When most people tell a story, they often date it by the home they were living in at the time. A home is a lot more than a structure held together by wood and nails. It is a part of the world stage that holds your stories, your memories and your milestones. We get it. In fact, we’ve been helping to create these stories and helping people buy homes, for nearly 20 years. Choosing a home loan shouldn’t be stressful, or overwhelming. That’s why GSF is dedicated to helping you successfully navigate the mortgage process. With our comprehensive list of home loan options and our well trained experienced staff, you can be sure you are in good hands. So, whether you are searching for your first home, or your third, GSF Mortgage is here to help select the best mortgage, for you. We call it: “Rent To Own Home Mortgage” This book covers the basics about buying a home. It is designed to answer commonly asked questions and provide clear definitions of terms you may be unfamiliar with, even if you have been through the home buying process before.
Contents:
Rate Shopping .1
The Nuances of Your Contract..2
Origination Points.5
Rate Shopping:
Shopping for the best interest rate possible has always been the consumer’s primary objective when borrowing money. As well it should be! The challenge with this strategy is that there is much misleading information released on the subject by various media. Internet web sites and email marketing, along with other media such as radio, television and billboard advertising, have brought the importance of interest rates to the forefront of consumers’ minds. The problem for the consumer with this type of marketing is that it is designed to make the lender’s phone ring. Often, the advertiser offers a ridiculously low interest rate, with the intent of using a “bait-and-switch” technique once the client is reeled in. This is often done through short pricing. Short pricing is a term that is used when a lender offers an extremely attractive interest rate, but that rate is only locked-in for a very brief period of time. The average consumer enters into a purchase contract to buy a home for at least 30 days. Pricing on an interest rate locked in for a 7-day period is of no use to most prospective home buyers. It simply isn’t enough time to complete the transaction. While the billboard advertising or Internet banner ad may boast a terrific rate, the lock-in period is often not realistic in terms of providing enough time to negotiate a purchase contract and close the deal. Be very careful when shopping for interest rates. Make sure that when you are quoted a rate, you are asking the broker what the lock duration is. Make sure that lock period allows you enough time to complete your purchase transaction. Another common marketing ploy that makes interest rates appear attractive involves the manner in which fees are presented. All lenders are required by law to state the real cost of financing through the Annual Percentage Rate (APR) each time an interest rate is quoted in advertising. Unfortunately, even though ads disclose the real cost of financing by listing the APR, they often don’t do a good job of explaining the difference between the APR and the interest rate. The reality is, the APR takes many of the fees associated with the loan into consideration, and it is usually listed in fine print as a disclaimer. So while the APR can be helpful in comparing rates seen in advertising, it’s important to understand that lenders use different methods to calculate the APR. Hence, it is not always the best method for comparing interest rates.
Additionally, the consumer must take into consideration that the interest rate is not the only important factor in obtaining financing. Another equally important question to answer is, “How long do you need to borrow this money?” The length of time you need to borrow the money has a profound impact on whether or not you should be paying upfront fees (points), and likewise has bearing on your loan program selection. Statistically, homeowners move every 7 to 10 years. One of the common mistakes made by home buyers is automatically selecting a 30-year fixed rate loan program for financing instead of evaluating other options. The chance of needing the financing for 30 years is actually slim-to-none. If the buyer is somewhat transient in their job or is planning a family in the near future, the home may not really meet their long-term needs. Buyers are often solicited with programs that are contingent upon 30-year fixed rate financing. The interest rates that are offered, regardless of how low they might be, are often irrelevant as rates are dependent upon several factors, including down payment and credit score. If a buyer has at least 5% for a down payment (at least 3.5% for an FHA loan), an interest rate that is fixed for three, five or seven years may be a much more realistic option. This often allows the buyer to capitalize on a low introductory rate and save a significant amount of money, which can then go toward the down payment on their next home. As always, current market conditions dictate what the best loan programs will be at the time you want to buy a home. The most important thing is to ask your lender about available programs and look at all of your options. It is of utmost importance to work with an experienced loan consultant who understands some of the practical aspects of financial planning. A well-versed consultant will ask you many questions about your short- and long-term goals and assis you in choosing a loan program that is truly suited to those goals The Nuances of Your Contract The process of purchasing a home is often much more complex than the average individual expects it to be. Items involved in your purchase contract can have a significant impact not only on the success of your purchase transaction, but on your stress level as well. We have listed some of the important items you should be aware of, that require you to make decisions as a buyer entering into a purchase contract.
