Buyer

What You Need To Know About Real Estate Purchase Contracts

One of the most important documents in purchasing property is the purchase contract, also known as a purchase and sale agreement. It stipulates the agreement between the parties, and prepares the transaction for closing.

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What is a real estate purchase contract?

A real estate purchase contract enumerates the participating parties’ -- could be two or more -- responsibilities during the period the property is taken off the market. It must be signed by both parties (buyer and seller), and it’s required by the United States Statute of Frauds to be enforceable. In essence, a real estate purchase contract is a binding, bilateral agreement with legal capacity to buy, exchange or transfer real property. Take note that the contract is based on a legal consideration, meaning that consideration is a medium of exchange for the property being purchased, which in most cases is money. There are other forms of consideration such as a promise to pay, or a property in exchange.

 

What does a real estate purchase contract contain?

  • Identification of the parties and details of the real estate property (the exact address of the property and a clear legal description)

  • The agreed upon purchase price and corresponding terms

  • The amount of the deposit

  • The essential details, rights, and obligations of the contract

  • Real estate taxes and special assessments

  • The condition of the property, what is included, and what is not included

  • Closing date and costs (and who shoulders them)

  • Terms of possession and contingencies that must be met

 

What is a contingency and what should be listed in this clause?

Contingencies serve as a preparation for the possibility of operational problems. The more thorough and defined a contingency clause is, the more it minimizes the potential loss for both parties. In the case when a contract is already in the works, a settlement contingency is used. This protects the buyer if the sale fails since the property is not really sold until the settlement or closing is finalized. In most cases, this type of contingency forbids the seller from accepting other offers on the property for a specific period. If the buyer’s home closes by the specified date, the contract remains valid. If the home does not close, the contract can be terminated.

Here are the common items listed in the contingency clause:

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Mortgage - A contract will usually require that the transaction will only be finalized if the buyer’s mortgage is approved on the same terms and numbers as are identified in the contract.

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Appraisal - This may be required by the mortgage company and the deal should be contingent upon an appraisal for at least the amount of the selling price.

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Professional Inspection - There are instances when upon initial negotiation prior to the handing out of contracts, the buyer agrees to taking the property “as is,” which is common in foreclosure deals when the property has been subject to neglect, and would most likely be torn down and rebuilt after purchase. But there are also contingencies in which a professional inspection is needed to negotiate repairs with the seller. But if the damages are so bad and/or the seller refuses to shoulder repairs, the sale can fall through.

2 important tips for getting the purchase contract right:

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1. Know your terms and adapt language and terms as needed. Take note that the standard language of a contract may vary in different situations, and real estate laws vary between states--which means standard forms are not the same in every location. Given that condition, you can go over the agreement, check for changes, and adjust accordingly.

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2. Consider getting professional assistance from a real estate attorney or real estate agent. If it’s your first time to engage in this kind of transaction (or even if it isn’t), it’s advisable to get help from the professionals. They can guide you through the whole process of either making or doing the contract, and will point out important things to consider that you might miss.

How To Make The Most Of Using Your 401(k) On A Home

Raising the money for a down payment on a home could be the most challenging step towards homeownership. One way to get the amount you need is to borrow against your 401(k)--although there are numerous options you can consider depending on what’s wise for you at the moment.

But first, what’s the real deal behind borrowing against your 401(k)?

More than 50 percent of 401(k) plans include a loan provision that gives participants the option to borrow against their savings. But is it really advisable to borrow against the balance of your employer-sponsored retirement account to cover your down payment? What are the potential risks to doing so?

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In this article, we’ll answer some questions about how you can effectively pull off getting a loan from your 401(k) without future repercussions on your financial health.

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Should I borrow against my 401(k)?

Frankly, there are only a few instances in which you should consider taking this kind of loan. It works only if you are a responsible and disciplined borrower--and even then, real estate experts advise considering this option only if you’ve exhausted all your other options.

Still, it can be a wise decision as long as you know what you’re getting into. If it is the most sensible way to start living comfortably in your own home, borrowing against your retirement savings could be worth it.

 
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How does it work?

You can borrow up to half of your 401(k) balance or $50,000, whichever amount is smaller. For example, if your balance is $90,000, you are allowed to borrow up to $45,000.00; but if you have, say, $130,000, you are allowed to borrow $50,000. However, just because you can borrow up to $50,000 doesn’t mean you should. Be wise in deciding how much to borrow, and avoid borrowing more than you really need for your down payment.

Once you’ve taken out the loan, you will then have to repay the amount and its corresponding interest on a monthly or quarterly basis. A typical 401(k) loan must be repaid in five years or less, although a longer repayment period may be approved for those who are borrowing for a down payment for a primary residence.

 
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What are the advantages?

There are a lot of reasons why a lot of home buyers are attracted to the option of borrowing from their 401(k) account. For one, most buyers like the idea of owing themselves money, instead of owing someone else (in this case, banks and financial institutions).

