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A showing is an opportunity for a buyer to determine if a home is right for them. Each of the different types of showing plays a valid and necessary role in marketing the home. Some buyers may start by looking at homes online, which can lead them to drive by the home to see if it still meets their interest before they schedule a showing.

Online showing: This is when a buyer looks at a home’s listing online, including photos, videos, and a description. This can be a great way for buyers to get a general overview of a home and see if it is worth scheduling a showing.

Drive-by showing: This is when a buyer drives by a home to see it in person. This can be a good way for buyers to get a feel for the neighborhood and the surrounding area. It can also be helpful for buyers to see the home’s size and layout from the outside.

In-person showing: This is when a buyer schedules a time to visit the home with a real estate agent. This is the best way for buyers to get a true sense of the home and see if it is right for them. Buyers can ask the real estate agent questions about the home and the neighborhood. They can also walk through the home and get a feel for the space.

Virtual Showing: Virtual Reality (VR) can be used to stage, remodel, or update a home for sale by creating realistic images of what the home could look like with different furniture, appliances, paint colors, countertops, or flooring. By creating images of the home in different staging scenarios, the agent can show potential buyers the potential of the home and how it could be used.

Each one of these types of showings contributes to the marketing of a home. By offering different types of showings, a seller can reach a wider audience of potential buyers and increase the chances of selling their home quickly.

Homeowners who are facing financial difficulty are often targeted by mortgage relief scams. These scams can be very convincing, and homeowners may be desperate for help, making them vulnerable to these schemes.

Scammers often pose as government officials or mortgage experts, and they may promise homeowners that they can help them avoid foreclosure or modify their mortgage loan. However, these promises are often false, and homeowners who fall victim to these scams may lose their homes and their money.

If you are facing financial difficulty and you are considering a mortgage relief program, it is important to do your research and be very careful. Here are some tips to help you avoid becoming a victim of a mortgage relief scam:

• Only work with a HUD-approved housing counselor. You can find a housing counselor by calling 1-888-995-HOPE (4673).
• Be wary of anyone who promises to help you avoid foreclosure or modify your mortgage loan for a fee. It is illegal for anyone other than a licensed attorney to charge a homeowner a pre-paid fee to negotiate a mortgage modification on the homeowner’s behalf.
• Read all paperwork carefully before signing anything. Do not sign anything that you do not understand.
• Do not be pressured into making a decision quickly. Take your time and do your research before making any decisions about your mortgage.

The warning signs for fraudulent mortgage rescue schemes:

• You are charged an upfront fee for assistance in avoiding foreclosure or modifying your mortgage loan.
• You are asked to transfer the deed to your home. It is very unlikely you will ever get the deed back, regardless of what you are told.
• The individual or company "helping" you asks you to make future mortgage payments directly to them, instead of paying your mortgage company directly. This is a common tactic used by scammers to take your money and run.
• You are asked not to contact your current mortgage company. This is another common tactic used by scammers to prevent you from getting help from a legitimate source.
• The scammer refuses to provide you with a written plan or contract, or alternatively pressures you to quickly sign documents you do not understand. This is a red flag that the scammer is not interested in helping you, but rather is trying to take advantage of you.

Review this HUD guide for homeowners having difficulty making mortgage payments. This guide provides information on your rights and options if you are facing foreclosure.

If you think you may have been a victim of a mortgage relief scam, you should contact your state attorney general’s office or the Federal Trade Commission (FTC). You can also file a complaint with the FTC online at ftc.gov/complaint.

It is important to be aware of the red flags for fraudulent mortgage rescue schemes. If you are contacted by someone who claims to be able to help you avoid foreclosure or modify your mortgage loan, be sure to do your research and ask questions before you hand over any money.

Buying or selling a home is a big adventure; some thrill seekers may choose to take on both tasks at the same time. If you’re finding yourself in the position of needing to buy and sell at the same time, here are some tips to help you navigate the possibly challenging course ahead of you.

Evaluate Your Local Market

For most buyers and sellers, selling their current home before putting an offer on another property is their best real estate option. But for others, it really depends on the local real estate market. If you’re thinking of selling and buying at the same time, research the market in your target area. This can help you gauge whether it’s a buyer or seller market. If many properties are available, it might be a good time to list. If inventory is low, you may need to wait until the market picks up again.

