With the current state of the real estate market, remodeling or completing renovations on your home is a great way to begin putting value back into your property. However, it is a big investment and when you are hiring a contractor to complete the work, you need to be certain that they are reputable and that they will get the job done right.
There are unlicensed contractors operating that may not have the same standards as those that are licensed, and they may try to cut corners on the job in ways that will cost you money and cost you the structure of your home.
To avoid contractor problems like the ones above (and more), there are a number of things that you can do.
How to Choose the Right Contractor
- Check Qualifications – Don’t be afraid to ask contractors to show you proof that they are licensed and registered as required in your jurisdiction. If you want a testament to someone’s skills, consider selecting someone referred to you by someone whose opinion you trust.
- Don’t Choose Based on Money Alone – The person with the lowest bid may seem appealing, but it is important to recognize that with cost comes value. You do not necessarily need to choose a contractor that quotes the higher price either; just be skeptical of those that seem too good to be true.
- Ensure They Get Your Vision – When you communicate your needs to the contractor, make sure that before they start the job, they are able to communicate their understanding.
- Do Your Research – Not only should you do your research with regards to each contractor you interview, know what the job you want done requires. If you know in advance what part of the project will require permits, for example, you can be skeptical about a contractor that says the job can be done without them.
Whether you are planning to remodel your home in preparation to sell, to increase the value of your home, or for your own enjoyment, finding the right contractor is essential.
When you purchase a home for the first time, there are some expenses to keep in mind that you may not be aware of that you are responsible for when you close on your home. Closing costs typically total 3% to 6% of the purchase price of a home. The recurring closing costs outlined below are not only applicable when you close but have to be paid on an ongoing basis after you take possession of your new home.
Recurring Closing Costs
These are the costs that you may have to pay out at closing, but that you’ll also be responsible for on an ongoing basis as a home owner.
- Property Tax – This will be paid at closing if the seller has pre-paid any of the property taxes for the period after you take possession of the home. If your mortgage lender requires that you put your property taxes in escrow, one or two month’s payments may also be required at closing.
- Mortgage Insurance – If you’ve taken out a high ratio mortgage (with less than 20% down) you may be required to have it insured. You may need to pay the full premium upfront or just the taxes. The same applies if you choose to take creditor protection to help you with your mortgage in case of illness or death.
- Home Owner’s Insurance – To protect you against fire or flood, at the time of closing you will be required to prove that you have insurance in place. Some lenders will require that you pre-pay premiums for the whole year.
If you have any questions about recurring closing costs or any other mortgage related questions, we can help! Please contact us for a free mortgage consultation.
You’re ready to make that big step into home ownership, which can be exciting, but if you’ve never gone through the process? It’s easy to get overwhelmed but when you have a better understanding of what to expect from the process of obtaining a mortgage, you will feel much more confident about every decision you make no matter what comes your way. While we can’t cover everything that you may experience when you apply for a mortgage, here are a few things you can surely expect!
The Mortgage Application Process
1. Discuss your needs and your finances with your mortgage professional – While this is not a step that you are required to take, even before you begin shopping for a house or a mortgage, it’s a good idea to go over your finances with a mortgage representative that can provide further advice on saving for your down payment or which debts you may want to pay off in order to qualify for the mortgage amount you’re hoping for.
2. Get Pre-Approved – Before you begin shopping for a house, you want to get pre-approved so you know what your lender will allow you to spend. In order to do this, you will need to need to complete a basic mortgage application and provide information about your income, debts and expenses. Your mortgage professional will look at all of this information and will advise you on the best mortgages for your needs, and provide a guideline as to how much you can spend on your home.
3. Commit To a Mortgage – The specific process depends upon your lender, but typically once you’ve made an offer on your home, you will have to provide a few further details about you that way your mortgage application can be formally processed. You will receive a mortgage commitment, but there may be some conditions attached.
