The VA renovation loan doesn’t get as much attention as the regular VA loan, but it should. If you’re an active-duty service member or military Veteran, this loan program can help you buy and repair a home without sacrificing affordability or convenience. Here’s what you should know about the VA renovation loan.
What is a VA Renovation Loan?
The VA renovation loan, also called a VA rehab loan, is a specialized form of the VA loan. It’s essentially the same as an FHA 203k loan, but backed by the Department of Veterans Affairs. The VA rehab loan allows you to buy or refinance a home while also paying for repairs to make it more livable. Instead of taking out another loan to pay for renovations, you’ll only have one mortgage and one monthly payment. This streamlined option can be great if you’ve found a house within your price range but is in less-than-ideal condition. For homeowners who want to refinance, the renovation loan can also lower your mortgage payments.
Like a standard VA loan, basic eligibility is the same, and you won’t need to worry about a down payment or needing private mortgage insurance (PMI). Since the loan amount will be based on the home’s as-completed value, you’ll need provide your lender quotes from your chosen VA-certified contractor. As part of the loan’s condition, all work on the home has to be done by a contractor with this builder ID; you can’t do any repairs yourself, either. The maximum amount you can borrow for repairs varies depending on your lender, though a ceiling of $50,000 is common. Even though a VA rehab loan doesn’t involve a down payment, you may be required to pay a funding fee.
How Can I Use It?
The loan must be used to renovate a single property that will be your primary residence; you can’t rent out or flip the property afterwards. Any repairs you plan to make need to improve its safety and livability, not just its appearance. For example, you could get new appliances or replace your HVAC system, but you can’t install a pool or start landscaping projects. The loan doesn’t cover projects that would alter the structure of the home, meaning you wouldn’t be able to add an addition or move load-bearing walls. Once the loan is approved, repairs need to be completed within 60 days from the closing date. During the repair phase, your contractor and lender need to be in close contact to ensure timely progress and fund disbursement. Once the project is finished, a VA appraiser will give your home a final review to verify that it meets the VA’s minimum property requirements (MRP).
The VA renovation loan gives servicemembers, Veterans, and their families more choices when it comes to homebuying. Whether you’re on the market for a new home or already own, the VA renovation loan makes it even easier to have a home that fits your needs.
NFM Lending is proud to offer the VA renovation loan to qualified borrowers. If you are interested in using a VA renovation loan to buy or refinance your home, contact one of our licensed Mortgage Loan Originators. If you are ready to begin the home buying process, click here to get started!
In order for your offer to be considered in an aggressive real estate market, you may need to take every advantage available. One way you can make your offer more compelling is to forfeit your inspection. If you’re desperate to make your offer stand out, here’s what you should consider before waiving your inspection.
Why Does the Inspection Matter?
Before understanding the possible consequences of an inspection waiver, it’s important to understand the significance of having a home inspection. When a home goes under contract, the buyer has the option to have a property inspection conducted before going to the closing table. The inspector will assess the condition and safety of the house, including the roofing, HVAC and plumbing, and foundation. Additionally, if the buyer has an inspection contingency on their offer, it means moving forward with the deal is dependent on the inspection details. They can ask the seller pay for the repairs (concessions) or negotiate a lower price. If you decide to back out based on the results, you’ll be able to get your earnest money back. Waving this means the seller won’t be obligated to pay for repairs and that you’ll agree to buy the home as-is. Keeping the inspection and contingency in place protects your rights as a buyer, but waiving it removes those protections.
Why Waive the Inspection?
Waiving your inspection can be risky, so why do it? In a seller’s market, it’s sometimes necessary to pull out all the stops with your offer to make it competitive. An inspection is just one more thing for the seller to worry about in a real estate deal, so eliminating that possible hurdle will make the situation more convenient for them. Waiving your inspection also makes you seem like a more serious buyer and can allow the process to move faster.
Risks
Removing the inspection can make your offer more appealing, but it doesn’t come without risks. Without an inspection, you could find that your new home needs major repairs. Even if a home seems like it’s in good shape, you won’t get a full picture of the home’s health without a full inspection. Not going through with an inspection is a huge hazard; be sure you are financially prepared to pay for any significant repairs. The extra time needed to fix up the home will also delay how soon you can move into it. Another danger is that if you decide to back out of the sale, you may lose your earnest money deposit.