The general rule of thumb is to sell first in a buyer’s market and buy first in a seller’s market; but this isn’t always the case since every experience is unique. You can really get an understanding of what might work best for you by talking to your trusted real estate agent; they will know the market and will be able to provide insight into current trends.

Understand Your Finances

When it comes to buying or selling a house, finances are a huge part of both transactions. Whether you are looking to sell or looking to buy, knowing your current financial situation is vital to your next steps.

If you have a mortgage loan, you will absolutely want to know how much equity you have in your home. The equity that has built up could be enough for a down payment on another home. It’s important to remember, though, that any equity is only accessible after closing unless you use a home equity line of credit (HELOC) or a second mortgage to cash out.

If you currently own, consider having an inspection done to understand what repairs or work may need to be done to the property to help you understand how much you may need to deduct from the possible sale price or any concessions you may need to make for a future buyer.

Utilize A Contingency

Ideally, you would sell your home on the same day as buying a new one. Since this is not the case for most buyers/sellers, adding a contingency into the contract can be helpful. In a real estate transaction, a contingency refers to a provision for a possible event or circumstance when it comes to the financial ability to close a purchase sale.

If you want to buy before selling, make an offer contingent on the sale of your home, which means you will buy the new home once your current residence sells. You can also request an extended closing (if you are certain your home will sell), which extends your closing past the typical standard of 30-45 days.

If you want to sell before buying, you can make an offer with a settlement contingency. This contingency works when you have an offer on your home, and you want to buy another which means you will buy the home contingent on the sale of your existing home.

If you happen to sell and haven’t made an offer on another home, you may be able to negotiate a rent-back, which means you go through with the sale of your home, but you rent the home back from the new owners for a specific time (anywhere from 60-90 days), giving you time to find a new home or make other living arrangements.

In low inventory markets, sellers are reluctant to accept contingencies because there are more buyers than properties for sale. Competing in this kind of market, some buyers resist adding a contingency on the sale of a home.

Buying and selling are big events – if you are unsure of where to start or if you should do both at the same time, it is best to ask for help. Ensure your finances are up-to-date and have a reasonable idea of what you can get for your home. If you must search for another home while selling, have a backup plan if you can’t find another home in time. Your real estate professional can provide insight into the market and what other buyers and sellers have encountered.

With new mortgage rates approaching 8%, many buyers have decided to wait for rates to come down. While there may be some easing in the fourth quarter of 2023 and 2024, assuming an existing FHA mortgage with a lower rate made in the last three or four years might be a much better alternative.

Since December 1, 1986, FHA has had the right to approve the purchaser of an existing FHA loan. Prior to that, anyone, regardless of credit worthiness or other qualifications, could assume an existing FHA loan.

Existing FHA mortgages are assumable at the current interest rate for owner-occupied buyers. The benefit is that the rate could be much lower than a new current mortgage. The borrower must qualify for the loan under current FHA underwriting guidelines, but it will be easier because the payment will be lower due to a lower assumable mortgage rate.

The buyer’s closing costs on an assumption are less than a new FHA loan because an appraisal and survey are not required. The transfer fee is $500 instead of the 1% loan origination on a new loan.

An existing mortgage is further into the amortization schedule than originating a new loan which means there is more being applied to the principal each month accelerating the payoff. Another benefit is that lower interest rate loans amortize quicker than higher interest rates loans.

It will generally take a larger initial cash investment on an assumption to buy the equity than buyers were planning to use as a down payment. Secondary financing can be used for the difference which is referred to as the assumption gap. Purchase Price less Existing Balance on Mortgage = Equity less Planned Down Payment = Assumption Gap.

The difficulty is that lending institutions are slow to add second mortgages to their offerings. Another reality is that lenders make much more money on a new loan than an assumption. Alternative sources for the second loan could be the seller, relatives, credit unions, local banks, and hard money lenders.

Conventional loans have had a "due on sale" clause in their loan documents since the early 1980s which not only require the borrower to qualify for the assumption but allows them to escalate the interest rate to the current rate. For practical reasons, there is no benefit to assuming a conventional loan; the borrower might as well get a new conventional mortgage.