4. Fulfilling Your Mortgage Conditions – It depends upon your state and lender, but often you will be asked to prove that you have your down payment and even some of your closing costs in place 30 days before you’re set to close on your home. If some of your down payment will be coming from a family member as a gift, you may also be asked to provide a gift letter. Your lender wants to ensure that you aren’t borrowing your cash assets that you’re using for your home purchase.
5. Sign Your Closing Papers – This may happen before your closing date or on your closing date depending upon your lender and where you live. You will then confirm the frequency of your mortgage payments and arrange a payment method for your mortgage premiums.
The above outlines some of the main components of the mortgage application process, though some of the finer details will depend upon your lender and the state you live in!
With mortgage rates at some of the lowest levels in decades, many borrowers are considering whether a fixed rate or adjustable rate mortgage is better suited for their needs. We are going to walk you through the two main mortgage options that you can select from, along with the core benefits and some of the negatives associated with each.
Fixed Rate Mortgages
With a fixed rate mortgage, your interest rate and monthly payments remain the same throughout the term of the loan:
- There is no risk of your monthly mortgage payments changing at any point during the course of the loan. This means as long as there are no drastic changes to your lifestyle, you should always be in a position to pay the mortgage amount comfortably.
- A fixed interest rate is typically higher than whatever the going adjustable interest rate is since you are offered more stability.
- Throughout the term of your mortgage, there is no change to the amount applied to principal versus interest, it always takes the same course as per the amortization schedule.
- If interest rates go down you don’t have the opportunity to take advantage of this move as you may with an adjustable rate mortgage.
Adjustable Rate Mortgages
With adjustable rate mortgages, your payment amount is determined by the initial mortgage rate fixed for a 3, 5, 7 or 10 year term, which presents some interesting pros and cons:
- With a adjustable rate mortgage, there is the potential that you can pay much less than you would with a fixed rate mortgage, but if interest rates go up, you could also pay much more as you do not have a guaranteed future rate once your “fixed rate” period is complete.
- You don’t have a guaranteed monthly payment amount, and you may have to tighten the purse strings on other spending when interest rates rise.
- Adjustable rate mortgages can allow you to pay down your mortgage with more money applied to principal depending upon what interest rates are doing at any given time.
- In order to be eligible for a adjustable rate mortgage, you may need be approved to pay a monthly payment amount higher than what you’d pay based on the interest rate at the time in a fixed rate loan. The regulations can vary by lender or state, but this ensures that your mortgage can always be paid.
Still have questions about whether an adjustable rate or fixed rate mortgage is best for your needs? We can help walk you through any questions you have to find the loan that best fits your needs.
When you’re ready to purchase home, it’s necessary to have some cash assets ready to cover the expenses that cannot be added to your mortgage. A portion of these expenses that you’ll need to pay in cash are the closing costs. While many first time home buyers may expect from watching real estate shows that they can convince the seller to cover the out-of-pocket costs, this is not always the case. It’s essential that all buyers have a general understanding of what the various closing costs are so they can be prepared. Typically, it’s a good idea for buyers to save at least 3% to 6% of the purchase price of a home for closing. Below, we’ve outlined some of the typical closing costs you’ll be responsible for paying only once, when you close on your house.
Non-Recurring Closing Costs
Non-recurring closing costs are those that you will pay once when you close upon your home, but you will not have to worry about them again until you choose to make another purchase.
Non-recurring closing costs can include the following:
- Home inspection – This is one of the first closing costs you will have to pay as a buyer. If you make an offer on a home conditional upon a satisfying inspection, you typically have under a week from the offer date to have it completed. This is a cost you as a buyer have to pay even if you choose to withdraw your offer because you’re not happy with the results of an inspection.
- Title insurance – This is insurance that compensates for any losses that are a result of a defective title or liens on the property that should have been revealed at the time of purchases. Losses covered include any legal fees paid to rectify related issues. Title insurance can be taken in lieu of a title search which is much more pricey and in many cases, unnecessary. A real estate lawyer will advise buyers if a title search is needed rather than title insurance.
