How to Prepare to Buy Your First Home

First Time Homebuyer Tips

Buying your first home is exciting and overwhelming all at once. Before you get in over your head, use these simple tips to best prepare you for one of the largest investments you’ll make in your lifetime.

Save for a Down Payment

The earlier you can save for a down payment the better. While you don’t need 20% down to buy a home, the more money you invest, the easier it is to get financing. Plus, you’ll keep your mortgage payment down which not only helps you qualify for a loan but helps keep your payment affordable for the next 15 to 30 years.



Check your Credit

Your credit score is one of the most important factors in your application. It’s what lenders look at first and if it’s not high enough, they won’t approve your loan.

Everyone gets free access to their credit report weekly at www.annualcreditreport.com. Check all three credit reports and see what you need to fix. Look for:

  • Late payments
  • Credit utilization over 30% of your credit limit
  • Collections
  • Errors

Fix any issues you can and maximize your credit score. If you want to see your actual score, check with your credit card companies or bank – they may offer free access to your score too.

Get Pre-Approved (not Pre-Qualified)

Before you shop for a home, get pre-approved. Even if you think you have ‘great’ credit and good income, find out what a lender thinks first. We recommend getting quotes from at least 3 lenders so you can compare your options side-by-side.

You may find you get approved for more or less than you thought you could afford. A pre-approval letter also helps get your foot in the door with sellers. Many sellers won’t show their homes or entertain offers from buyers without a pre-approval.

Stick to your Budget

It’s tempting to go ‘slightly’ over your budget especially when you see it only makes a difference of a few dollars in your mortgage payment, but it’s a bad idea. Don’t get caught up in a bidding war or get so emotionally attached to a home that you outbid yourself. Stick to your budget and know that the right home will come along.

Exhaust all First Time Homebuyer Assistance Programs

As a first time homebuyer, you have many options for assistance. Talk with your lender and me to find out what programs are available to you. From low and no down payment loan programs to down payment grants, there are programs for borrowers of all walks of life.

Bottom Line

First time homebuyers have plenty of opportunities to secure a home. Even if you don’t have a 20% down payment or perfect credit, there are options available for you. The key is to maximize your qualifying factors as early as possible so you increase your chances of securing your dream home.

I’m always available for questions or help – together we can help you prepare for and buy your first home, making it a stress-free and fun process!

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How to Calculate your Debt-to-Income Ratio

If you’re in the market to buy a house, your mortgage lender will look at a couple of main factors to determine if you qualify. Most people know they check your credit score and credit history, but they aren’t aware of the debt-to-income ratio and how it works.

What is a Debt-to-Income Ratio?

Your DTI is a comparison of your monthly debts to your gross monthly income (income before taxes). The higher the percentage is, the higher your risk of default becomes. Lenders like borrowers with a DTI of 43% or less. This leaves plenty of money for living expenses and savings, reducing the risk of default.

What’s Included in your Debt-to-Income Ratio?

The only information you need to calculate your DTI is your total debts and total income.





Debts to Include in your DTI

The debts you include are those on your credit report. A few examples include:

  • Car payments
  • Minimum credit card payments
  • Personal loan payments
  • Student loans

The DTI also includes the new mortgage you’re applying for which includes the principal, interest, real estate taxes, and homeowner’s insurance. It also includes any HOA dues and mortgage insurance, if applicable.

Income to Include in your DTI

You can include any income the lender will use for qualifying purposes. Obviously, this includes your full-time income. But if you have any other sources of income that have a two-year history and will continue for the foreseeable future, you may include them too.

Common examples include alimony or child support you receive or side gigs you run with income you can prove.

Calculating your DTI

With these two totals, you can calculate your own debt-to-income ratio using this calculation:

Total debts/Total income = Debt-to-income ratio

Here’s an example.