Buyers who assume an FHA mortgage without obtaining lender approval risk triggering the due-on-sale clause.

Lenders must grant a release of liability to the original borrower (seller) if the assumptor (buyer) is approved and agrees to execute a statement to assume and pay the mortgage debt.

The practical difficulty in finding assumable FHA loans is that there is no searchable field in most MLS databases and anything identifying it as an assumable mortgage is limited to the description or the agent comments.

Another issue is that many agents have never done an assumption and, in some cases, are not even aware that FHA mortgages are assumable at the original mortgage rate. An experienced agent can show you the savings on an assumption compared to a new mortgage at current interest rates and knows how to locate assumable loans.

If you’re interested in learning more about it, find an agent familiar with FHA, VA, & USDA assumptions. Each type of mortgage has slightly different requirements, but each is assumable.

Navigating a real estate transaction, which often involves substantial financial investments and emotional considerations, can understandably induce stress. To streamline this process, adopt these effective strategies that promote a smoother journey.

Begin by clearly outlining your primary motivations for either buying or selling a property. By eliminating distractions and maintaining a focused perspective, you can mitigate potential anxieties. For instance, if your primary goal is to secure more space for your family, evaluating properties without this essential feature becomes a straightforward decision.

Whenever feasible, allocate ample time to prevent hasty decisions or setting unrealistic deadlines. While external factors like a sudden job relocation or a booming market might necessitate swift responses, it’s crucial to differentiate between preparedness for action and arbitrarily shortened time frames.

Remember, orchestrating a successful transaction requires coordination with other involved parties such as title and mortgage companies, appraisers, surveyors, inspectors and possibly, attorneys. The ability to expedite your actions doesn’t necessarily imply that others can adhere to such accelerated timelines.

Anticipate encountering a few unexpected things during your home buying or selling journey. Recognizing the potential for sudden surprises can alleviate some of the pressure when they arise. When challenges do surface, counterbalance these concerns by reminding yourself of the favorable aspects associated with relocating, such as a home more conducive to your current lifestyle, a more convenient location, or other opportunities.

The ultimate strategy to alleviate stress when engaging in real estate transactions lies in partnering with a seasoned REALTOR� who possesses the expertise to navigate you through each step of the process, thereby facilitating the realization of your real estate aspirations.

For more information, download our Buyers Guide.

The decision to rent or own a home is not just about having a place to live; it also has significant implications for your financial future. One key aspect that often comes into play is net worth … the value of your assets minus your liabilities. Numerous studies and statistics highlight a compelling trend: homeowners tend to have higher net worth compared to renters.

The numbers according to the Federal Reserve’s Survey of Consumer Finances confirms the belief that homeownership has long been associated with wealth accumulation. The median net worth of homeowners is 40 times higher than that of renters. This discrepancy can be attributed to several factors that favor homeowners, including equity buildup, property appreciation, and forced savings through mortgage payments.

Homeownership allows individuals to build equity over time, which is the difference between the home’s market value and the remaining mortgage balance. Every mortgage payment with amortizing loans contributes to this equity, leading to a gradual increase in homeowners’ net worth. On the contrary, renters do not benefit from this form of forced savings, as their monthly rent does not result in any ownership stake.

Historically, real estate has proven to be a valuable investment, with properties appreciating in value over the long term. Homeowners enjoy the potential for capital appreciation, which can significantly boost their net worth. In contrast, renters do not participate in the appreciation of the property they live in and miss out on this wealth-building opportunity.

Homeownership also comes with tax benefits, such as deductions for mortgage interest and property taxes but with such a high portion of taxpayers electing to take the standard deduction, the more important tax benefit is the capital gains exclusion.

Homeowners can exclude up to $250,000 of the gain on their principal residence if single and up

to $500,000 if married filing jointly. During the five-year period ending on the date of the sale, the

taxpayer must have owned and lived in the home for at least two of the past five years.

These advantages contribute to lowering the overall cost of homeownership and increasing the financial cushion for homeowners.

Owning a home can have positive implications for retirement readiness. As homeowners pay down their mortgages, they are essentially building a valuable asset that can be leveraged in retirement. Borrowing against one’s home is not a taxable event. The proceeds could be used for any reason. Furthermore, owning a home outright eliminates the need for monthly rent payments during retirement, providing greater financial security.

