If your down payment on a home is less than 20%, or if you refinance a mortgage with less than 20% equity, you will be required to pay Private Mortgage Insurance by your lender.

What is PMI?

Also known as PMI, this insurance policy protects the lender from losing their investment should you end up in foreclosure. PMI is based on both the amount of your down payment and your credit score, and ranges from 0.3% to 1.5% of the original loan amount per year. This amounts to around $100/month or more (depending on the size of your mortgage), so it’s a healthy added monthly expense!

Your lender must automatically cancel your PMI when your loan principle balance drops below 78% of the home’s original value. This typically takes several years, and is an added incentive to pay down your loan principle. Keep close track of your loan balance, and contact your lender when your balance reaches 80% of your home’s value, so you can request a cancellation and get this monthly expense off your budget.

Can I get rid of PMI sooner?

You have two other options to cancel your PMI before reaching the 78% mark of your current mortgage balance: refinancing or getting a new appraisal.

If the market has been good, and you believe your home’s value has increased significantly, refinancing may leave you with enough equity to meet the 20% rule. Especially if you have done any home improvements that increased your value, this could be a good solution. Check with a lender to run some numbers and see if this option will work for you.

Some lenders will consider a new appraisal in meeting the 20% threshold. You will have to pay for it yourself, but considering the monthly cost of PMI, it may be worth it to you. Check with your lender before spending the money to see if they will consider this possibility.

Our advice?

Do your best to have 20% ready, or as close as possible, for your down payment so you can avoid this add-on mortgage expense! If you are already paying on a mortgage that includes PMI, work on paying down your principle faster than your scheduled payment are achieving. Even paying an extra $50 a month can dramatically drop your principle balance over time.

When mortgage rates are low, as they continue to be, refinancing can get your out of not only PMI, but offer you a lower monthly payment for even more savings. If you bought your home a few years ago, say with only 10% down, and you have made improvements to its value, you can likely refinance and avoid PMI.

As always, your finances and budget are in your control if you stay on top of things and pay attention to your options.

We love helping clients find their dream homes, but we never want them to fall into the trap of buying more than they can actually afford. While lending standards are designed to protect you (and the bank’s investment), many people qualify for a mortgage that is really more monthly expense than they can handle.

When people are buying a new home, they are usually focused on location, square footage, and number of bedrooms, and often leave the financial side to their loan officer to figure out. Homeowners do need to be thinking about how much mortgage they can truly afford. Considering that 76 million Americans are struggling financially and describe themselves as, “barely getting by” and “living paycheck to paycheck”, a major investment like a home can push people over the edge into financial crisis. We don’t want to happen to you, so consider this advice:

Stick to the 25% Rule

Most financial planners recommend keeping the amount you spend on housing to 25% of your monthly budget. However, the Bureau of Labor Statistics reports that the average American couple spends over 31% of their budget on housing, and single people send nearly 36%. Bankrate reports that more than 80% of current homeowners say their monthly mortgage payment is the primary reason they cannot save as much money as they would like, and parents especially have a hard time reaching their financial goals amidst the cost demands of children’s needs and activities.

A very straightforward way to keep your mortgage in check is to follow the 25% Rule. Including maintenance, keep your housing payments to 25% of your household budget. Conversely, most banks use the debt-to-income (DTI) ratio to determine what you can afford, and this limit is much higher. Yes, your home is an investment in the future, and real estate has been proven to be a good one. However, the market is always fluctuating, and you cannot guarantee your return or its timeframe. Having too much of your net worth (assets) tied up in your home is a risky proposition.

Save for a Down Payment

The down payment you put toward your home purchase plays a key role in what you can afford, your monthly mortgage payment, and the amount of equity you establish in your home purchase at the outset.

Ideally, having 20% in hand to put toward the purchase price is the best idea. With this amount, you are not only reducing your monthly payments and establishing decent equity right away, but you can avoid being required to pay mortgage insurance.

When your down payment is less than 20%, your costs rise. Your lender will likely require you to pay for private mortgage insurance, which averages close to 1% of the total loan amount. You will pay this as part of your mortgage payments until you have built up 20% equity in the home. It might not sound like a lot, but on a $240,000 home, that is $200 per month, a significant amount that could otherwise be going toward an emergency fund and savings.

Closing Costs

Every loan that is originated with a traditional lender involves closing costs. These costs cover loan origination and other processing fees, as well as other costs involved in the transfer of title and ownership. Amounting to several thousand dollars, if these costs are worked into the amount of your mortgage loan, your monthly payment just went up. Further, for closing costs to be worthwhile, you need to stay in the loan and/or the home for at least five years.

Plan for Home Expenses

The cost of homeownership doesn’t stop at your monthly mortgage payment. While many mortgage products roll in Property Taxes and Homeowner’s Insurance, some don’t require it. Additionally, Association Fees and other expenses need to be budgeted for.