Loan or Financing Contingency Loan contingency is the period of time the seller is giving you to obtain full, formal loan approval.It is important to include a financing contingency in your offer, as it makes the transaction dependent on you receiving the mortgage you’ve applied for. It specifies your cancellation rights if you are unable to obtain financing. This contingency is typically between 15 and 30 days depending on what has been negotiated in the contract. The earnest money deposit you make at the time the offer is accepted will be put in jeopardy once the contingency for the loan has expired. In fact, pursuant to the terms of the contract, if the loan contingency has expired and you fail to close the purchase transaction, you could lose your earnest money deposit and not have the failure of obtaining loan approval to lean on as an excuse. Written pre-approval will help to eliminate problems in this area. Please note: pre-approval is not the same as pre-qualification. Pre-Approval Seeking pre-approval for financing prior to making an offer on a property is a sound strategy that can help you get the best deal possible, especially if you plan to make a minimal down payment. The seller is often leery of the stability and reliability of the buyer if the buyer is only capable of making a down payment of 10% or less. This can cause the buyer to lose a significant amount of negotiating ability, by being perceived as a weak buyer rather than a strong one. This is why it is very important to get full loan credit approval in advance and provide a written confirmation of the loan approval when an offer is made. This shows it is a done deal and you are perceived to be a cash buyer. Contact your GSF loan specialist for details on our Finance First pre-approval program. Contract Period The contract period is the period of time in which all due diligence must be completed, including obtaining loan approval, property appraisal, home inspection reports, termite inspection, etc. Give yourself enough time for all due diligence to be completed for this very important purchase you are about to make. Typically, purchase contracts are drawn up for a period of 30, 45 or 60 days. However, while it is not typical, a purchase contract can be written for a term in excess of 60 days if the parties involved need that long of a period to complete all aspects of due diligence.
An important footnote to this somewhat common strategy is to make sure the seller is not occupying the property in a lease agreement for more than 30 days after the close of the purchase transaction. This would constitute a non-owner occupied purchase in the lender’s eyes, and would cause the terms of the loan to change radically. Seller Contributions Depending on the seller’s eagerness to close the transaction, the seller of a property will often become aggressive and offer to pay some or all of the closing costs, origination points and/or pre-paid items (interest, hazard insurance, tax escrows) associated with the purchase on the buyer’s behalf. This common strategy can be very beneficial to the buyer, particularly if the buyer is short on funds to close. It can also be the vehicle that effectively drives the interest rate down and provides the buyer with a more affordable monthly payment. Note that there are limitations on how much the seller is permitted to contribute, depending on the loan-to-value ratio. The typical seller contribution is from 3% to 9% of the purchase price, based on the size of the down payment. Seller contributions may sometimes be isolated to non-recurring closing costs and/or origination or discount points only. The lender will not permit the seller to contribute funds back to the buyer after the close of the transaction to accommodate repairs to the property. Items such as roof leakage or new carpet cannot be covered by any seller contribution clause. Origination Points Origination points are often misunderstood. Points are nothing other than interest paid at the time of closing to obtain a lower interest rate on a loan. One point is equivalent to 1% of the loan amount. If you are going to borrow $300,000 on your loan, one point would equal $3,000. This generally generates 1/8 to 3/8 of a percent lower interest rate, depending upon the loan program. As always, current market conditions dictate what the best choice will be at the time you want to buy a home. Ask your loan specialist to show you a variety of program options so you can compare the difference between paying points and not paying points. Paying points can be a prudent financial move, if you are planning to be in the loan for a long period of time. Again, one of the most important questions to address when you borrow money is, “How long do you need to borrow this money?” This will answer the two all-prevailing questions you will have, which are 1) Should I pay points? And 2) What loan program is best for me? Notice that the question is not geared to, “How long do I plan to live in the home?” but more appropriately, “How long am I likely to be in this loan?”
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