Jan makes $7,000 a month before taxes. Her debts include the following:

  • Minimum credit card payments $150
  • Car payment $300
  • Student loan payment $250
  • New mortgage payment $1,750

Jan’s debt-to-income ratio is:

$2,450/$7,000 = 35%

How to Lower your Debt-to-Income Ratio

If your debt-to-income ratio is higher than a lender might like, here are a few ways to lower it:

  • Pay your credit cards down or off – If you have credit card debt, try to pay it off. If you can’t, at least pay them down so your minimum payment drops, and you lower your DTI.
  • Pay down other debts – If you have other consumer debts you can pay down to have less than 6 payments, lenders may exclude them from your DTI
  • Increase your income – If your income is too low, take on a part-time job or start a side gig. You’ll need to show receipt of income for a while, so the sooner you start it the better.

Final Thoughts

Your debt-to-income ratio is just as important as your credit score. Take the time to figure out your DTI and where you stand before thinking about buying a house. You can prepare both your credit score and debt ratio early on to increase your chances of loan approval.

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Renting vs Owning – Which is Right for You?

If you’re thinking about moving this year, you may wonder if renting or owning is the best choice? While there isn’t a one-size-fits-all approach to the matter, there are certain questions you should ask yourself to decide.

Do you Have Long-Term Plans?

When you buy a home, you can’t move as easily as you can when you rent. If you are ready to settle down in an area and commit, there’s no question that buying is better. But, if you aren’t sure where you want to settle down yet or you enjoy moving every year, renting may be the better choice until you are ready to set up roots.

Do you Have Money for a Down Payment?

Most loan programs require at least a small down payment. When you put money down on a home, you build equity in the home right away and you make your loan more affordable. Lenders require some ‘skin in the game’ to ensure you’ll make your payments on time and not risk losing the home.



Can you Take Care of a Home?

When you rent, the landlord oversees all renovations and repairs. When you own a home, the responsibility falls on you. If you’re able to handle the financial and physical responsibilities of owning a home, it is much better than renting. On average, it costs 1% of a home’s value to keep up with maintenance and repairs.

Can you Qualify for a Mortgage?

Unless you have the cash to buy a house (most people don’t), you’ll need to qualify for mortgage financing.

The good news is you don’t need to be rich or have perfect credit, but you should meet some or all of the following:

  • Have at least a 620-credit score
  • Have 3% – 5% of the sales price for a down payment
  • Have a steady job and steady employment
  • Don’t have any recent bankruptcies or foreclosures
  • Don’t have excessive credit card debt outstanding

Do you Want the Freedom to do What you want with your Home?

When you rent, you don’t have the freedom to do what you want with it. You must get your landlord’s permission to make any changes, or even to have pets. When you own a home, you make the decisions and can do what you want with the property within the city or homeowner’s association’s guidelines.

Final Thoughts – Should you Rent or Buy?

Renting a home doesn’t build equity or give you a return on your investment. Buying is the best way to go when you are ready.

If you have the money saved, have a stable job, and are already to settle down, then buying a home can be the best way to invest your money and give you and your family a great place to live. Knowing where to buy and what to buy to stick within your budget but get a great return on your investment is key. If you’d like help buying your dream home in 2022 – contact me today!

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If you’re in the market for a house, you might think about the features the house has or the price, but how often do you think about the mortgage rate?

Many buyers I work with don’t realize the importance of the mortgage rate, so I’m here to clear the air so you make an informed decision.

What is a Mortgage Rate?

The mortgage rate is the fee the lender charges you to borrow money. You borrow principal, or the amount of the loan and the interest is the fee they charge you. Your monthly mortgage payment includes both the principal (loan amount) and interest (the bank’s fee).

How Much of a Difference Does the Mortgage Rate Make?

You might not think the mortgage rate makes that much of a difference. After all, if it’s just 1%, how much more could you pay?

The difference is tremendous, especially if you’re talking about a 30-year loan. When you borrow funds for 30 years, you keep the bank’s money for that time. This means they charge you interest over 30 years versus 10 or 15 years on a shorter term loan.

Here’s an example:

You borrow $230,000 at 4% for 30 years. Your principal and interest payment are $1,098 and over the life of the loan, you’d pay $165,299 in interest. That’s in addition to the $230,000 that you pay back (the money you borrowed).

