Mortgage myths all home buyers should know by Rick Yost

Getting pre-approved for a mortgage should be step one in everyone’s journey to a new home. It sets the parameters of the whole home search. What is the most that can be spent?  What is a payment that is comfortable?  It allows the search to be narrowed to homes that meet the budget and saves time looking at homes that are just not affordable. Pre-qualification sometimes also provide the pleasant surprise that a more expensive home can be afforded.

There are several mortgage myths that all home buyers should be aware of. These myths sometimes freeze potential buyers in place and stop potential home owners from pursuing a mortgage or thinking that they qualify for a larger one than they do.

Credit Scores

Many borrowers believe that if you are buying a home with another person, the lender will consider the highest credit score of the two borrowers. This is not true; most lenders take three credit scores from each borrower (Experian, Trans Union, and Equifax) and use the middle score of the lowest borrower.   

For example, if the highest borrower’s three scores are 720, 715, 710 and the lowest borrower’s were 645, 640, 635, the highest borrower’s middle score would be 715 and the lowest borrower’s middle score would be 640. Lenders will use the 640 score.   

There are exceptions: like the highest credit score is also with the significantly highest earner.   Rates are tied to credit scores and the lower the credit score the lender uses, the higher the mortgage rate. This negatively impacts your ability to buy a home.    

Mortgage Insurance

Mortgage insurance is a premium placed on home loans to reduce lender risk. This increases the monthly cost of the mortgage. Most times when a borrower puts less than twenty percent down on the home, the lender requires mortgage insurance. 

There are other options available that may allow for less than twenty percent down and still avoid the added expense of mortgage insurance (commonly referred to as PMI). Some lenders allow for a second mortgage, sometime referred to as a piggyback or buydown loan. In this case the borrower has the original mortgage of 80 percent and they also have a second mortgage for 10-15 percent. 

Another local option is a program offered through The Mortgage Network from Androscoggin Bank, called the Equity Builder that allows for 10 percent down and no mortgage insurance. This is a great option for many borrowers. 

Lenders Matter

Many borrowers don’t believe that who their lender is matters to their real estate agent or to the seller. This couldn’t be further from the truth. Your real estate agent can recommend good local lenders that make the process smooth and will handle issues quickly and proactively. 

The Real Estate Settlement Procedures Act prohibits any type of payments or kickbacks between lenders and real estate agents, so you can be assured the recommendation is based on prior experience and the professionalism of the lender. 

I personally have two lenders that I do not work with for my clients, due to multiple bad experiences. I also have two sellers that I have worked with that refuse offers from buyers that are using a certain bank. So, the lender does matter. A borrower should seek opinions from several sources before settling on a lender.

Quoted Rates

Many borrowers assume the rate they are quoted when they first approach a lender is the rate they will get. In truth, rates are tied to the daily trading of mortgage bonds and change daily. The rate the borrower will pay will not be set until it is locked. This is the day that you chose the home you want to buy and then complete the formal application. That rate now follows the borrower and the home. If the deal falls through on that home and the borrower finds another home, the interest rate will have changed again. It is important for the borrower to get updated quotes throughout the home search. Changes in interest rates change the affordability of homes.

Fixed Rates

Adjustable rate mortgages got a bad rap in the last housing meltdown. Many borrowers are reluctant to use them. They prefer the safety of knowing their mortgage payment is fixed for the next 30 years. Adjustable rate mortgages should be given more consideration if a borrower’s time line of owning the home is between 5-10 years. 

For example, if the borrower knows they plan to be in the house for five years and then sell, they can get a five-year adjustable rate mortgage. Adjustable rate mortgages are running approximately .875 percent lower today that 30 year fixed mortgages. On $200,000 borrowed, the borrower would save $146 per month in interest. That is a big savings if a buyer knows they are only going to be in a home for 5-10 years.  

This should help clear up some mortgage myths. Remember, start your home buying journey by getting pre-qualified by a lender and then find a qualified real estate buyer’s agent to work with.  This should assure a pleasant and rewarding home buying experience.