Keep in mind all the other costs associated with homeownership: insurances, utilities, maintenance, and upkeep. If you are moving further away from your job, you will have associated commuting expenses, and your children’s educational requirements may involve higher costs. Routine maintenance and upkeep need to be planned for, and the surprise need for a new refrigerator might demand quick cash. Generally, budgeting 1% of the total cost of the home covers annual upkeep, not including big-ticket items such as a new roof or heating system.

All the expenses associated with home ownership should be estimated before you determine a monthly mortgage payment that will work for you.

Other Considerations

Taking on a larger financial burden than you can afford has wide-ranging consequences. We all like to think the worst won’t happen, but the reality is that people get sick, life circumstances change, and jobs can be lost. We all know we should have an emergency fund, yet half of Americans say they would be hard-pressed to handle an unexpected $500 bill. If you keep your home, and the monthly mortgage payment, affordable in the first place, you will be in better shape to handle what life throws at you. When your mortgage doesn’t drain you every month, you can also keep up with your other bills and avoid excess credit debt, leaving more money in the bank and savings for the future.

Beyond the weekly and monthly financial demands, taking on larger payments than you can handle significantly impacts your life long-term. Your savings will suffer, and other financial goals such as saving for your children’s education or your retirement will take a backseat. When these needs catch up to you, you will be left unprepared. Being clear on your overall financial priorities, planning for the unexpected, and setting savings goals are important factors to consider as you think about a new mortgage.

Whether you are an experienced home seller, or a first-timer, the building inspection process always raises worries and concerns. Even sellers that take meticulous care of their properties know that an inspector is likely to find something, and this makes the process all the more nerve-wracking. With some preparation, however, we hope you can experience this phase of selling your home with a little less stress.

According to a joint study by the American Society of Home Inspectors (ASHI) and the National Association of Realtors (NAR), nearly four out of every five homes sold in the nation are evaluated by a professional home inspector before they are sold. Home inspectors are hired by the buyer, and having this important step as part of the purchase contract is meant to protect the buyer.

While building inspectors are not looking for problems with your house, it is their job to give your property a thorough going-over, from basement to roof, inspecting all the building materials, mechanical systems, and other property functions that affect value and public safety.

Because the home inspection is the biggest deal-breaker in a real estate transaction, it is important that both buyer and seller understand the process fully. A qualified negotiator in your corner is also critical, as often times the deal does not have to fall through if both sides can communicate effectively, and come to reasonable solutions that satisfy everyone.

Seller Preparation
There are no perfect houses, and there is no good reason to try to hide any conditions from potential buyers and their subsequent inspectors. The best approach is to be proactive, and evaluate your home with an objective eye before putting it on the market. A buyer needs to know exactly what they are buying. While that will be determined during the Building Inspection process, your full disclosure of all the history of the property work, repairs, and improvements plays a key role in the inspection going smoothly, and will give you peace of mind going into this stage of home selling. The unknown is what causes our fears, so providing all the facts up-front when you fill out the property disclosures with your broker goes a long way in belaying fears.

Pre-Listing Inspection
If you really want to set your mind at ease, and offer potential buyers more reason to look seriously at your property, conducting a pre-listing inspection is not a bad idea. There may be problems that you are not aware of that will impact someone’s decision to purchase your house. Hiring a professional Inspector allows you to take care of any issues that may exist before a Purchase and Sale contract hangs in the balance, on your own time, and by contractors of your choosing.

How a Home Inspection Works
Most home Purchase and Sale Agreements include a home inspection contingency clause, which is a provision allowing the buyer to hire a professional home inspector, and possibly specialty inspectors such as septic or water, to thoroughly evaluate the building and certain aspects of the property to determine if there are any issues regarding its structure and systems. Once a purchase agreement has been signed, the buyer has a certain amount of time to hire a professional inspector to investigate the property. You will be notified of the scheduling of the inspections, however they are mandatory to schedule during the contingency period as stated in your contract.

A typical home inspection lasts between two and three hours, during which time the inspector will physically move throughout the property, checking structural elements, and testing systems for soundness and safety. Additionally, special tests such as radon, or well-water conditions may be conducted.

Once the Building Inspection is complete, the inspector prepares a detailed report of findings detailing each area of the property and any issues that were found. A professional inspector’s report will prioritize problems according to those needing immediate attention, or those that are less serious. Inspection reports are the property of the inspector’s client (the buyer), and become excellent to-do lists for the new owners.