It also possible to receive the money quicker than you could with a traditional loan from a bank, since you won’t need to undergo a credit check in order to get approved. Interest rates are also relatively lower with 401(k) loans. This makes borrowing from yourself the quickest, simplest, and cheapest way to get the cash you need for your down payment. Receiving this loan is also non-taxable unless repayment rules are violated, and it does not affect your credit rating.

The great news is, if you pay back your loan on schedule or in advance, it will have little to no effect on your retirement savings progress.This being so, the impact of a 401(k) loan on the progress of your nest egg can be minimal, neutral or even positive--although the most common scenario is for the cost to be less than that of paying "real interest" on a bank or consumer loan.

 
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What are the risks?

Now that you know the advantages of borrowing against your 401(k), it’s time to learn about the substantial risks that come with it.

If you fail to make payments for three months, the amount you borrowed will be considered a distribution from the account, which the IRS will label as taxable income. A withdrawal penalty of 10% will apply to borrowers who are aged 59 ½ and below. These dangers may be fairly easy to prevent if you have a steady stream of income, but it will be a different case if you have to leave your job for any reason. If this happens before the loan is settled, you will be required to pay the entire outstanding balance within 60 days. If you are unable to do so, the IRS will charge you with the abovementioned penalties.

And then there’s the more subtle, but more significant long-term consequence: By borrowing from your retirement savings, you’re losing out on the possibility of compounding interest on that money. To make matters worse, people who take out a 401(k) loan often decrease or even stop contributions to their retirement account during the years they’re repaying it. Those factors can have a tremendous negative impact on your savings.

Impact at retirement: Retirement money that you’ve borrowed will not accrue interest until you’ve paid it back. Depending upon the amount you’ve taken out, it can make a big dent in your fund.
Some employers will disallow new 401(k) contributions if there’s an outstanding loan, thus compromising your future retirement nest egg.

 
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When should I NOT consider borrowing against my 401(k)?

While it is a sensible answer for short-term financial needs and highly important purchases, financing a home with a 401(k) loan is not for everyone.

When you purchase a home, you will immediately be required to pay for your monthly mortgage dues--not to mention, the added costs of homeownership such as utilities, maintenance, etc. If your monthly income can barely cover THOSE, taking on a 401(k) loan can end up taking a dangerous toll on your finances. Some people may justify this with plans of making a lump sum payment, but keep in mind that you would still have to qualify based on your monthly income and ability to make regular payments.

For further guidance, it’s highly recommended to speak to your financial advisor or ask your Realtor for local referrals to loan experts who will be glad to help you!

Important House Hunting Tips That Will Minimize Your Stress And Keep You Sane

There’s not an ounce of doubt that today’s home buyers know how to prepare for the house hunting process—especially in a market where competition is tight. Very seldom will you find a home buyer who isn’t pre-approved, and most savvy buyers are sure to have everything else sorted out financially.

A well-informed buyer will have a fixed budget, a sizeable down payment at hand, and even extra money to use just in case the bidding war gets vicious.

However, there are a lot of minor inconveniences that most buyers fail to anticipate, and you’d be surprised how much people develop so much unnecessary stress over things that could have easily been prevented. Buying a house is an emotional process, and it’s difficult to keep your emotions in check at all times. But don’t worry--the following tips will help keep you sane throughout this crazy and exciting time:

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1| Be on the same page about everything.

Whether you’re buying a house as newlyweds or as a family, be sure that you’re all on the same page about what you NEED and WANT in a home. It’s easy to say that you’ll know what you want when you see it, but this is actually a terrible idea when it comes to buying property.

You’ll be attending a lot of viewings, and will have to keep your enthusiasm at bay for each house you look at. If one family member gets overly excited about a house with five rooms, and you, on the other hand, have already decided on a house with just four--it won’t look good to the seller if you argue about it while you’re touring the house.

You can leave room for compromise, but be sure to discuss the non-negotiables before going on a house hunt.

2| Start your search online.

You can save yourself a lot of time and legwork when you start looking for your dream home online. In no way does this compare to looking at the actual homes in real life, but at least you can instantly narrow down your search to those that are within your price range. According to the NAR 2016 Profile of Buyers and Sellers, nearly a half of all home buyers bought a home that they first saw online. Looking at homes online can also be a way of minimizing arguments during the actual viewing!

3| Encourage healthy conversations.

Of course, no matter how much you try to come up with a criteria for the house you want, you’re still likely to come across some features that you could never have predicted prior to the viewing. The key is to be prepared to make unexpected decisions by knowing how to lead productive conversations.

For example, instead of flat out dismissing your spouse’s interest in a bigger-than-expected garage, find out if you can make this space work for you as well. If you like the color of the walls and the kids don’t, present a scenario in which you repaint their rooms in the color of their choosing. Be open to suggestions and make every discussion a productive one. Think in terms of possibilities instead of limitations--but be sure to think within your budget.

4| Let your agent do the talking on your behalf.

You were wise enough to hire a professional to help you navigate the home buying process. The only thing you need to do now is to trust him/her to represent you.

Real estate agents are trained communicators, and they’ll know how to voice out your concerns without offending the seller or putting your offer in jeopardy.