Additional sources to support the claim that homeownership has net worth advantages include:

• The National Association of Realtors regularly releases reports that analyze the financial benefits of homeownership, including equity accumulation and property appreciation.
• The Case-Shiller Home Price Index tracks changes in the value of residential real estate, offering insights into property appreciation trends over time.
• U.S. Census Bureau data offers a broader perspective on homeownership rates, wealth distribution, and their impact on net worth.

The numbers speak for themselves … homeowners tend to enjoy a higher net worth compared to renters. The combination of equity building, property appreciation, tax advantages, and retirement preparedness contribute to this financial advantage. While individual circumstances vary, it’s clear that homeownership offers a pathway to building wealth and securing a more robust financial future.

For more information, download our Homeowners Tax Guide.

Ken & Barbie have been married 20 years and have owned their current home for over 10 years. Without the benefit of legal or tax advice, they decide to divorce with Ken taking his retirement and Barbie taking the equity in the home which are equal in value.

It appears to be equitable until a year later when Barbie decides to sell the home. It sells for the same market value at the time of the divorce but now Barbie pays all the sales costs. The unpaid balance on the home was much larger than normal because it had been refinanced for $750,000 two years earlier.

When Ken gave Barbie his equity in the house, he also gave her his tax liability in the home. Barbie has a substantial capital gain because the home was purchased for a much lower price ten years earlier. Capital gain is calculated by taking the sales price less sales costs, plus capital improvements made, less the purchase price.

Since she is single, she has a $250,000 exclusion and the balance of the gain of $456,750 will be taxable as long-term capital gains. Let’s assume her rate is 15%, Barbie would owe $68,513 in capital gains taxes.

When calculating Barbie’s net proceeds from this sale and accounting for the sales costs, mortgage balance, and federal taxes due, she only realizes $88,487 in this example while Ken walked away from the divorce with the full value of his retirement account of $225,000.

It doesn’t appear to have been an equitable settlement. Contributing to this inequity was an apparent misunderstanding of how taxes are calculated and that the expenses incurred with the sale of the home as a single person would be borne solely by herself.

No gain or loss is recognizable on the transfer of the residence if related to the end of a marriage. It is treated as a gift with no gift tax due if the transfer is within two years prior to the divorce or one year following. There is no change in basis; it is carried over to the gifted party.

A marriage is a legal arrangement and divorcing deserves the benefit of expert advice. An attorney who is familiar with potential tax consequences could have advised his/her client about the potential tax consequences and possibly suggested a more equitable division of assets.

This example is used to show you how it can appear to be an easy solution to dividing the assets. In an emotional state, one person could agree to something that could be costly later.

Aspiring homeowners can overcome the challenge of saving for a down payment by taking advantage of various sources of assistance. Discover a variety of down payment sources available to first-time homebuyers, from family gifts and retirement account withdrawals to tax refunds and down payment assistance programs, empowering them to achieve their dream of homeownership.

Implementing effective savings strategies is paramount for first-time homebuyers. Setting a budget, reducing unnecessary expenses, and establishing an automated savings plan can accelerate down payment savings. In addition, consistently monitoring spending habits and making adjustments can help maximize savings potential. Saving for a down payment takes time and there may be some other alternatives available to you.

One possible source of down payment funds is a generous gift from family members. Through the annual gift tax exclusion, individuals can receive up to $17,000 per year from each family member without incurring gift tax obligations. This can significantly contribute to a first-time homebuyer’s down payment, making homeownership more attainable.

For instance, a husband and wife can each gift $17,000 to their child and the child’s spouse to make a total of $68,000. This is a substantial amount that may allow the borrower to avoid PMI. If the child is going to be the heir ultimately, should the parents not currently need the money, it allows them to see the enjoyment of the gift now.

First-time homebuyers who have been diligently saving in their retirement accounts may have the option to tap into their 401(k) or IRA funds for their down payment. Certain retirement plans allow penalty-free withdrawals for qualified home purchases. However, it’s crucial to consider the long-term impact on retirement savings and potential tax implications. Consulting with a financial or tax advisor is recommended to understand the specifics and make an informed decision.