Other Options
It may seem like the only way to get your offer on the table is to remove your real estate safety net, but that doesn’t have to be the case. Your real estate agent can help you structure your offer to suit your comfort level. Instead of eschewing the inspection altogether, you can have an “information only inspection” where the inspection is performed but you don’t request concessions. You could also keep the contingency but include a cap for how much the seller can be asked to fix. This will let them know you aren’t trying to force them to fix every little thing. You might consider a clause that allows you to safely exit the contract if the informational inspection exposes too many problems. Some buyers are using a “pre-inspection” to help them make a stronger offer while having an inspection. In this setup, the buyer askes the seller if they can have a home inspection before submitting an offer. If the results are acceptable, the buyers can submit a contract that waives the inspection contingency. If the inspection comes back with too many issues, the buyers can simply move on and will have only lost a few hundred dollars from the inspection.
The bottom line is that it’s rarely a good idea to buy a home without at least knowing the property’s condition. There are a few workarounds to totally disregarding an inspection—be sure to work closely with your real estate agent to help craft the right offer for you. The more you know about your future home, the more informed your homebuying decisions will be.
If you have questions about buying a home, contact one of our licensed Mortgage Loan Originators. If you’re ready to begin the home buying process, click here to get started!
Among the myriad of reasons to own a home, one of the most significant is gaining equity. You can leverage your equity to finance home repairs or other expenses, and it can turn into profit when you’re ready to sell. Read on to learn how you can build home equity.
What is Home Equity?
Simply put, home equity is how much of your home you own. To determine how much equity you have, subtract the balance of your mortgage plus any property liens from the fair market value of your home. The market value of your home is how much your home would sell for in its current state, relative to the value of comparable homes in your area. The difference between the fair market value and the remaining debt on the property is your home equity.
Ways to Increase Your Home Equity
Make a Larger Down Payment
When you make a down payment on a home, you’re purchasing equity on the property. The more money you’re able to put down on a home, the greater equity you’ll have as you begin living in it. A higher down payment not only affects your equity—it could also lower your interest rate. These benefits can give you a head start when it comes to paying off your mortgage, but always consider your finances before dropping a few extra thousand dollars for your down payment. Fortunately, you don’t need a huge down payment to build equity, or even buy a home!
Improve your Home
Unlike in a rental situation, the time and money you invest to improve your living space can pay off in the form of increased equity and value. Projects that can boost your equity include remodeling your kitchen or bathroom, building an addition, and installing new windows. It’s important to note that not every home repair or upgrade will improve your home’s equity. Be careful not to over-renovate your home, as some changes may have minimal impact on your home’s value for the price you pay. If you’re not sure what improvements will grow your equity, ask a real estate agent to see what features would make your home stand out in your local market.
Make Extra Mortgage Payments
A simple way to build home equity is to pay more on your mortgage payments. Mortgages are amortizing, which means that initial payments will mostly go towards the loan’s interest. As you continue to make payments, a greater portion of your money will go towards the principal until the loan is paid off. When you get to the phase of only paying down the principal, you’ll be increasing your equity. You don’t have to wait until you reach that stage, though—you can pay more towards your principal on your monthly mortgage payments. On your payment note, you can indicate how much you want applied to the principal. Doing this will allow you to increase your equity and pay off your loan faster. You should check with your loan servicer to ensure there aren’t any penalties or fees for paying your mortgage off early.
Wait it Out
Another way your home equity can increase is if your local property values increase. When your house is in a highly desirable area, it will usually cause your home value to appreciate. If you’re considering selling and are not in a rush, it could be better to wait until home values rise. When paired with other equity-building methods, it can give your equity a lift when the economy and market conditions are right.
At its core, building home equity is about developing a stable investment that will offer wealth and security for years to come. It’s not difficult to increase equity, but it does take time and sometimes extra capital. Once you’ve built up a significant amount of equity, you’ll be able to unlock the value of homeownership.
If you have questions about home equity, contact one of our licensed Mortgage Loan Originators. If you’re ready to begin the home buying process, click here to get started!
Note: This blog was originally published in December 2015 and has been updated.
In a seller’s market, it’s a dog-eat-dog world. When you’re competing with multiple buyers, all-cash offers, and offers over asking price, it can feel impossible to put in a winning bid. Despite the uphill struggle, succeeding in landing a home is possible with the right tactics. We share strategies to help you purchase a home in a seller’s market.