Buyers are encouraged to consult with their agents regarding technical matters of the sale, and it is the job of the agent to help buyers come up with a solid plan that would lead to a successful closing. Keep in mind, though, that you must always be in control of your own purchase. Don’t let your agent lead the way entirely. Your agent’s job is to guide you and present you with options, and not to take over the home buying process.

Do your own research, know what you want, and talk to your agent when you’ve set clear priorities. This way, you won’t end up with a house that your agent decided on for you.

5| Practice acceptance.

Be at peace with the possibility of you not getting the first home you fall in love with. When you find yourself caught in a bidding war for a house, learn to let go when you know that there’s no way you could win without breaking the bank. In such cases, it’s better to accept defeat and move on.

It may be hard to believe this when you’re still mourning the loss of your dream home, but trust us: There will always be a better house for you.

Home Viewing Etiquette For Buyers

Before landing your dream home, the first order of business would be the initial process of finding it. Buyers should expect a lot of tours before finding “the one”--but although sellers are often the ones who have to “impress,” buyers should not be too lax about their behavior. If competition ends up being tight, the seller is bound to choose a buyer they really like (with a strong offer to match, of course), which means that you’ll likely score low if you were an obnoxious home viewer during the open house.

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How should a buyer act during an open house?

We can all agree that any buyer would love the idea of getting a great deal, but arrogance and poor etiquette can sometimes enter the equation when the buyer is too focused on getting what he or she wants.

Remember: Respect for sellers, real estate agents and even your competition is crucial. Being an obnoxious home buyer could actually cost you in the hunt for your dream home. Here’s how you can remain professional and at your best behavior at all times:

1. Get pre-approved.

Perhaps the first thing any buyer must have before shopping for a home is a pre-approval letter from a lender. Looking at a house without knowing if you’ll be granted a mortgage is simply misleading--and could potentially waste the seller’s precious selling time.

A mortgage pre-approval is proof of your capability to finance the home, and sellers often don’t entertain buyers without a legitimate letter in hand.

2. Be on time.

Being punctual is a sign of respect for the seller’s time and effort. Arrive at the agreed-upon time, and call to inform the realtor or seller if you’re running late. While uncontrollable circumstances may cause some delay, it is unacceptable to make last minute changes, especially if it is a private home viewing and serious preparations have been made on the seller’s end. If you asked the seller to leave for the viewing, you should definitely show up on time.

3. Leave nothing, not even footprints.

The house you’ll be touring is sure to have been de-cluttered, deep-cleaned, kept shiny and left odor-free for your arrival, and it would be expected of you to extend the same amount of graciousness and courtesy by leaving the home as it was before you entered.

Avoid bringing in food and drinks (they’ll offer you some, anyway), and make sure that your shoes don’t leave any kind of marks on the floor. Ask the seller or realtor where you can wipe off the dirt under your shoes before entering--or better yet, just leave your shoes at the door.

4. Limit the entourage.

It is understandable for the entire family to want to see all the houses during the hunt, but you may want to save the family field trip for later (when you’ve narrowed down your choices to the final three). Bringing your children can lead to too much mess and noise, and it’s just rude to have unruly grade schoolers running around a house that was professionally staged for an adult viewing.

5. Keep rude comments to yourself.

While it is perfectly acceptable to voice out serious concerns about the home, it is best to keep opinions on taste and style to yourself. If you find the wall colors a little too playful for your liking, or if you think the paintings that are hung up on the living room are a little tacky -- it is best to just save the conversation for when you’re outside the house. These are things that could easily be remedied once you decide to buy the home, so don’t risk offending the seller by rudely commenting on their personal preferences.

6. Take nothing but photos (but ask permission first).

It should go without saying that you should NOT take anything from the home, and that it is your responsibility to make sure your children aren’t lurking around the rooms and putting things in their pockets. The only thing you can take with you are photos, but only after you’ve asked the seller or realtor permission. If the sellers are still living in the home, they may find it a little invasive for you to take too many photos. Ask them about any privacy concerns, and take your photos accordingly.

7. Don’t overstay your welcome.

Of course you want to see every corner of the home, since you may end up living in it--but make sure to walk through the house with purpose so as not to waste any time. Make a list of all the things you want to check in the home, and move through and around it with specific goals. Time is the seller’s most important resource during the home’s listing period, so limit your tour to 45 minutes, or 1 hour tops.

How To Pull Off A Long Distance Move To Your New Home

Congratulations, you just purchased a new house and are now ready to move. The hassle of the home buying process is over, but the settling-in process is not quite done yet. While the hassle of moving your things can sometimes be unnoticeable because of all the excitement, it wouldn’t hurt to do a few things that will help you save a lot of time, energy, and resources during the move.

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1. Make a detailed schedule.

Moving is not an easy task, especially if you’re transferring to a neighborhood far away from where you currently reside. It can be overwhelming to think about the move itself, but plotting it on your calendar and spreading out the tasks over a number of days is sure to make it less daunting.

Before you can move, you have to pack up your stuff first. If you’ve already braved the task of decluttering your home before the sale, then great! But if you haven’t gotten around to it yet, now is the time to write down how much you have to get accomplished, and when.

