant, pays a monthly fee based on their proportionate share of stock to cover the mortgage, taxes, and maintenance costs.

Primary Residence

Primary residences qualify for the lowest mortgage rates. In order for a home to qualify as your primary residence, these are some of the characteristics that must be met:

You must live there a majority of the year.
It must be a convenient distance from your place of employment.
You need documentation to prove your residence. You can use your voter registration, your tax return, etc.
If you plan on turning the property into an investment property within six months of closing, it must be classified this way. This could happen if you plan on having a tenant rent the property.

In addition to these criteria, the property must be occupied by the buyer within 60 days following closing. If the loan in question is originated through the VA and you’re on active duty, your spouse can satisfy the occupancy requirement.

Second Home

When purchasing a second home, you may need a higher credit score to qualify, and you might receive a higher interest rate due to increased risk for the lender. On the other hand, it may be that neither of these things happen – each situation is different. A second home has the following characteristics:

It must be a reasonable distance from your primary residence.
It must be exclusively under your control and not subject to a rental, timeshare or property management agreement.
You must live there at some time during the year. While someone else can live in your home other than yourself, some lenders may place limits on how long the home is occupied without you living there.
The property must be accessible by car year-round. Although it’s cool, your Dr. Evil-style lair that’s built into the side of a volcano and reachable only by helicopter won’t qualify as a second home.
You can even rent it out for up to two weeks and keep the income tax free. If you rent for 15 or more days, you’ll have to report the income, but you may be able to deduct certain things as a rental expense. It’s important to note that either your lender or the investor in your mortgage may place special limits on how often the property can be rented out. At Quicken Loans, the property may still be considered a second home if it’s rented out for no more than 180 days in a calendar year and you stay in the home for the greater of or 10% of the days when you would otherwise rent out the home.

Investment Property

If you plan on using your property exclusively for tenant rental, it must be classified as an investment property. The loans on these properties are made at a higher interest rate and require a higher credit score.

There are a few special requirements for investment property loans:

You may have to show a lease agreement that confirms the property is occupied by a tenant.
If the lease agreement gives the tenant the right to purchase the property, it must be secondary to the mortgage.
If the lease has expired and the tenants are now paying month to month, you have to provide a letter to that effect.

Before deciding which house to buy, consider your lifestyle, current and anticipated housing needs and budget. It’s a good idea to create a prioritized list of features you want in your new home; you'll quickly discover finding the right house involves striking a balance between your "must-haves" and your "nice-to-haves."

If you love to cook, you'll appreciate a well-equipped kitchen. If you're into gardening, you'll want a yard. If a home office is a must, you’ll need a room that will provide you adequate work space. If you have several cars, you may require a larger garage. Use this list as your search guide.
Next, think about what you might need in the future, and how long you are likely to live in this particular home. If you're newly married, you might not be concerned with a school district right now, but you could be in a few years. If you have aging parents, you may want to look at homes that offer living arrangements that could accommodate them as well.

It’s important to think about your new home’s location just as carefully as its features. In addition to considering the distance to work, evaluate what matters to you in terms of services, convenience and accessibility, such as shopping, police and fire protection, medical facilities, school and daycare, traffic and parking, trash and garbage collection, even recreational facilities.

Be sure to talk to your real estate professional about where you want to live and what’s most important to you. While buyers frequently use the Internet to gain access to listings or available properties for sale, an agent brings value to the entire home buying process. He or she is available to analyze data, answer questions, share their professional expertise, and handle all the paperwork and legwork that is involved in any real estate transaction. CENTURY 21® professionals can help their clients narrow their choices by sharing market trends and local information.

Before deciding which house to buy, consider your lifestyle, current and anticipated housing needs and budget. It’s a good idea to create a prioritized list of features you want in your new home; you'll quickly discover finding the right house involves striking a balance between your "must-haves" and your "nice-to-haves."

If you love to cook, you'll appreciate a well-equipped kitchen. If you're into gardening, you'll want a yard. If a home office is a must, you’ll need a room that will provide you adequate work space. If you have several cars, you may require a larger garage. Use this list as your search guide.
Next, think about what you might need in the future, and how long you are likely to live in this particular home. If you're newly married, you might not be concerned with a school district right now, but you could be in a few years. If you have aging parents, you may want to look at homes that offer living arrangements that could accommodate them as well.

It’s important to think about your new home’s location just as carefully as its features. In addition to considering the distance to work, evaluate what matters to you in terms of services, convenience and accessibility, such as shopping, police and fire protection, medical facilities, school and daycare, traffic and parking, trash and garbage collection, even recreational facilities.

Be sure to talk to your real estate professional about where you want to live and what’s most important to you. While buyers frequently use the Internet to gain access to listings or available properties for sale, an agent brings value to the entire home buying process. He or she is available to analyze data, answer questions, share their professional expertise, and handle all the paperwork and legwork that is involved in any real estate transaction. CENTURY 21® professionals can help their clients narrow their choices by sharing market trends and local information.