Now, if you borrowed $230,000 at 5% for 30 years, your principal and interest payment would be $1,234 per month and over the life of the loan, you’d pay $214,488 in interest.

That’s a difference of $49,189! I’m sure there’s a lot you’d rather do with that amount of money instead of paying the bank, right?

How to Lower your Interest Rate

So how do you make sure you get the lowest interest rate? While every lender is different, here are some ways to ensure you get the best rate possible.

  • Pay your bills on time
  • Don’t overextend your credit lines, keep your credit balances at 30% or less of the total credit limit
  • Dispute any incorrect information on your credit report
  • Keep a stable job and income
  • Make sure your monthly debts including the new mortgage are 43% or less of your gross monthly income
  • Don’t have any collections on your credit report
  • Make a large down payment

Lenders like it when borrowers are a low risk of default. You can be this by providing great credit, a large down payment, and solid employment and income histories.

Final Thoughts

Your interest rate makes a big difference in your mortgage payment and even what house you can afford. Sometimes even an interest rate that ½ point higher can make you ineligible for a mortgage loan.

Don’t take a chance. Shop around and get the best interest rates possible all while ensuring that you present lenders with the least amount of risk as possible.

If you have questions or would like to be connected witha local, reputable lender, please contact me today.

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Living In A Gated Community



A gated community is a neighborhood that is enclosed by fence or wall, surrounding the entire community- with a gated entrance. Some gated entries have a 24 hour guard, and some just have a security gate.  Many people choose to buy a home in a gated community because of the many benefits. Others choose no gates, because of a few drawbacks. Is living in a gated community for you?

Perception of living in a gated community


 While you are house hunting, keep in mind the key advantages of living in a gated community.  This will help you determine if life behind the gates is worth it.  Although the perception exists that gated communities are expensive, they actually come in many price brackets and housing styles.  Gated communities are no longer just for the super rich or wealthy.  There are less-expensive gated communities that might just fit the bill.


Security in a Gated Community


If feeling secure in  your neighborhood matters the most to you, being surrounded by gates might be a priority, however not all gated communities have the same features and crime statistics vary by region.  There are usually extra security measures taken to ensure the safety of the residents.  It’s not unusual to see security cameras in a gated community or neighborhood watch groups.  Gated communities typically have a lower crime rate than other non-gated neighborhoods and communities.  Also, because of the gates and walls, homeowners experience a more private and secluded living experience.


Lifestyle


If you like to be active or entertaining guests is a priority, living in a gated community might be the choice for you.  Some of the larger gated communities offer amenities like golf courses, tennis courts, pools and clubhouses.  Some communities even offer lakes with boat docks.  Gated communities regularly coordinate sports activities like golf and tennis tournaments, and neighborhood parties, too.


Eco-Friendliness and Surroundings


Today, many gated communities are green neighborhoods where the focus is on designing homes for energy efficiency, using advanced building science with eco-friendly materials to promote things like water conservation, indoor air quality, and just healthier living in general.  They are able to do this by integrating natural sources of energy, such as solar, wind or water, into the architectural design of a home.  Traffic and noise are also taken into consideration, when planning and building gated community homes.  Since you are enclosed from other outside neighborhoods and areas, you generally don’t hear a lot of noise from roads and other outside sources.

 

Gated Communities In Orange County


Gated Communities In Orange County


Here in Orange County, we have many different gated communities, suited to all lifestyles and homeowners.  Please click here, to search for more information on specific gated communities in Orange County.  Contact Ron Evans today, to set up your consultation.  We are ready and available to assist you in your next gated community homes search.

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3 Things to Know about Buying New Construction

Imagine your first weekend in a new home; a home without nasty smells leftover from the previous occupants, no smudged baseboards and a sparkling clean refrigerator that has never held leftovers. The only thing you need to do this weekend is relax and enjoy your new home. Sure, there are other reasons to purchase a newly constructed home rather than an existing one but let’s take a walk through the purchase process so you know what to expect from the minute you step into the new home community’s office.