Get Preapproved
No matter what the market conditions are like, getting preapproved is an essential first step for buying a home, and it’s even more crucial in a seller’s market. A preapproval lets you know how much you’ll likely be approved for, and it gives you an idea of what properties are within your price range. Being preapproved also shows sellers that you’re a serious buyer who can secure funding. To get preapproved, work with a lender who understands your needs. Once you’re preapproved, you’ll receive a preapproval letter which will be valid for a period of time after it is issued.
Work With a Great Real Estate Agent
Working with a team of real estate professionals is key to getting your offer approved by a seller. It’s in your best interest to hire an experienced, local real estate agent during your home search. A seasoned agent won’t be deterred if there are several offers on a property and will understand the unique characteristics of the area. Make sure your agent is communicative and responsive; time is of the essence in a competitive market. Your real estate agent can also find out how competitive the listing is and what factors the sellers are looking for in an offer so you can tailor your proposal.
Be Accommodating
Trying to purchase a home in a seller’s market leaves little room for adding special conditions into your offer. It’s advisable to make your offer as appealing and accommodating as possible to make things simpler for the sellers. Reducing or removing contingencies is a common way to make your offer seem more appealing. When you waive contingencies on a home, it means you won’t be able to back out of the sale if there are issues found during the inspection. You also will not be able to ask the sellers to cover repairs before the sale is finalized. By asking for an informational inspection, the inspection will be more for your knowledge and safety than the basis for closing the deal. While this strategy can be effective, you should understand the risks that can come with it.
Being in a seller’s market isn’t just hectic for buyer’s it can be tricky for the selling party, too. For example, if the sellers haven’t secured a place of their own yet, they may need extra time to move out. Consider a rent-back agreement to be flexible to their needs. A rent-back agreement allows the sellers to stay in the home for a stated timeframe, while paying you a daily (or monthly) fee based on your mortgage payment. This means you’ll have to wait to move into your new home, but it gives the old family more breathing room during the transition.
Sweeten the Deal
When there are fewer homes for sale than buyers, many people put in higher bids to stand out. Unfortunately, this can create an appraisal gap, which occurs when a home is appraised for lower than the offer price. To give sellers reassurance, consider adding appraisal gap coverage. Increasing your earnest money deposit can also show sellers you’re a serious buyer.
Adding an escalation clause is another way to make your offer stand out. This clause states that if there is another offer that exceeds yours, your original offer will increase up to a certain amount. This shows you are committed to winning the sale because you’re willing to beat out other buyers with extra funds. It also protects your budget because it prevents you from entering a bidding war.
Go Under Budget
Sometimes you need to think outside the box to close on a home, and this includes looking at properties that are below your budget. Homes that are closer to your desired price range will typically receive multiple offers over asking price, which can force you out. By targeting lower-priced houses, you have more room to make a higher offer. This may involve looking at properties that need some TLC or are in a neighboring ZIP code. Who knows, you may find a few houses that you can imagine yourself being happy in!
A seller’s market can make many people feel rushed and stressed about buying a home, but try not to let those feelings cloud your judgement. You don’t need to settle on a home you aren’t interested in—just be open to possibilities. Always know what your financial limits are before starting the process to avoid feeling overwhelmed. Closing in a cutthroat market is a matter of timing, positive attitude, preparedness, and having an excellent team on your side.
If you have any questions about down payment assistance, contact one of our licensed Mortgage Loan Originators. If you’re ready to begin the home buying process, click here to get started!
It’s no secret that a down payment deters many people from buying a home. Even though the “20% down rule” isn’t true for all home purchases, saving for a down payment can be especially difficult if you’re a first-time buyer or have a thinner financial cushion. Learn how down payment assistance can help you finally become a homeowner.
What is Down Payment Assistance?
Down payment assistance (DPA) programs offer additional funds to a borrower to alleviate down payment or closing costs. They can be sponsored by the government, a government-sponsored entity, a nonprofit organization, or even your lender. The programs can be paired with most kinds of mortgages, whether it’s FHA, USDA, VA, or conventional. Down payment assistance serves to bridge the gap that is often a hurdle for people to start the home buying process, which is why many programs are made for first-time or lower to moderate income buyers. These are some of the most common types of DPA:
Grants — Grants do not require repayment. Think of it as a scholarship for homeownership.
Low-interest loan — This form of DPA is a loan with a very low interest rate, making it less weighty than your main mortgage. They may be structured as second mortgages.