- Appraisal fee – Before a mortgage lender will provide you a loan, they complete a property appraisal to ensure that your home is worth at least as much as they’re going to lend you. Often today this can be completed without surveying the property as banks can look at recent valuations in the area online, but a fee does still apply and the cost can vary depending upon the appraisal method used.
- Attorney fees – Your attorney is the one that processes all of the necessary paperwork, registers the deed, deals with the seller’s lawyer, processes information for the bank, and makes sure all necessary money gets to the appropriate bodies. For all this, a real estate lawyer charges a flat fee for his or her services.
- Escrow fees – Some mortgage lenders may require that you put the costs related to the mortgage payment, property taxes and utilities into an account to be paid by them on a monthly basis. This helps them ensure that their investment is protected because payments are made. At closing, you may be required to deposit escrow fees for one or more months of expenses.
- Land transfer fees – Most cities or counties (or both) require that you pay a fee to ‘transfer’ the land from the seller to the buyer. The specific costs and requirements vary greatly across the country but typically apply.
- Various administrative fees – As a buyer you may need to pay the fees to record the sale, fees for document preparation, and any charges that surface from the need to use wire transfer or a courier to get the transaction completed.
When you’ve gotten a pre-approval from your mortgage lender, you’re ready to start shopping for a home. While your pre-approval tells you how much the bank thinks you can afford, many first time buyers in particular wonder if they should actually spend as much as they’ve been approved for.
The first thing to note is that a bank takes your Gross Debt Ratio and Total Debt Ratio into consideration when determining how much money they will lend you.
Theoretically, you can afford to spend what you’ve been pre-approved for, but there are some other things you should think about when determining if you want to spend it all.
Determining How Much of Your Mortgage Approval Amount to Spend
While you may be tempted to spend your full pre-approval amount to get the best home available to you, there are some other things that you should consider when you take a look at your total expenses:
1. Would you need to make cutbacks? – Even if your full mortgage amount is under 40% in your total debt ratio, there are many other expenses not calculated by the bank. Take a look at all of your other fixed and variable expenses and determine if you’d need to make cutbacks to live comfortably with that mortgage amount. Remember, your expenses can include things like your grocery bill, the cost of children’s activities, and eating out.
2. Are you willing to change your lifestyle? – If you would need to make cutbacks to spend the full mortgage amount, take a look at what you would be willing to give up, if anything. For some, it may be worth the sacrifice to get a “better” home. For others, it may be preferable to spend less on the home and maintain status quo in other aspects of life.
3. Are your expenses likely to change? – Remember, your pre-approval amount is based on your current income level and debts. It might be affordable today, but if you have intentions to leave your job or take on new expenses, the affordability may change quickly.
Once you’ve considered all of the above factors, it’s up to you to determine how much you’re comfortable spending. Don’t feel pressure to spend it all, but if that number is a comfortable one, then getting shopping for a property of that value!
Some of life’s biggest changes occur at the same time, even when you don’t plan it that way. It may just happen that you get a job offer that could greatly benefit your career with your closing date looming just weeks ahead. While your first instinct may be to reply with an ecstatic “YES!”; you do need to stop and think before you make that commitment because you’re about to take on a major financial investment. The choice may be right for you, but you’ve got to consider a few things first.
How Will Your Job Change Impact Your Mortgage Loan?
You need to bring your potential job change to the attention of your mortgage lender and there are a few factors they’ll look at to determine if that may compromise your ability to take on the mortgage you were previously approved for:
- If your income level will remain the same at your new job. If it’s higher, your mortgage may not be impacted; if it’s lower, it has the potential to change what you can afford.
- If you’ll be working in the same industry as the job(s) you’ve held before. Your mortgage lender may consider it a risky move and it could potentially compromise your mortgage.
- If there’s going to be a probationary period at your new job that will still be in place when you close, because then the chances are much greater that you’ll lose it since there’s zero job security.
- The length of time that you’ll be at your new job before your mortgage closing date. If you’ve switched jobs 90 days before you close on your home, then you may have enough stability on your side.