The Real Estate Agent


New home communities are typically laid out so that visitors are herded into the builder’s office before they reach the model homes. The person that greets you here is usually the builder’s real estate agent. Read that again: the builder’s real estate agent. Although she may be a perfectly fine person, full of wit and charm, she is not your real estate agent, nor should you entertain fantasies of how easy the process would be if she were. The best way to avoid the temptation and any pressure the agent may try to place on you is to mention that you’re working with a real estate agent. Ethically, the builder’s agent must back off trying to recruit you as a client. The builder pays the real estate commissions so there is no reason not to have your own representation during the purchase process and many reasons to have it. Real estate agents have what are known as “fiduciary” duties to their clients. The duties for the buyer’s agent are different from those of the seller and believe us, they do conflict. Think of it as being represented in divorce proceedings by the same attorney that is representing your spouse. Not a good idea.


The Lender


The builder may also have a preferred lender and you will no doubt be urged to use it to finance the purchase. Unlike the real estate agent, there is nothing inherently wrong with using the builder’s lender, as long as you’re being offered a good deal. The advantages to using the builder’s lender include the fact that it may have appraisers who are familiar with the new community. Never feel that you have to use the builder’s in-house lender; you are within your rights to use any lender you prefer.


The Builder


As in most professions, there are good builders and there are those that take short cuts or do a lousy job.

If you aren’t familiar with the builder, do some checking on his or her background. Start with the Better Business Bureau in your area and then check public records for lawsuits against the builder. There is a lot more to buying a newly-constructed home than an existing home. Carefully choosing your real estate agent and then investigating the builder will go a long way to helping the transaction run smoothly.

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How to Bridge the Appraisal Gap in Today’s Real Estate Market



If you’re searching for drama, don’t limit yourself to Netflix. Instead, tune in to the real estate market, where the competition among buyers has never been fiercer. And with homes selling for record highs,1 the appraisal process—historically a standard part of a home purchase—is receiving more attention than ever.


That’s because some sellers are finding out the hard way that a strong offer can fizzle quickly when an appraisal comes in below the contract price. Traditionally, the sale of a home is contingent on a satisfactory valuation. But in a rapidly appreciating market, it can be difficult for appraisals to keep pace with rising prices.


Thus, many sellers in today’s market favor buyers who are willing to guarantee their full offer price—even if the property appraises for less. For the buyer, that could require a financial leap of faith that the home is a solid investment. It also means they may need to come up with additional cash at closing to cover the gap.


Whether you’re a buyer or a seller, it’s never been more important to understand the appraisal process and how it can be impacted by a quickly appreciating and highly competitive housing market. It’s also crucial to work with a skilled real estate agent who can guide you to a successful closing without overpaying (if you’re a buyer) or overcompensating (if you’re a seller). Find out how appraisals work—and in some cases, don’t work—in today’s unique real estate environment.


APPRAISAL REQUIREMENTS


An appraisal is an objective assessment of a property’s market value performed by an independent authorized appraiser. Mortgage lenders require an appraisal to lower their risk of loss in the event a buyer defaults on their loan. It provides assurance that the home’s value meets or exceeds the amount being lent for its purchase.


In most cases, a licensed appraiser will analyze the property’s condition and review the value of comparable properties that have recently sold. Mortgage borrowers are usually expected to pay the cost of an appraisal. These fees are often due upfront and non-refundable.2


Appraisal requirements can vary by lender and loan type, and in today’s market in-person appraisal waivers have become much more common. Analysis of the property, the local market, and the buyer’s qualifications will determine whether the appraisal will be waived. Not all properties or buyers will qualify, and not all mortgage lenders will utilize this system.3 If you’re applying for a mortgage, be sure to ask your lender about their specific terms.  


If you’re a cash buyer, you may choose—but are not obligated—to order an appraisal.