Buyers with permanent life insurance policies may have accumulated cash value over time. This cash value can be accessed and used towards a down payment. However, it’s important to evaluate the impact on the policy’s death benefit and to consider the long-term implications before making any decisions. Consulting with an insurance professional is advisable to fully understand the terms and consequences associated with tapping into life insurance cash value.

Tax refunds can provide a boost to first-time homebuyers’ down payment savings. By planning ahead and adjusting tax withholdings, individuals can aim to receive a substantial refund at tax time, which can then be allocated toward the down payment.

Many governments, employers, and non-profit organizations offer down payment assistance programs to support first-time homebuyers. These programs can provide grants, loans, or matching funds to help bridge the gap between savings and the required down payment amount. Eligibility criteria and program specifics vary, so researching and exploring available options in your area is essential. Working with a knowledgeable real estate agent or loan officer can help identify suitable programs and navigate the application process effectively.

Silent second programs are offered by certain local governments or housing authorities. These programs provide a second loan, often at a low or zero-interest rate, to supplement the homebuyer’s down payment. The loan is "silent" because no monthly payments are typically required. However, repayment may be required when the home is sold or refinanced. Understanding the terms and conditions of such programs is crucial to ensure compliance and avoid unexpected financial obligations.

In recent years, crowdfunding has gained popularity to raise funds for various purposes, including down payments. Dedicated platforms allow individuals to create campaigns and seek contributions from family, friends, and even strangers who support their homeownership journey. While crowdfunding can be a viable option, it’s vital to carefully read platform policies, consider potential tax implications, and approach the process with transparency and integrity.

First-time homebuyers have multiple options when it comes to down payment sources. From receiving family gifts and utilizing retirement savings to exploring down payment assistance programs and implementing effective savings strategies, aspiring homeowners can find ways to turn their dreams of homeownership into a reality.

By understanding the available resources and seeking professional guidance, first-time buyers can navigate the path to homeownership with greater confidence and financial stability. Your real estate professional can be very helpful in guiding you through which programs may be available. They can guide you to a lender who specializes in down payment assistance and other special programs.

For more information, download the Buyers Guide.

Referrals are the lifeblood of any business, and real estate is no exception. When someone you trust refers you to a service provider, you’re more likely to do business with them because you know that they’ve been vetted by someone you know and trust.

That’s why we’re so grateful for the referrals we’ve received from our past clients. It’s a wonderful feeling to know that our work has been so appreciated. If you know anyone who’s thinking of buying or selling a home, please don’t hesitate to refer them to us. We’d be honored to help them.

We’re a team of experienced real estate agents who are passionate about helping people find their dream homes. We have a proven track record of success, and we’re dedicated to providing our clients with the best possible service. If you know anyone who’s thinking of buying or selling a home, please refer them to us.

We’re known for our excellent customer service and willingness to go the extra mile to help our clients achieve their goals.

Thank you for your referrals! They mean the world to us.

When it comes to safeguarding against scams, awareness is key. By being vigilant and recognizing consistent red flags, you can effectively thwart scammers in their tracks. Stay one step ahead and keep an eye out for these warning signs to protect yourself from falling victim to fraudulent schemes.

Unexpected contact – You receive unanticipated contact by phone, text, or email from an individual or organization regarding an invoice, order, delivery, or charge that you don’t know about.

Sense of Urgency – Scammers employ tactics to manipulate and create a fabricated sense of urgency, resorting to rude or aggressive language to pressure you into taking immediate action.

Unusual Payment Requests – Be cautious if someone asks you to make payments or send money through unconventional methods such as gift cards, cryptocurrency, payment apps, or online wire transfers to deceive you into paying for something, resolving a fabricated issue, claiming fake sweepstakes winnings, or promising unrealistically high returns on investments. .

Coercive Communication – threatening language, claiming that you owe money and using scare tactics like threatening to involve the police if immediate payment is not made.

Love Scam Trap – Watch out for a potential online love interest who showers you with romantic words but avoids meeting face-to-face. Be cautious of these "romantic emergencies" and avoid sending money to someone you haven’t met in person.