Once you can say for sure that packing up your things can be completed on a specific day and at a specific time, you may proceed to booking a date with your chosen mover. If you’re moving internationally, you may have to book your ticket at least a month in advance. If you’re driving yourself there, be sure you know how long the trip will take, and factor in any stopovers you may need so that you can get enough rest along the way.

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2. Pack carefully.

While moving your things across short distances is something you can do with ease even at the last minute—it’s a different story if you’re moving across the country or halfway across the world.

When you’re about to set off on a long journey to your new home, it is important to pack as meticulously as you possibly can. It may seem like a hassle while you’re doing it, but labelling all boxes (and even the the smaller boxes inside them) can make things a lot easier later on. Make sure your fragile belongings are properly wrapped and labeled, and identify which side of the boxes should face up. You also want to make sure that you’re not transferring loose items and haphazardly sealed containers.

This not only helps the movers handle your belongings with care, but it will also give you an easier time unpacking in your new home.

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3. Prepare a carry-on bag.

If you’re going to spend a lot of time on the road or on the plane, be sure that you have everything you need in a carry-on bag. Identify the things you’ll need while traveling, and pack them in a bag before having all your other things shipped.

Have an extra change of clothes, some toiletries, and enough snacks for the road. This way, you won’t have to search for them when your really need them.

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4. Check the weather forecast.

When you set a date for the move, make sure that you have an idea of what the weather will be on that day.

Especially for cross country moves, being aware of the weather will help you avoid unexpected drives under heavy rain, or having to wait for your movers to arrive in a snowstorm. Also, if the weather turns out to be horrible on the day of your move, you may be looking at quite a few delays.

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5. Bring entertainment for the kids.

This may seem like an unimportant part of moving, but you’ll be surprised how much of a hassle bored children can be during a long drive.

If you don’t want your patience tested during the ride to your new home, make sure you have something that will keep your kids occupied. This way, everyone can be in a good mood as you arrive at your new home!

Understanding Property Liens and How They Can Be a Nightmare To Your Home Sale

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First things first: you need to have a clear idea of what a lien is. A property lien, in simplest terms, is a legal claim a creditor can put against your property as a consequence of an unpaid debt. It is the creditor’s way of collecting debts you owe to them by intending to fund the money owed through the sale of one of your biggest assets—your home.

Liens filed against a property usually come from unpaid taxes, missed mortgage payments, unpaid bills, or any payments owed to contractors for work done on the home.

Property liens can slow down a real estate transaction because your title won’t be considered clear until you pay your debt. It can hinder your ability to refinance or sell your property until the lien is satisfied.

 

What are the common types of liens on houses?

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1. Voluntary liens

These are liens that are both agreed to by a creditor and a debtor. The best example of a voluntary lien is a mortgage, which a homeowner freely enters into in order to finance his/her property. In a mortgage, the bank holds the lien in the event of a foreclosure. A contract is usually involved to place the voluntary lien on the property. The best thing about this type of lien is that it does not negatively affect the property, its title, or the homeowner’s ability to convey or transfer title.

2. Involuntary liens

Involuntary liens are imposed by law and are placed on a property due to unpaid obligations. These liens can happen without notice depending on the situation. They are usually placed on a property when a debtor falls behind in tax payments, judgments, or home improvement invoices. Involuntary liens are detrimental as they can make refinancing or selling your home difficult. They can leave you without a clean title and a huge black spot on your public record.

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  • Property tax lien - If you neglect to pay your federal, state, or county taxes, the government may file a tax lien on your property. This lien usually takes priority over all other mortgages and liens on your home, even if it was placed last. Through this lien, the government can have your home sold to pay the real estate taxes. Nonetheless, you may still have the opportunity to get your property back by paying your overdue taxes and other costs.
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  • Judgment lien - This type of lien can be placed on your property after a creditor sues you and wins the case. The creditor can use a judgment lien on your home to ensure that they will receive money. The court can grant a creditor a certificate of judgment that can be given to a land records office in the county where the property is located. Judgment liens are most commonly used by unsecured creditors, such as the holders of credit card debt, medical bills, and personal loans. It can also be imposed by an attorney if you do not pay your bill for legal services.
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  • Mechanic’s lien - A mechanic’s lien (often known as a contractor’s lien) is a claim for payment from any contractor in the home improvement business. General contractors, carpenters, plumbers, electricians, handymen, and other repair companies who worked on your home may file this lien on your property as insurance to make sure that they are paid. It is their legal recourse to force payments of overdue invoices, especially when the property will transfer ownership soon.
 

3 common ways liens can slow down a real estate transaction

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  • Once the title company performs a search for any liens that have been filed against your property and they discover a lien, it will put the real estate transaction temporarily on hold and delay the closing.
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  • A property lien that is discovered before closing can delay or even cancel a buyer’s mortgage approval. Strictly speaking, mortgage companies will not agree to finance a property until the lien is satisfied or paid off, usually by the seller.
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  • If you’re the seller, it can be very difficult to sell your property because buyers won’t purchase a home without a clear title. As previously mentioned, lenders won’t approve the purchase nor agree to finance the property. Certainly, it is your responsibility to pay off the lien on your property before you may be able to sell.