According the American Society of Home Inspectors (ASHI), the 10 critical areas for inspection include:

During the Inspection
This is a high-stress and emotional time for everyone, so the best thing a seller can do is disappear during the hours of the inspections. The inspector needs full access, without interruption or distraction, to do a thorough inspection. The buyer is typically in attendance, and should be free to speak candidly and ask question of the inspector during the evaluation. Inspectors are professionals, and are used to working around pets, and will be respectful of your property. Additionally, one or both licensed real estate brokers involved in the transaction will be in attendance, so there is no need to have security concerns if professionals are involved.

After the Inspection
Once the inspection is complete, and any special testing results are in, the inspector will provide the buyer (their client) with their report. This report is the property of the buyer/client, and not shared with the seller unless a special agreement is made.

If significant issues are found, the buyer has the option to walk away from the deal if the seller does not agree to make necessary repairs. This can be avoided, if both parties can agree to solutions. This may include a reduction in the sales price, a credit for repairs at closing, or the buyer may request repairs to be made by the seller prior to closing. Lenders, and some loan programs, require how repairs are handled, so they should be included in the conversation at this point. Leaky faucets or old thermostats are not reason to go back to the negation table, but issues such as faulty wiring or the need for a new roof are. Hopefully, you have an experienced real estate broker working on your behalf that will work through this stage with you, and negotiate for a reasonable solution to keep the purchase contract together.

Finding a Qualified Home Inspector
While it is up to the buyers to find and hire an inspector, if you decide to do a pre-listing inspection, your real estate agent is your first source for a good home inspector in the area. They work with inspectors all the time, and know which ones are qualified and knowledgeable in the area and type of building you are selling or buying. To locate a professional Building Inspector in your area, you can also visit www.ashi.org for a full list.

If you are getting ready to buy your first home, or maybe you haven’t purchased a property in some time, there are some important steps to take before you can make an offer on a property. Getting pre-approved for a mortgage is essential if you want your offer to be considered seriously, and will be required immediately before you can get very far into a purchase and sale contract to buy a house.
Mortgage Loan approval

Pre-Approval vs. Pre-Qualification

They may sound like basically the same thing, but there is a big difference between getting a pre-approval from a lender and having been pre-qualified for a mortgage loan.

Getting a pre-qualification for a mortgage is quite simple – you call or visit a potential lender, provide some basic income and expense information, and the lender tells you the range of mortgages, and potential mortgage programs, that would work for you. With information like your annual income, approximate credit score, and current debts, a lender can give you a sense for what you can afford to purchase. Many times, you can even complete this process online through a lender’s website.

Pre-qualification is not approval for a mortgage loan. The process is really just a casual conversation between you and a lender, and there is no commitment that lender will move forward with you to provide a mortgage. Think of it like calling your auto mechanic because your car is acting funny. You describe what is happening, and they give you an idea of what it might be and the corresponding cost. However, until it’s actually in the shop, up on the lift, and fully inspected, is the actual work required and the subsequent costs known. A mechanic would never commit to the estimate given over the phone without a full inspection. Without providing hard and fast documentation of your income and expenses, and without a current and complete credit report, a lender cannot give you any formal approval. What a pre-qualification conversation is good for is to give you an idea of what prices range you can be looking in – what you can manage to pay for based on the monthly mortgage payment you can afford. So while this is a fine idea to get your started, once you are ready to seriously go house-hunting, you will want to take the time and effort to get pre-approved.

Pre-Approval Confirms You are Ready to Buy a Home

Unlike the quick and easy method of pre-qualification, getting pre-approved for a mortgage is a much more in-depth process. You will need to provide a number of income and expense documents to a lender, a full credit report will need to be run, and some form of mortgage application will need to be completed where you will provide employment history and other personal information. Getting pre-approved is fairly detailed, and may take a few days to complete, so plan accordingly. Once you receive a pre-approval, the lender will give you a formal letter stating what price range and loan product you have been pre-approved for. With this letter in hand, you are ready to talk to a realtor and go house hunting in earnest.

You will need to do all this anyway if you are planning to buy a property, so getting the process started out of the gate is a great idea. Not only will you have a realistic picture of what you can afford to shop for, but once you find a home you want to make an offer on, you will be ready to do so. Getting pre-approved is definitely worth your effort before making an offer on a property!

If you are planning to work with a real estate agent in your home search, they will likely want you to have pre-approval documentation. A professional real estate agent knows that your interest in a property will not be taken seriously if you cannot prove you can actually purchase the house. Also, it makes no sense for them to show you a $400,000 home if you can only afford a $250,000 home, and vice versa. Having a pre-approval letter in hand is a powerful tool if you find yourself in a multiple-offer situation as well. If another buyer has not been pre-approved, or cannot demonstrate the same financial strength you can, it puts you in the better buying position to the seller. Sellers do not want to mess around or waste their energies, they are interested in serious buyers only these days, so indicate that you are one.