Interest-free deferred loan – This type of loan has no interest and does not need to be repaid until you sell or refinance; it can be structured as a second mortgage.
Forgivable loan — This loan is distinct in that the balance will be cleared after a stated time period as long as the criteria are met. This time frame can be anywhere from 5-20 years. You may have to pay it off if you sell or refinance before the forgiveness date is reached.
Savings match — In a savings match program, the DPA sponsor will match the down payment funds you deposit into a dedicated account up to a certain amount. It is also known as an individual development account.
Just like mortgages, there are many different options to fit your needs and lending profile. Some programs are sponsored by state and county governments and are area-specific, while others are not exclusive to new buyers. There are even programs tailored for people in various professions, such as teaching, law enforcement, healthcare, and the military.
How to Get Down Payment Assistance
To apply for down payment aid, you’ll need to go through your lender. Keep in mind that not all lenders offer the same range of DPA programs, so check with your loan originator to see what’s available and what would be a good fit. It’s wise to consult with your lender regarding DPA before starting the preapproval process. To determine eligibility, the sponsor will usually take things like your income, loan-to-value ratio (LTV), home purchase price, credit score, and property location into account. It’s common for DPA programs to require the completion of a home buying education course before you receive any funds. Though DPA terms vary, common requirements include using the home as your primary residence, living in your home for a certain amount of time, not using the home as an investment property, and not selling or refinancing the home before a set date. As with any financial agreement, make sure you fully understand the requirements and conditions of your DPA plan.
With such a large variety of down payment assistance programs available, it’s well worth looking into to see how you could save. Down payment assistance exists to help people become homeowners—don’t overlook what could be an amazing resource to make homeownership attainable.
If you have any questions about down payment assistance, contact one of our licensed Mortgage Loan Originators. If you’re ready to begin the home buying process, click here to get started!
All Down Payment Assistance Programs have different requirements and contingencies; please consult with the Loan Originator to discuss your options. Refinancing an existing loan may result in the total finance charges being higher over the life of the loan. The pre-approval may be issued before or after a home is found. A pre-approval is an initial verification that the buyer has the income and assets to afford a home up to a certain amount. This means we have pulled credit, collected documents, verified assets, submitted the file to processing and underwriting, ordered verification of rent and employment, completed an analysis of credit, debt ratio and assets, and issued the pre-approval. The pre-approval is contingent upon no changes to financials and property approval/appraisal.
It’s never too late to make a change in your life, and getting your credit score in order is an excellent resolution to set for yourself. A healthy credit score has numerous benefits, especially if you want to buy a home in the future. Here are 5 credit resolutions to make (and keep).
Making sure you pay your bills on time is one of the simplest ways to improve your credit score, but it can also be one of the easiest things to forget. Payment history makes up 35% of your FICO score, and missed payments, especially frequent ones, can seriously damage your score. To avoid missing an important bill, consider setting up autopay so you’ll never forget. If you set up autopay, always review the statement to ensure there are no issues, and make sure your account has enough money for payments. It’s ideal if you’re able to pay your bills in full, but if you’re unable to, at least make the minimum payment. Building a history of timely payments helps boost and maintain your credit score, it also makes you seem more attractive and responsible to lenders when applying for a loan.
Most everyone has debt, and getting rid of it could be another resolution in itself. It can seem impossible to minimize your debt, but the key to lessening your burden is to chip away at it little by little and to avoid taking on new debt. Not all debt is made equal, so consider prioritizing those with high or compounding interest rates. Making extra payments to the principal of high interest loans will reduce the amount you owe, save you money on future interest payments, and boost your credit score. If you’re unable to make an extra principal payment, try making minimum payments so your loans don’t become delinquent. Debt doesn’t just affect credit, it also affects your debt-to-income ratio (DTI) when you’re looking to buy or refinance a home. DTI measures how much money you have left each month after paying your existing bills. Having a DTI of 36% or less is usually favorable to lenders because it means you have enough to make mortgage payments. Additionally, the psychological benefits of minimizing debt are immeasurable.