Rick is a realtor, real estate author, and long-time Windham resident. You can reach Rick with all of your real estate questions and needs at rickyost63@gmail.com

Beyond the closing and taking ownership by Kevin Ronan

Congratulations! You have spent tireless hours searching for the perfect home, been through the inspections and are about to close on the home of your dreams. Don’t be fooled, the closing is just the beginning. What does a buyer need to consider beyond the closing?  
 

There are some activities that buyers should address immediately, while there are other things that you may defer to some future time after having lived in the house. New buyers need to begin by changing all the external locks to the house. If you are like me, you have probably given out a spare key to a neighbor or given a neighbor or friend the combination to your key code. Changing the door locks is inexpensive and will give you confidence that your home is more secure. While you are changing the locks, be sure to also change keypad codes for the garage and home security system.  

Improving your home security may also include getting to know your neighbors. When we moved into our new home, our neighbors had a casual gathering soon after we moved in.  I learned that two of my neighbors owned every tool known to man, which was important to me considering that I owned none.  

Make sure that the utilities have been turned on the day of the closing so they are working when you take ownership of the house. This is especially important in Maine during the winter months when there is a risk of frozen pipes if the heat is not on.  

Be sure to fill out a change of address form with the U.S. Post Office. When I moved two years ago, the Post Office was giving out out a moving kit, which included 20 percent off coupons for several of the big box stores; this saved us hundreds of dollars on our appliances. The Post Office will forward your mail, but do keep in mind that the mail will take a couple of extra days to get to you. Make sure to take the time to change the address on your credit cards and other loans to avoid any delays.

Use the home inspection results to develop a repair plan. The home inspection repair plan will help you prioritize what needs to be done as well as insure that you have planned for the budget needed to perform the repairs. Consider having an energy efficiency audit. This would be particularly beneficial in an older home. You may qualify for special financing or up to $1,500 in incentives from Efficiency Maine for work performed to improve your home’s energy efficiency. Before starting on any projects always check with the town office for permit requirements.  

Finally, assemble a team of local professional tradesmen to assist you. This may include a handyman, carpenter and electrician to name a few. Once you have moved in you will quickly learn more about your home. These professionals can be of great help if and when the need arises and can help you prioritize repairs and maintenance beyond the closing.

Kevin Ronan is an Associate Broker affiliated with Alliance Realty, 290 Bridgton Road, Westbrook. He can be reached at Kronan@alliancemaine.com or 207-838-4855.

 

Negotiating a home sale by Carrie Colby

When you list your home for sale, you may think you’ve priced it right, staged it beautifully, and timed the market for a quick sale.

The reality is that buyers are full of surprises. They rarely pay list price; they discount or dismiss improvements you’ve made; their inspections usually turn up something for you to fix, and they may have terms that you weren’t counting on - like needing to sell their home before they buy yours. 

Whether you plan to or not, you’re going to have to negotiate. Negotiating doesn’t mean you win and the buyer loses, or you lose and the buyer wins. It’s simply a way to make smaller concessions so that you don’t lose the buyer and the buyer doesn’t lose your house. Negotiation is designed for both of you to get what you want.

You’ve done something right or you wouldn’t have an offer on your home, but a sale isn’t in the bag yet. Don’t blow it. 

Here are some negotiating mistakes to avoid:

Demanding top dollar for an aging property - Yes, the market is better than it was during the recession, but an older home that hasn’t been updated or maintained to perfection can’t compete with refreshed or newer homes.

When you’ve lived in a home for some years, you miss the dings and scuffs that make a home look used. You don’t see the age of your finishes and fixtures the way buyers see them. Even if it’s not torn or broken, buyers may see certain things as needing to be replaced.

Getting angry at a low offer - A buyer may make an offer for your home that is far lower than you feel it is worth. Don’t take it personally - it’s a negotiating tactic. If the buyer didn’t want the home, there would be no offer, so at least you know the buyer wants to negotiate.