Homebuyers Specific … Particularly during the closing process, scammers employ deceptive tactics by sending fraudulent emails to homebuyers, impersonating trusted individuals such as the real estate agent, settlement agent, or legal representative. These spoofed emails contain fictitious instructions for wiring closing funds, putting unsuspecting homebuyers at risk of financial loss.

Always verify with your agent and another trusted individual like a settlement or mortgage officer that the request for funds is legitimate before transferring money.

If you feel that you have become a victim of such a scam, contact your bank or wire-transfer company immediately to ask for a wire recall. Responding as soon as possible may increase the likelihood you’ll be able to stop the transfer and/or recover your funds.

For more information, see Mortgage Closing Scams on the Consumer Financial Protection Bureau website.

If you want to report a suspected crime, contact the Internet Crime Complaint Center or IC3. The nation’s central hub for reporting cyber crime is run by the FBI, the leading federal agency for investigating cybercrime. Go to their website for more information and to file a complaint.

As young people enter the full-time workforce and begin to think about living on their own, it may not seem practical or wise to consider buying a home. However, it may be a pivotal decision for your financial security and future retirement.

Rents are going to increase based on the shortage of rental units needed for the demand of the market. Buying a home is a way to control those costs and even provide income by converting it to a rental as you decide to move up into another home.

There is an advantage to buying a home before a person gets married, starts a family, and has their standard of living at a higher pace. Their expenses are lower, and it is easier to not only qualify for a loan but possibly, take advantage of programs for down payment assistance, grants, or other options like gift funds or co-signers.

Purchasing a home is a significant financial decision, particularly for first-time homebuyers. However, there are several benefits to buying a home early in your career, even if it is not your dream home.

One of the most significant benefits of buying a home as an investment is that it can help you build equity. Equity is the difference between the value of your home and the amount you owe on your mortgage. As your home’s value increases, so does your equity. This can be a valuable asset in the future, as you can use it to finance other investments or retirement expenses.

Another benefit of buying a home as an investment is that it can generate passive income. If you rent out a room or two in your home, you can use the rent to help cover your mortgage payments and other expenses. This can free up your disposable income to invest in other areas, such as your retirement savings.

Of course, there are some risks associated with buying a home as an investment. The value of your home may not always increase, and you may have to deal with unexpected expenses, such as repairs or maintenance. However, the potential benefits of homeownership can outweigh the risks, particularly if you are strategic about your investment.

When choosing a home to purchase as an investment, it is important to consider the location. A home in a desirable area that is likely to appreciate in value over time is a wise investment. It is also important to consider the size of the home. A home with three or four bedrooms will be easier to rent than a property with less.

The strategy can be as simple as:

1. Buy a house when you enter the workforce and take on paying roommates. Declare the income on your income tax.
2. It doesn’t have to be the perfect home, but it does need to be a good home in a good area.
3. Never sell the home; instead, convert it to a rental when you move up in the near future as your income goes up.

If you have young adult children who would benefit from this advice, please share it with them along with our Buyer’s Guide. If they would like to learn more specifics, we would love the opportunity to meet with them.

A much-repeated investment strategy is to buy low and sell high. Some people who purchased around the financial crisis of 2010-2012 are poised to make considerable profits.

The median home price in America is now $295,300 up from $155,600 in February 2012 which calculates close to an 8% annual increase. The median equity that homeowners have earned during the same period is $140,000.

Inventory is in short supply while demand is high which has caused prices to increase. Factors that continue to contribute to the lower number of homes on the market are record low mortgage rates and housing starts have not met expectations since the Great Recession. This year, people spending more time at home due to the pandemic has caused some people to rethink their current living space which has added to the demand.

Some experts believe that a significant portion of the workforce will continue to work from home after the pandemic has passed making the motivation for a larger home more of a long-term effect.

The median days on the market for a listing is 24 which is a direct result of the low inventory and heightened competition. Sold homes are receiving an average of three offers with some situations ending in a bidding war. This is an advantage for a seller who can not only realize a higher sales price but also accelerate a move into another home.

While the pandemic has certainly wreaked havoc on some businesses like the hospitality industry, real estate has continued to boom. Seven out of ten sales contracts are closing on-time which can give sellers a great deal of confidence.