Just because you have multiple lines of credit at your disposal doesn’t necessarily mean you should use the maximum amount. 30% of your credit score is determined by your credit utilization ratio, or how much of your available credit is being used. When you’re using a large amount of your credit, it increases the likelihood that you will have problems paying it back, which negatively impacts your score. To calculate your credit utilization ratio, divide the total amount you owe by your total credit limit, and then multiply that number by 100. A credit utilization ratio of no more than 30% is recommended. If your number is greater than that, try cutting back on expenses and how often you put purchases on credit. When it makes sense, opt to pay for things with cash or even a check. Additionally, don’t close any lines of credit. Closing an account will decrease your credit limit, and therefore, your score. For accounts you don’t want to use anymore, simply stop using them and ensure there are no recurring charges on it.
A well-made budget can serve as a foundation for your finances and prevent excessive debt and credit issues. Track your current spending habits and identify where you can cut back or substitute with a cheaper option. Divide up your monthly spending into broad categories, such as living expenses, transportation, and entertainment, then compare it to your monthly income. If you feel overwhelmed trying to sum up your spending, gather one month’s worth of bills to get an idea of where your money goes. There are also many free resources online to help organize your finances, like budget worksheets. Now that you’ve created your budget comes the difficult part—sticking to it. Should you find yourself tempted to break your budget, ask yourself honestly if the expenditure is more of a need or a want. Following a budget can take a lot of willpower, but it’s well worth the effort when doing so can improve your credit and allow for greater financial freedom in the future.
Staying informed of your credit information is a must, regardless of your current score. Not only will it tell you where your credit currently stands, it will also inform you of any inconsistencies. Be sure to review your credit report at least once a year for errors. You are legally entitled to a free report from each of the three credit bureaus (Equifax, Experian, TransUnion) each year, and it’s recommended to request one from each agency since they differ slightly. Don’t worry—requesting your credit report is considered a soft credit pull and will not lower it. If you notice any issues, take steps to resolve them immediately. You should also monitor your credit card statements for mistakes. Just as you get yearly health checkups, the same should be done for your credit.
As with any type of goal or resolution, improving your credit involves new habits, patience, and dedication. Though it will take time and effort to see the results, having a healthy credit score will give you more options and better opportunities in life.
If you have any questions about your credit, contact one of our licensed Mortgage Loan Originators. If you’re ready to begin the home buying process, click here to get started!
NFM Lending is not a credit repair agency, financial advisor, or debt settlement company.
When it comes to saving money to buy a home, every bit helps. If you’ve received a handsome check or cash as a present, it makes sense to put it towards your home purchase. However, there are a few rules to know about using gift funds to buy a home; read on to learn how to do so properly.
What are Gift Funds?
Gift funds are money that usually comes from a family member that you use towards a down payment, closing costs, or escrow payments. They can be in the form of cash or a check, and do not require repayment. If the person giving you the money expects it to be paid back, it will be factored into your debt-to-income ratio (DTI). Though it’s perfectly all right to use gifted funds to buy a home, you’ll need to declare them with your lender. Even if the money is now yours, it needs to be vetted by your lender to ensure it was procured legitimately and that the donor is not a conflict of interest. Fortunately, this process is simple to do, and most loan programs accept gift funds, either in part or in whole. Depending on the loan program you use and the property type, you may be limited in how much of your down payment can be financed with gift funds or who is allowed to donate to your homebuying cause. Be sure to work with your loan originator to help you make sense of the program’s gift funds policy.
How to Use Gift Funds
Using gift funds correctly involves submitting a formal acknowledgement of the present and providing receipts. This is an effort to create a paper trail that your lender can reference when underwriting your loan. The person who gave you the money needs to write a gift letter to hand your lender. The letter doesn’t need to be complicated or full of legal jargon; it simply needs to include the following: the amount of money given, dates the funds were withdrawn, the donor’s contact information, relationship to the recipient, and a statement that repayment is not expected. You can even find gift letter templates online. The other component to using gift funds is providing receipts of the funds exchange. These include wire transfer receipts, bank statements, and copies of the donor’s check and recipient’s deposit slip.
Not every dollar that you receive from a family member needs to be documented, however. Generally, if the gift funds are more than a quarter of your income, you should request a gift letter from that person. If you aren’t sure whether you need to include a letter, ask your lender. For deposits that were made over two months before your mortgage application, they are considered seasoned and do not require special documentation. Even so, your lender will still need to examine various financial documents to ascertain your financial situation. You should always be upfront with your loan originator when it comes to your finances and assets.
Having extra cash to finance your new home is a huge advantage when you’re in the homebuying process. Providing verification for gift funds is easy to do and will go a long way in allowing you to fulfill your dreams of homeownership.