APPRAISALS IN A RAPIDLY SHIFTING MARKET


An appraisal contingency is a standard inclusion in a home purchase offer. It enables the buyer to make the closing of the transaction dependent on a satisfactory appraisal wherein the value of the property is at or near the purchase price. This helps to reassure the buyer (and their lender) that they are paying fair market value for the home and allows them to cancel the contract if the appraisal is lower than expected.


Low appraisals are not common, but they are more likely to happen in a rapidly appreciating market, like the one we’re experiencing now.4 That’s because appraisers must use comparable sales (commonly referred to as comps) to determine a property’s value. These could include homes that went under contract weeks or even months ago. With home prices rising so quickly,5 today’s comps may be lagging behind the market’s current reality. Thus, the appraiser could be basing their assessment on stale data, resulting in a low valuation.


HOW ARE BUYERS AND SELLERS IMPACTED BY A LOW APPRAISAL?


When a property appraises for less than the contract price, you end up with an appraisal gap. In a more balanced market, that could be cause for a renegotiation. In today’s market, however, sellers often hold the upper hand.


That’s why some buyers are using the potential for an appraisal gap as a way to strengthen their bids. They’re proposing to take on some or all of the risk of a low appraisal by adding gap coverage or a contingency waiver to their offer.


Appraisal Gap Coverage


Buyers with some extra cash on hand may opt to add an appraisal gap coverage clause to their offer. It provides an added level of reassurance to the sellers that, in the event of a low appraisal, the buyer is willing and able to cover the gap up to a certain amount.6


For example, let’s say a home is listed for $200,000 and the buyers offer $220,000 with $10,000 in appraisal gap coverage. Now, let’s say the property appraises for $205,000. The new purchase price would be $215,000. The buyers would be responsible for paying $10,000 of that in cash directly to the seller because, in most cases, mortgage companies won’t include appraisal gap coverage in a home loan.6


Waiving The Appraisal Contingency


Some buyers with a higher risk tolerance—and the financial means—may be willing to waive the appraisal contingency altogether. However, this strategy isn’t for everyone and must be considered on a case-by-case basis.


It’s important to remember that waiving an appraisal contingency can leave a buyer vulnerable if the appraisal comes back much lower than the contract price. Without an appraisal contingency, a buyer will be obligated to cover the difference or be forced to walk away from the transaction and relinquish their earnest money deposit to the sellers.7


It’s vital that both buyers and sellers understand the benefits and risks involved with these and other competitive tactics that are becoming more commonplace in today’s market. We can help you chart the best course of action given your individual circumstances.


DON’T WAIVE YOUR RIGHT TO THE BEST REPRESENTATION


There’s never been a market quite like this one before. That’s why you need a master negotiator on your side who has the skills, instincts, and experience to get the deal done...no matter what surprises may pop up along the way. If you’re a buyer, we can help you compete in this unprecedented market—without getting steamrolled. And if you’re a seller, we know how to get top dollar for your home while minimizing hassle and stress. Contact us today to schedule a complimentary consultation.



Sources:


  1. Wall Street Journal -
    https://www.wsj.com/articles/u-s-home-prices-push-to-record-high-slowing-pace-of-purchases-11621605953
  2. US News & World Report - https://realestate.usnews.com/real-estate/articles/what-is-a-home-appraisal-and-who-pays-for-it
  3. Rocket Mortgage –
    https://www.rocketmortgage.com/learn/appraisal-waiver 
  4. Money -
    https://money.com/coronavirus-low-home-appraisal/
  5. S&P CoreLogic Case-Shiller 20-City Composite Home Price NSA Index - https://www.spglobal.com/spdji/en/indices/indicators/sp-corelogic-case-shiller-20-city-composite-home-price-nsa-index/#overview
  6. Bigger Pockets -
    https://www.biggerpockets.com/blog/appraisal-gap-coverage
  7. Washington Post -
    https://www.washingtonpost.com/realestate/competitive-buyers-waive-contingencies-to-score-homes-in-tight-market/2021/06/02/d335b050-af2c-11eb-b476-c3b287e52a01_story.html
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