The buyers are using a low price to tell you something - Your job is to find out what that something is. Have your agent ask the buyer’s agent for the reasoning behind the low offer before you provide a written response. The buyer could be using inaccurate comparables; they could be trying to buy above their price range or they may be investors who use a low-ball formula to acquire properties.

No offers or extremely low offers could be telling you that your home is overpriced, compared to other similar homes. If your agent told you an estimated range where homes similar to yours are selling and you priced above that range, you need to lower the price. A low offer can also mean the market is slowing down and the buyer feels more confident. Ask your agent for an updated Comparative Market Analysis (CMA) so you can see where the market is heading.

Negotiations keep the dialog fluid and the buyer interested. In a seller’s market, you may expect buyers to give you multiple bids for your home and that could happen, but it’s rare. In a soft market, your buyer could simply walk away and find another home to buy because there are other homes on the market. You need to be flexible on the points that count most with the buyer such as, move-in dates. As a result, the buyer is more likely to be flexible with you on repairs or other negotiations.

Remember, you want to sell your home and your buyer wants to buy it. Maximize your offers with good negotiating techniques and move on with your life. And when you buy your next home, you’ll be more experienced and a better negotiator knowing the seller’s side of things.

Carrie Colby is the Broker/Owner of Premier Properties, 1263 Roosevelt Trail in Raymond, ME. She can be reached by phone at 207-655-2225 or email at cmcolby@maine.rr.com

A home buyer's journey by Richie Vraux

I love working with real estate buyers, especially first time homebuyers. It’s very important to know all the costs associated with purchasing your new home from start to finish, so you don’t leave yourself short and having to scramble to come up with money you weren’t aware of.
 

Your first step is to find a real estate agent that you will be comfortable with to help you throughout the whole process. You should sign a Buyers Agency Agreement so you and your agent’s interests are protected. You should have your real estate agent go through the entire buying process with you so you know, in advance, what to expect once your home buying journey is done and you are nice and cozy in your new home. Whether you are buying your first ever new home, upsizing, downsizing, purchasing a camp, land, second home, vacation home or relocating, we all follow the same steps.

Get qualified: If you don’t have a mortgage broker or a bank you are working with, ask your agent to recommend a lending institution. You will want to do this prior to home searching. The reason is that you don’t want to start looking at $300,000 homes if you only qualify at the $200,000 level. You don’t want to waste your time or your agent’s.

Meet with your agent and go over your wish list of the things that are absolutely essential in your new home. It could be the town, number of bedrooms or baths, basement or the garage. It is all about you -The Buyer, so make sure you go through what is important to you. Have your agent schedule showings and land on the right property that fits your family’s needs.

Once you find the perfect home, have your agent place your offer. In today’s market, follow the guidance from your agent as to what your offer should be. Once you go under contract, now the fun begins.

You must place an earnest money deposit, usually $500 and up; but it could be a lot more depending on the price of the home.

Inspection time: Your agent will recommend doing inspections - even if it is a brand new home. He will usually recommend two to three companies. The cost for inspections is out of pocket, paid by you the buyer at the time of the inspections and can run from anywhere from $500 to $1000 plus - depending on what you wish to investigate. Once you get by this stage and are satisfied with the results of the investigation, now you can move on. 

By this time, your lender should be close to completing your funding and acquiring title insurance. They will ask you for documents, more documents and more documents. Don’t get discouraged as it’s an important part of the process. Your banking fees can run between $4000 to $6000 and appraisal fees from $400 to $700, depending on your lender’s individual requirements.  Don’t forget your title insurance and title fees of $600 to $1000 and up. Most of these fees can be built into the mortgage.

Buying a home can be costly but there are things your agent can recommend to you. Your agent might recommend asking the seller to pay closing costs. It could be as high as $5000 or higher depending on the sale price of the home. Know what to expect when purchasing a new home and be prepared. Ask your mortgage broker to give you a breakdown of all associated costs.

As you can see, to live the American Dream may be costly – but there is no better feeling in the world of living the American Dream - owning your own home.

Richie Vraux is a Broker/ Realtor for 20+ years with RE/MAX Allied in Windham.

Call Richie for real estate consultation and advice at: 317-1297