Note:

Remember that the creditors’ primary objective is to get paid. A property lien will remain in effect until the debt is paid off or if the judgment expires. Once the lien on a house is paid off, the creditor will be satisfied and the sale will usually go through. Except for property tax liens, creditors can be lenient because they usually forego foreclosure and may choose to collect what’s owed to them when you sell the property.

 

If my property has a lien, what should I do?

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Home Sellers:

If a property lien was found on your home, the first thing you should do is to determine if it actually belongs to you. Liens can be searched for by name, so it isn’t impossible that multiple matches will appear. The best way to determine the validity of a lien is by working with your real estate agent and title company to find out how you can verify the issue.

However, if it is discovered that the property lien genuinely belongs on your house, you need to start resolving the issue as soon as possible. In most cases, there’s no need for you to be deterred from putting your property on the market. In the case of a mechanic’s lien, review the claim and match it against invoices and payment receipts. As a homeowner, if you’ve obtained a signed receipt from the contractor showing that the bill is already paid in full, it will be enough proof to file a lien release form.

In other types of liens, you need to get in touch with the lien holder and arrange how to pay off your debt. You might just have to bear with the additional expenses tied to clearing the lien and the delay in title transfer. In such difficult cases where you refuse to pay or want to contest the validity of the lien, you may consider the title company’s advice on how to best handle the situation or even seek legal counsel. The bottom line is that the sale of your home will be temporarily delayed until a definitive outcome can be reached between you and the lien holder.

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Home Buyers:

Usually, buyers will be apprehensive to purchase a property without a clear title. The lender or mortgage company won’t even approve the purchase or agree to finance the home, anyway. However, there are many instances where a buyer may be faced with the responsibility to pay off any lingering debts. There may be a lien against a previous owner, and now the debt is passed on to them. Such scenarios are possible especially if the buyer purchased a foreclosed home or a sale at auction, and if they skipped paying for a title insurance. It is crucial for buyers to know what they are getting into before bidding on such auctioned properties. They need to be aware of deals that are “too good to be true” because it can actually cost them much more than a traditional sale once they’ve become the new homeowner.

 

Important Factors That Affect Your Mortgage Application

Want to know what lenders look at when they evaluate your loan application? It’s a combination of things.

Banks evaluate your attitude towards debt, predict your future income based on past and current employment, and measure your seriousness to purchase a home by asking how much down payment you will be able to put down. They also look into factors such as market conditions and collateral which are typically out of your control. Not to worry, though, because there are still a number of things you can do to prepare for your application and find the right time to lodge it.

Here are the most important factors that affect your mortgage application:

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1| Credit

Financial health is one of the most important considerations for mortgage qualification, and is mainly determined by your credit score. Typically, the higher your score, the lower your interest rates will be. When your credit score falls below 740, it may be challenging for you to qualify for a conventional mortgage. Lower credit scores may leave you with subprime options with high interest rates.

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Be prepared!

Know your credit score before applying for a mortgage. To have a clear idea of your status, request a copy of your credit report from the three major reporting agencies (TransUnion, Experian, Equifax) and analyze where you stand. Identify all the problem areas in your report and take the necessary actions in order to improve them.

For example, if there are inaccurate, incomplete, or unverifiable items in your report, dispute them immediately by providing the credit bureau enough information to investigate. If you have small balances on several credit cards, start paying them off. Finally, pay your bills on time and avoid incurring any new debt. It may take a few months to make a significant impact on your score, but it will all be worth it once you’re ready to apply for a mortgage.

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2| Employment

When applying for a mortgage, lenders consider your income just as much as your assets. Meaning--your readiness to buy a home is measured not just by how much money you’ve saved up for a down payment, but also by how much money you make on a monthly basis.

When it comes to loan eligibility in terms of income, lenders will consider your combined income from all sources, taking the following into account: alimony, child support payments, retirement benefits, investment returns, bonuses, and other regularly occurring payments. But for most applicants, their monthly paycheck makes up the bulk of their loan-eligible income.

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Be prepared!

A strong employment history indicates stability and proves that you have the means to settle your monthly dues. If you’ve been with the same employer and in the same field for two years or more, lenders are more likely to consider your application. If you have these qualifications, avoid taking on a new job before closing, as this may negatively affect the status of your application. Remember, you will be asked for proof that you are currently employed, and the lender may even have to reach out to your employer for verification.

In other cases, you may need to have a different approach:

If you’ve already changed jobs, be sure to explain your reasons in detail. Mortgage professionals need to be sure that your new position won’t have a detrimental effect on your income, so prepare the necessary documents to prove that the change is actually a wise decision or a step up in your career. If you are staying in the same field (better if you’re accepting a pay raise or promotion), then it won’t really be a problem.

If you have variable income or employment gaps, you may need to provide detailed documentation of your cash flow over the past two years. It also pays to be aware that lenders may need to take a more conservative approach when calculating your total monthly income.