Taxpayers can exclude up to $500,000 of qualified gain if they are married and up to $250,000 if single. Some homeowners are taking the profit from their homes while at the top of the market, reserving part of their equity for investments, and purchasing another home with a higher loan-to-value mortgage at the incredibly low mortgage rates now available.

If you’re curious to see if this might work for you, contact us at (503) 289-4970 to find out what your home is worth now and what homes are available that may fit your lifestyle better. Download our Sellers Guide.

Debt-to-Income ratio is a tool that lenders use to qualify buyers for a mortgage and is an important factor in determining loan approval. It provides an indication of the amount of debt that a potential borrower is obligated to in relation to how much income they have.

Total monthly debts are determined by adding the normal and recurring monthly debt payments such as monthly housing costs, car payments, minimum credit card payments, personal loan payments, student loans, child support, alimony, and other things.

By dividing the monthly income into the monthly debt, you arrive at a percentage of the monthly income. Lenders actually look at two different ratios commonly called the front-end and the back-end.

The front-end ratio is the proposed total house payment including principal, interest, taxes, insurance, mortgage insurance if required, and homeowner association fees. Lenders generally don’t want these expenses to be more than 28% of the monthly gross income.

The back-end ratio includes the same items that are in the front-end ratio plus any other monthly obligations like the ones mentioned earlier. Lenders prefer to see this ratio not to exceed 36% of monthly gross income but some lenders may extend that to 43%. Borrowers obtaining an FHA mortgage might also be allowed an even higher back-end ratio.

If a borrower had $8,000 monthly gross income, their proposed house payment should not exceed $2,240 or 28% of their monthly gross income. Then, their house payment and monthly debt should ideally not exceed $2,880 or 36% of their monthly gross income.

For the sake of an example, let’s say that their monthly debt was $900. That would only leave $1,980 for the maximum house payment. The monthly debt became a limiting factor affecting the house payment.

In addition to determining whether the buyer qualifies for the mortgage, it could affect the interest rate. Having good credit and having the proper ratios can result in being approved for a mortgage. On the other hand, if the debt is on the upper side of an acceptable range, the lender may charge a higher interest rate for the addition risk of a marginal borrower.

While the math is not difficult to come up with your ratios, it is not necessarily a do-it-yourself project. A trusted lending professional can assess your situation and give you an accurate picture of what price home you can afford and the rate you can expect to pay.

Both things are important to know before you start looking at homes and especially before you contract for one. All lenders are not the same. Call me to get a recommendation of a trusted mortgage professional who specializes in the type of mortgage you want. Download this FREE Buyers Guide.

Ideally, each party will pay their own closing costs associated with the purchase and the sale of a home, but they can be negotiable based on lender requirements and market conditions.

The fees are usually paid at the settlement and will be itemized on the closing statement. Buyers should be aware of them before contracting for a home. If a mortgage is involved, the lender will want to verify that the borrower has ample funds available at closing to pay for them.

Buyer’s closing costs can range between two to five percent of the sales price. The real estate agents should be able to give you an estimate of what a buyer can expect. The most accurate estimate will come from the lender at the time the loan application is made. They may or may not include other fees that will be charged to buyers by the title or escrow company.

Buyers are required to be provided a standard Closing Disclosure form at least three business days before the loan closing date. This document will include the loan terms, estimated monthly payments, loan fees and other charges. This can be compared to the loan estimate provided by the lender when the application was made.

Fees connected to a mortgage

Loan origination fee … This is the lender’s fee for processing the mortgage application. It can vary in amount but typically, it can be one percent of the mortgage amount. It may be possible to negotiate this fee into the rate of the mortgage.

VA funding fee … This is a fee charged to the veteran for closing the loan. It can be paid in cash or rolled into mortgage. The amount is based on the status of the veteran, their down payment and whether they have had a VA loan before.

Appraisal … This is a fee paid for a licensed appraiser to determine the value of the property. It validates that the mortgage will not exceed the purchase price and that the buyer has enough down payment based on the type of mortgage applied for.

Attorney fee … This fee is charged to ensure that the legal documents are drawn properly so the lender will have an enforceable mortgage. It is not for legal representation of the buyer.