- Whether your high ratio mortgage is insured or backed up by a program or grant. Guidelines may differ, but some programs that allow you to make a low or no down payment on your mortgage may choose to run a credit report and revisit your file at any time. You need to tell your lender or mortgage broker about your job change, and if this other program looks into it and don’t like what they see, they could refuse to back your loan.
- Your loan approval amount. If you’ve got a home loan that’s far less than what you can afford (according to the bank’s assessment) and are a two income household, it may be that your loan approval would not change.
- Your debt ratios. Regardless, your lender would recalculate your Gross Debt Ratio and Total Debt Ratio based on your new income, or based on the other household income if yours for some reason cannot be used.
Keep in mind that everyone has different circumstances and there can be compensating factors, so before you decline or accept a job offer, we can help give you guidance so that you can make an informed decision.
You’ve likely heard the phrase “We’re in escrow!” before, but what does it mean? It’s always presented as though it’s positive and as though a house purchase is a done deal. Both of these things are true, but you do need to understand the process in order to be adequately prepared when the time comes.
What is Escrow?
The escrow process puts your money in the hands of a neutral third party to complete part of the necessary financial process for you to close upon your home. An escrow account is required by many lenders in order to ensure that you’re prepared to cover some of your home expenses once you take posession as this protects their investment.
What is the Escrow Process?
Typically, an escrow account is opened before you actually close upon your newly purchased home and at that time you are required to start adding funds to it. Typically, the costs you will need to place into an escrow account is the insurance, property taxes and sometimes the utilities. Here is the general escrow process:
- Around closing, your mortgage lender may require you to deposit the payments to cover at least one month’s worth of funding for the required expenses. Often, lenders ask for 2-3 months of payments.
- Your money will be protected with the third party that holds onto your money as they transfer it only to the lender for the pre-determined expenses on a set schedule.
- Once you take posession of the home you will be making flat rate monthly payments to cover your expenses (property taxes, insurance, utilities) and the lender will use the funds to pay the appropriate outlets directly. Many first time home buyers find this especially simple because it helps them manage their money. Typically, property taxes would be paid on a quarterly basis in a larger lump sum. Paying monthly into escrow means that smaller amounts of money are automatically removed from a home owner’s account, so the process is budget-friendly!
One of the biggest concerns of first time home buyers when they’re looking at getting their first mortgage is just how much money they’re going to require. Qualifying for a mortgage is the first step in the process, but it is important to understand if you will need cash for your purchase and if so, how much.
Understanding what you’ll be responsible for paying for in cash is good information to have before you even submit a mortgage application. The specific costs can vary depending upon the state that you live in, the cost of your home and to other factors, but here are some basic things to consider that should be considered.
Down Payment Required for a Mortgage
In order to qualify for a mortgage, you will likely have to produce a down payment. The specific amount required for a down payment depends upon state guidelines as well as the type of loan. FHA mortgage loans offer the competitive down payment options for those who qualify, requiring under 3.5% of the purchase price down.
Mortgage Closing Costs
In addition to requiring money for your mortgage down payment, you’ll need to save money for closing costs. This is something that you may be able to get paid by the seller of your new home, but as this is not something that is guaranteed, it is wise to have some money on hand to pay for all of the costs of purchasing a home that cannot be rolled into your mortgage. If you present a mortgage lender an offer that does not include closing costs covered by the seller, often as a first time home buyer, you are required to prove that you have the money to cover them. Depending on your local market environment and location, 3% to 6% of the purchase price may be a fair estimate for your closing costs, and somewhere in this range is what a mortgage lender will typically need to confirm.
Target Purchase Price and Other Considerations
Since the location, cost and your unique financial and credit attributes can affect what you will need to put down when you purchase a home, we can help you better understand the estimated amount that you’ll need to pay when buying a home. More importantly, we can help you understand and target the home purchase price that suits your specific needs an finances so you can be prepared in advance to make your first home purchase!