For self-employed workers, it is advisable to prepare two years’ worth of accounts and/or tax returns, a track record of regular work, bank statements that can show a consistent stream of healthy deposits, as well as a good credit report. Also, take our word for it and hire a certified accountant to do the work for you. It adds legitimacy to your claims and shows lenders that you’re serious about getting a loan you can afford.

However, if you don’t have a record of two years of accounts, don’t worry--not all hope is lost! Lenders will still consider your application as long as you have evidence of work lined up for you in the foreseeable future, especially if you have a history of working in the same field as a regular employee before venturing into full-time freelance work.

Important note for all mortgage applicants, whether you have a regular job or are self-employed: Be sure that you’re buying a property with combined monthly payments (which includes insurance and property taxes) that add up to 1/3 (or even less!) of your monthly income. Lenders are wary of approving loans that will result in borrowers using half of their income just to pay it off.

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3| Down Payment

Once you’ve already established your capability to repay the loan on a monthly basis, the next thing you’ll have to be prepared to show is the money you can pay NOW. Lenders are most likely to approve a loan when the home buyer applying for it is able to pay at least a 20% down payment. Of course--the higher you can go, the better.

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Be prepared!

While a 20% down payment is generally the standard of being a capable buyer, lenders are more likely to consider borrowers who can put down more than that. If you have a solid understanding of using an escrow account, this can also win you points as well.

Why should the lender care about how much down payment you can afford? Well, having a sizeable down payment for your new home reduces the risk for the lender as it gives you instant equity to the home. It also says a lot about your ability to save up a hefty amount of cash--which means that you have a better chance at making balloon payments to pay off the loan early.

If you don’t have 20% down payment saved up, this doesn’t mean you won’t get approved. However, you will likely be required to pay for private mortgage insurance (PMI) if your down payment is 10% or lower. The good news is that if you have good credit, you can get by with a small down payment (some lenders require only 3 or 5%).

Just remember: When applying for a loan, you can always work with what you have as long as you know how to leverage your strengths.

Beware: These Features Can Drive Up The Cost Of Your Homeowner’s Insurance

What drives up my home insurance costs? Why is my insurance premiums so high? If you’re a new homeowner, this must be one of the many questions that have crossed your mind since you embarked on this new journey. Well, the location, construction, condition, and certain features of your home all play a significant part in how much your homeowner’s insurance costs will be. For buyers who are still house-hunting for their dream home, you need to be aware that some of the factors that will attract you to a particular home are also the ones that will make your premiums more expensive.

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Here are some of the home’s features that may inevitably affect your homeowner’s insurance rates:

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1. Age and construction of the home - One important factor that is being considered when insurers assess a home’s risks is its build and structure. Older homes, even if they’re well-maintained, are generally more expensive to insure especially if it’s made of wood. Homes with wooden frames are more likely to suffer from fire compared to concrete or brick homes, so the risk is definitely higher. This is also the reason why homeowner’s insurance on historic homes is often more expensive. Older homes also often pose many structural issues so insurance rates could be increased

 
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2. Location - Aside from the general construction of your home, where you live has a big impact on your homeowner’s insurance costs. If you live in an area of the country that is more prone to experiencing natural disasters—hurricanes, tornadoes, earthquakes, you name it—the more expensive it will be to insure your dwelling. Specifically, those who live in hurricane-prone areas may also need to purchase additional flood insurance.

Likewise, you may also face more expensive insurance premiums if you live in a neighborhood that have more claims, particularly because of rampant theft, crime, and break-ins. You’ll also have higher premiums if you live in the country which is too far away from emergency services.

How to keep costs down: If you live in a risky area that has a greater chance of experiencing a natural disaster, you can minimize your insurance costs by purchasing a home built to withstand the elements. In Florida for example, residents prefer to live in a concrete block structure (CBS) home rather than a wood-frame home to reduce their insurance premiums.

The presence of home alarm systems and surveillance cameras can also make a difference if you live in a neighborhood with a high theft rate.

 
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3. Swimming Pools and hot tubs - Swimming pools are a great way to relax and cool off especially during the summer season. However, they are also potentially dangerous, especially to children, because of the possibility of drowning and other related injuries. Insurance companies even consider pools to be “attractive nuisances” because of possible pool-related lawsuits. Pool owners will need to purchase additional liability protection so that they can protect themselves against possible pool-related lawsuits. This liability protection can lead to high insurance costs. Additional features like a diving board or a slide could even mean higher insurance premiums.

Similar to pools, hot tubs are also vulnerable to lawsuits so insurance companies will increase the coverage you need for your home, which would lead to higher premiums.

How to keep costs down: Installing door alarm systems, safety perimeter fences and locked gates around the pool might help keep the liability protection costs down.

 
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4. Trampolines - This popular recreational feature can be found in thousands of backyards in the US. But the catch: it also means higher insurance premiums for homeowners. It is because injuries while using trampolines are very common, often involving children. A homeowner’s insurance policy could provide coverage for protection in any trampoline-related claims provided that certain safety precautions are in place, especially if there’s an enclosed safety net installed around the feature to protect anyone using it from falling off. Other recreational things that can be expensive to insure include large play structures, park equipment, and skate ramps.