Discount points … A point is one percent of the mortgage. These fees are considered prepaid interest and can be used to adjust the interest rate on the mortgage.

Lender’s title insurance … This coverage insures that the lender has an enforceable lien from title claims on the property. This policy is usually issued in connection with an owner’s title policy and is priced separately.

Mortgage insurance … Most loans made in excess of 80% of loan to value require mortgage insurance to protect the lender from loss if the property must be foreclosed on. There is no mortgage insurance requirement on VA loans. FHA mortgage insurance premium has two parts. There is an up-front charge of 1.75% of loan amount and then, a monthly amount which is added to the payment. Conventional loans usually collect the first month’s premium in advance and subsequent amounts are rolled into the mortgage payment.

Recording fees … These are fees that are for filing the legal documents with the municipal or county recorders. The documents would include the mortgage and the deed.

Survey fees … This fee is necessary, based on requirements of the lender, to verify property lines, shared fences and driveways and to identify any other encumbrances.

Underwriting fee … This is a separate fee that covers the research and determination that the entire loan package meets the lender’s requirements.

Fees required by mortgage for escrow account

Property taxes … Lenders can require two to three months taxes to be held in escrow so that there will be enough to pay them in full 60 to 90 days before they are due.

Property insurance … Insurance is paid in advance and the annual premium will be due at closing. The lender further requires one additional month’s amount so that one month prior to the anniversary date, the premium can be paid for the renewal.

Flood insurance … The lender may require flood insurance on the property based on their assessment of the location in a flood zone or proximity to a flood zone.

Fees connected to purchase of a home

Settlement fee … This is the buyer’s portion of the fee paid to the title or escrow company, or attorney who handles the closing of the sale.

HOA Fee … Home Owner Association fees are usually paid in advance by the owner. They are prorated at closing for the amount paid that the seller does not benefit from.

Owner’s Title insurance … This coverage insures that the buyer, the new owner, received clear and marketable title from the seller. It will protect the new owners’ interests should they be challenged. Even though it may not be required, it is recommended.

Pest inspection … A pest inspection by a licensed exterminator can be required by a buyer to determine if there are active termites or termite damage, dry rot or another pest infestation.

Property inspection … A home inspection conducted by a professional can be required to determine structural integrity of the property as well as all the systems in the home. It can include but not be limited to plumbing, electrical, roof, heating and air conditioning, appliances and other things.

Title search … Sometimes, title companies waive this fee when an owner’s title policy is issued. It can be customary that a separate fee is charged in addition to the premium for the title insurance.

Transfer taxes … When government taxes are required, these fees must be collected.

The Consumer Financial Protection Bureau is a U.S. government agency that makes sure banks, lenders and other financial companies treat the public fairly. You can download a Closing Disclosure Explainer from their website.

Mortgage assumptions have not been a practical matter for the last 30 years because mortgage rates have been on a steady decline. Even if the seller had a rate lower than the current rate, the new purchaser must qualify to assume the loan.

In the case of conventional loans, the lender has the right to increase the rate to the current rate which neutralizes the reason for assuming the loan. This change took place in the early 1980’s when lenders added due on sale provisions so lower rates could not be assumed.

FHA and VA loans can be assumed at the existing rate with the provision that the purchaser qualifies for the loan. This could be an advantage if the rate on the loan to be assumed was lower than the current mortgage rate for FHA or VA and the buyer is going to owner-occupy. Unfortunately, investors are prohibited from assuming FHA and VA loans.

Besides the obvious advantage of a lower rate which would have a lower payment, the closing costs are lower on an assumption than originating a new loan. Another benefit is that the loan will be further into the amortization schedule than starting a new 30-year loan which means it would be retired sooner while the equity is also growing faster.

The current rates are close to one-percent lower than they were a year ago, so, assumptions are probably not a method of financing a home purchase in the near future. The Freddie Mac forecast expects rates to remain low, possibly at a yearly average of 3.0% in 2021.

Mortgage rates have remained low since the Great Recession even though experts anticipated they would start trending upward. If rates increase, especially rapidly, assumptions of FHA and VA loans could easily be a tool that buyers and real estate professional alike will be employing. For sellers with an assumable loan at a below market rate, it could add to the value of the property as well as the marketability.