Another good reason to get pre-approval is that once you find the home of your dreams, without pre-approval you will need to scramble to find a lender. This means you are at the mercy of who you can find quickly, and what loan product will work. You may also be able to close on the property faster as much of the leg work on the lending side will have been completed.

When you are ready to get pre-approved, be ready to provide your lender with the following documents:

 

If you have questions, or need help with getting ready to go house hunting – we are here to assist you. Please give us a call, and we’ll help you get ready to go house hunting!

welcome-matThe best way to sell your house quickly, after it is priced right for the market, is to wow potential buyers from the time they pull up. Some pretty simple efforts can make the difference between a drive-by and a buyer presenting an offer.

Yes, Curb Appeal Matters

Landscaping
You want to make the best first impression you can, so make sure your lawn is well groomed, mowed and neatly trimmed. Prune bushes so they look neat and not overgrown, keep flower beds and landscaping weeded and mulched, and if you don’t have seasonal color add some plantings and flowers.

Make your front door inviting with a fresh coat of paint. Choose an appropriate accent color to your siding so it pops and stands out. Add a seasonal wreath to make the house a home. Be sure you have attractive and easy to see house numbers, and buy a new welcome mat so buyers feel invited into your home.front-door

Clean and Repair
If the outside of the house looks sloppy, buyers will think you neglect other things, and it is a turn-off. Give siding a good power-washing, clean out the gutters, and sweep walkways, stairs and porches.

Make necessary repairs where you can so your home is in its best condition possible. Repair any broken windows, siding or trim elements, and missing siding or roof shingles. Give things a new coat of paint where necessary (some loan programs require this anyway), and keep it neutral and warm.

Make the Inside Sweet

Declutter and Depersonalize
Buyers need to be able to envision their belongings in the home, not feel like they are invading your personal space, so clean up and remove clutter and depersonalize by packing away family pictures and memorabilia. If you have to rent a temporary storage unit for knickknacks, photos, personal items, and extra furniture do it – it is well worth it.

Give your closets, drawers, built-ins and bookcases a thorough organization and clean out. Closets packed to the gills give the impression that your house doesn’t have enough storage space. In general, too much stuff everywhere makes a house seem cramped and smaller than it actually may be.

Clean!
Make every surface shine. From ceiling fans to floors and everything in between, clean your home until it sparkles. This simple effort requires only elbow grease, but makes things look well kept, in good condition, and brighter rooms sell houses!

clean

Turnkey Appeal
To make a buyer feel like they can move right in, remove any hassles like needing to paint over bright purple or lime green walls. They might seem fun to you or your kids, but buyers see a headache and a reason to keep looking. Paint walls and trim in neutral colors to appeal to the most people.

Make entering your house as appealing as possible – hide litter boxes, spray air neutralizer to cover smells like waste, smoke, etc., and fill the house with inviting smells of fresh baked goods and fresh flowers.

The process of buying your first home can be intimidating. If you haven’t spent much time around the real estate and mortgage worlds, you might find your first hurdle being all the terms, language and phrases commonly used by those immersed in the industry.

realtordefmeme

While we at Morrison Real Estate take the time to explain things to our buyer clients, if you are just getting started in your house-hunting, you may find this real estate glossary of common terms very helpful!

http://www.mydomaine.com/real-estate-term-definitions

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Buying a home is an exciting time! Interest rates remain at historic lows, and the market has recovered nicely – making it a great time to purchase a home. The process is exhilarating and exhausting all at the same time. There are emotional highs and lows as you search for houses, go through the offer and negotiation process, and work with your lender toward your closing. Here are some basic tips to help you avoid getting overwhelmed, and to be in the best position you can be when you are ready to make an offer.

House Hunting Tips:

  1. Location: consider your commutes, convenience of amenities you enjoy, and the importance of schools, emergency services, etc.
  1. Have a list of Musts and Wants and Deal Breakers. Remember, you might be able to add Wants later. This list will be invaluable to keep you honest with yourself as the excitement and emotions of home buying comes over you. Use this as a checklist when you look at properties.
  1. Do your own research. Today’s internet is full of information and resources. There are mortgage calculators to help you decide a realistic price-point, neighborhood statistics and information, and of course all the homes for sale you could ever want! Start surfing and educate yourself.
  1. Get pre-approved for a mortgage. Find out what loan products are available to you, and what you can afford. Being ready with a pre-qualification letter makes you much more interesting to a seller in a competitive market!
  1. Be sure you are ready. House-hunting is a challenging and sometime frustrating process. If you really aren’t going to be ready until your oldest graduates next spring, or you really need to save a little more money or pay off debt, then wait.

Of course, partner with an agent you feel comfortable with, who listens to you, and can help you navigate this very important decision! We hope you will contact us so we can show you how we can help you find the home of your dreams!