 
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5. Jewelry and other expensive items - Keeping a lot of expensive pieces of jewelry and other big-ticket items, including high-end watches, wine collections, and musical instruments, can lead to extra home insurance premiums.

 
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6. Paintings and antiques - Your treasured collection of antiques, paintings, sculptures, and other forms of fine art can be very difficult to replace. These most-prized possessions actually make it hard for any insurance company to be willing to insure it.

 
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7. Fireplace/wood stove - Are you one of those homeowners who still own a wood-burning stove? It can be a cost-efficient alternative to heating your home, but they are a big fire hazard. These stoves are more likely to start a fire than any other modern appliances, especially when left unattended. In the eyes of many insurance companies, the risk of fire damage is increased so they apply a surcharge. Having a wood-burning stove in your home means you may be saving money on heating, but definitely spending more on insurance.

How to keep costs down: Installing smoke alarms, purchasing fire extinguishers to be situated in strategic locations around the home, and hiring a licensed technician to perform routine maintenance on the wood stove can help you get the best possible price for your insurance.

 
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8. Oil-based heating - An oil-based heating system, which is commonly found in many older homes, can mean a lot of trouble for many insurers. Having an oil tank on your property means having a large amount of highly flammable substance that can cause massive fire and environmental damage. Insurance companies mostly prefer electric heat pumps or forced-air furnaces. Converting to these safer types of heating may just be the key to lowering your insurance premiums.

 
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9. Home-based business and keeping your business inventory - If you’re running an in-home business, such as a daycare, accounting, bed and breakfast, etc., you’ll have more at stake since extra people are coming in and out of your home. That means there’s a greater chance that someone could be injured. Likewise, you could face higher insurance premiums if you’re keeping your business inventory on your property. Both your personal possessions and business property are susceptible to being lost, damaged, or stolen if some thieves broke in. It’s applicable to those who own a craft store or an online selling business.

 
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10. Condition of the home’s roof - Roofing is another big ticket item that can have a major impact on a homeowner’s insurance premiums. Wood shakes and shingles can be a stunning addition to the exterior of your home and can give it a unique look. However, they are also one of the least reliable types of roofs because they are more prone to damage from rot or mold, more vulnerable to weather hazards, and will not resist fire. If your home has this type of roof you can expect to pay more for your insurance. The older and more damaged your roof is, the more expensive your insurance can get. As much as possible, choose a house with a roof that best fits your geographical location, especially if you live in hurricane-prone areas.

 
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11. Finished basement - Despite the fact that it adds more livable square footage to a home, a finished basement can also drive up costs because it has a higher chance of getting damaged in case of a flood, a burst pipe, or clogged and backed-up sewage.

 
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Dogs - Well, they’re not necessarily a house feature, but your pet dog could also be the reason for your increased insurance premiums. If your dog attacks and bites someone on or near your property, the injured person may file a claim against your home insurance policy. Your premiums will likely increase because you are liable for the damages. It’s especially true if it’s from a breed that is considered aggressive, such as pit bulls or Rottweilers. Be prepared to give your dog(s) training classes to avoid unruly and aggressive dog behavior.

The First-Time Home Buyer’s Guide To Earnest Money Deposits

Congratulations, you’re about to purchase your first home! We’re guessing you’ve already gone through the mortgage pre-approval phase, and now it’s time to do the exciting part: house hunting! While you can shop with confidence because of the pre-approval letter provided by your lender, you should also be aware of the importance of having enough cash for an earnest money deposit.

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Where does the Earnest Money Deposit (EMD) come in?

When you decide to make an offer on a home, both you and the seller enter into an agreement that makes the sale contingent upon certain factors such as appraisal and inspection. The terms are stipulated in a contract, and the seller takes his or her property off the market while you perform due diligence on the home.

But before all of this can take place, you need to show the seller that you are truly capable and serious about purchasing the home. How? By making your money talk. This money, which is called an earnest money deposit, is a sizeable amount that buyers include in the offer as a proof of their sincerity or earnestness—if you will.

What are the basics of an Earnest Money Deposit (EMD)?

The EMD...

  • is not required—but very seldom do sellers entertain buyers who do not make a deposit in “good faith.”

  • may offer some peace of mind for the seller, but it is beneficial to you (the buyer) as well. This is because it helps fund your down payment, and allows you additional time to perform due diligence on the home and organize your financing.

  • is usually held by the seller’s broker using an escrow account. Once everything is in order and you’re all set to seal the deal, the deposit goes to funding a portion of your down payment.

  • typically amounts to 1 to 2 percent of the asking price. In hot markets, however, most buyers are compelled to offer a deposit that is equal to 5 or even 10 percent of the total sale price.

  • varies from city to city and is given immediately after the seller accepts your offer, or up to three days from said date.

  • may be a fixed amount required by the seller rather than a percentage of the sale price, e.g. $5,000 to $10,000. Of course, the larger the EMD, the more attractive it is to the seller and the more your offer will be taken seriously.

  • Cannot be a gift from a friend or family member, unless they are buying with an FHA loan (in which case the EMD may only be provided by a family member).

  • can be refunded in the event that any of the contingencies are not met. A small cancellation fee may be taken out, but the rest can be taken back as long as it falls under the purchase agreement.

Things to keep in mind:

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Practice caution. Make sure that the purchase agreement specifies how a refund should be handled in case the deal falls through.

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Make sure to offer enough, especially in a hot market. A seller dealing with multiple offers will entertain only the strongest offers. Make yours stand out by offering a competitive amount. If a high EMD intimidates you, think of it as a way of paying your down payment upfront, since the deposit ends up being part of your DP anyway.

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Be 100% certain about the home you’re trying to buy. You risk losing your EMD if you back out of the deal without justifiable reason other than simply having a “change of heart.” Be absolutely serious about wanting the house before making an offer that includes a sizeable EMD.

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Have the necessary contingencies in place. In a highly aggressive market, buyers are often pressured into removing contract contingencies. You may think that since you’ve already been pre-approved for a mortgage, deleting the loan contingency wouldn’t be an issue--but this is a mistake. Lenders can revoke a pre-approval based on a number of reasons, such as the house being appraised too low (which means that the buyer is paying more than what the house is actually worth). When this happens and there is no loan contingency in place, your EMD may be forfeited.

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Keep track of important timelines. Know how much time you have left to terminate the contract in case you run into problems. To be on the safe side, anticipate the issues that may arise, and include the necessary contingencies in your purchase contract.

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If you’re buying a foreclosure, be sure to analyze the risks involved. Most foreclosed properties stipulate that the EMD is nonrefundable—and since you’re buying the property “as-is,” it is crucial to be extra thorough on your research before making an offer with EMD.

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Hold up your end of the bargain. This is a no-brainer, but make sure that you’re not backing out of the sale due to unfair reasons. If you default on the contract at the last minute because of cold feet, or you’re dealing with personal problems that are getting in the way of pushing through with the sale, be responsible enough to accept giving up your EMD as consolation for the seller’s wasted time.

What To Do When Your Offer Is Rejected: Tips On How To Become A Better Home Buyer

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Once you finally decide to place an offer on a house, you have to be ready for what comes next. In a slow market, your offer has a high chance of getting accepted given that there is little to no competition. But in a hot market where bidding wars are won by people offering to pay all cash or significantly above the list price, and promising hefty down payments—you may have to come to terms with the possibility of your offer getting rejected.

We’d advise against taking it too personally, though. Rejections happen all the time, and it doesn’t have to be the end of the world! Here are different ways of dealing with a rejection, and how to move forward depending on your situation:

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#1 If you haven’t given your best offer yet, consider pushing for the highest you can go—just make sure that it is a price you can still afford, with terms that feel comfortable to you. If you can’t stretch your budget any further, think of other ways you can make transactions easier for the seller. You can either offer less contingencies or agree to move in at the seller’s most convenient date.

It is not uncommon for home buyers to save their best offer for later, and many would leave the first offer with enough room to increase when needed. If that was your strategy, the logical next step would be to make your best and final offer, and patiently wait (again) for the seller to reconsider.

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#2 If your offer was rejected for a better one, you can make an offer to be in the backup position. This means that you’ll be the next buyer in line should the first buyer walk away from the deal.

If the seller accepts your offer as a backup, just make sure to get it in writing. This way, the seller will have legal obligation to sell you the property if the first deal doesn’t push through --  and for the terms you originally submitted. You can also include a right-to-refuse clause which protects you from being bound to purchase the property, while still being the seller’s first option when the current deal falls through.

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#3 If the rejection happened even with your best possible offer, it may be time to discuss further options with your agent.

Yes, that house could’ve been your dream home, but in a tight market, there are a lot of things beyond your control. The best thing you can do is to strategize with your agent so that you can be in a more competitive position for the next house you’ll be gunning for.

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1. Don’t linger on your previous rejection. Thinking of “that home” as “The One That Got Away” will prevent you from giving other houses a fair chance. That being said, it is important to move on completely and accept that you’ll have to find a different dream home.

2. Don’t get emotionally attached to a house before you’ve even sealed the deal. Now that you know that you can’t get the house just because you really, really want it -- always remind yourself to NOT get carried away on your first visit. Imagining how you’ll furnish the house and thinking of the best shade of paint for that lovely master’s bedroom -- all these will lead to even more heartbreak when you don’t get your way.

However, this doesn’t mean that your should never get excited about viewing a home. Just keep your hopes at bay and don’t make any renovation plans just yet.

3. Take note of what made you love the first home. Instead of dwelling on the rejection, use the first home as basis for the next home you may choose. List down the features that made the first home desirable to you. Just because you didn’t get the house doesn’t mean that you’ll never find another one with similar qualities.

4. Learn from the experience. Again, it is important to communicate with your agent about how you can make your next offer stand a better chance at getting accepted. Maybe next time, you can start with a stronger offer, perhaps by agreeing to pay for your own title policy, or not making the seller too many requests. Whatever it is you think you can improve, discuss it with your agent and come up with a solid strategy.