If you have any questions about using gift funds, contact one of our licensed Mortgage Loan Originators. If you’re ready to begin the home buying process, click here to get started!
If your escrow statement mentions a shortage, it’s normal to be confused or feel anxious. Before you start panicking, learn what an escrow shortage is and how to fix it.
What is an Escrow Account?
To understand what an escrow account is, it is necessary to know what escrow accounts are and how they work. When you close on your new loan an escrow account will likely be established to pay for property taxes, home insurance (includes home owners and flood insurance if property is in flood zone), and sometimes private mortgage insurance (PMI).
An escrow account is established using insurance policies obtained by the homeowner and a property tax bill or tax assessment to calculate how much you will deposit into the account. At closing, the escrow reserve account is established and is normally cushioned by two months. As you make payments, the escrow portion of your payment is deposited into the reserve account so when escrows become due, funds are available to cover those items that are due. The cushion collected at closing serves as an emergency reserve, as well as a required target or minimum balance for the account.
Your loan servicer (who may or may not be your original lender) will take funds from the escrow account to pay escrow items on your behalf. This setup can simplify things for you since you do not have to worry about missing a crucial payment, and it protects the lender’s investment by ensuring your property is insured and clear of liens.
How Does an Escrow Shortage Happen?
Each year, your servicer will perform an escrow analysis to estimate next year’s costs and check to see if there is a shortage, deficiency, or surplus on your account. They will then send you an escrow account statement that includes how much you paid last year, current payments, a cost breakdown, balance, and a prediction of next year’s costs. If the amount in your account is projected to fall below the required target balance, there will be a shortage.
Your monthly payment factors in property tax and home insurance, but neither of those elements stay constant. If your property is reassessed at a higher value or your insurance rates increase, you will have to pay more from your escrow account. Since there is no timeframe to when your county will reexamine your home, a tax increase can be unexpected. Also, if you’ve bought a new construction home, you can expect the property tax to increase significantly, as there is now a structure on the land.
What Does an Escrow Shortage Mean for You?
If you find your escrow account has a shortage, you will have to pay to make up the difference. When you notice there is a shortage, you can pay it off completely or have your loan servicer roll the amount into your mortgage payment over 12 months.
If you chose to pay the shortage in full, your mortgage payment may only increase by 1/12th of the increase in the current year annual escrow figures.
If you chose to make the shortage payment over 12 months, you will be making a higher payment for the next 12 months. This payment will include 1/12th of the escrow shortage (created from higher insurance and tax payments prior year) and 1/12th increase of the current year annual escrow figures.
Once your shortage is cured from making the 12-months of higher payments, you should see a drop in the mortgage payment. Your next payment should only increase by 1/12th of the increase in the annual escrow figures.
Even though you do not have much control over how much your property is taxed, when it comes to your insurance policies you can try lowering policy costs by shopping around for a lower plan. You may be able to find a less expensive policy without sacrificing coverage.
If you receive a surplus check from your servicer, you should contact them for explanation to confirm why you are receiving the check. The surplus check could simply come from the new construction home you bought which the county has not fully assessed, and the servicer had to pay the lower land only taxes. It could also be from a tax due date erroneously rolled over to next year by your current servicer.
You may consider putting it in the bank or redepositing it into your escrow account in case of an unexpected increase or possibly find it was sent to you in error. If you can, always have emergency savings on hand in case there is a surprise escrow shortage and track your insurance rates, tax assessment, and escrow statement so you can prepare accordingly.
Although it is not ideal to have a shortage in your escrow account, paying the difference will prevent many other home problems in the future. Though price increases may be unexpected, you can prepare a safety net for yourself by adding more funds to your escrow account and staying informed of your property expenses. Always communicate with your loan servicer if you have any questions regarding your escrow account. Any time you receive county tax bills or notices, notices from your insurance agents, or have changed insurance agencies you should always contact your servicer and provide the documentation and information.
If you have any questions about escrow shortages, contact one of our licensed Mortgage Loan Originators. If you are ready to begin the home buying process, click here to get started!
Note: This blog was originally published in July 2014 and has been updated.
Many people associate homeownership with the traditional single-family home, but that’s not the only option if you want to own! Living in a condo can be an excellent way to reap the benefits of owning a home without the upkeep required of a freestanding house. Here are four things to keep in mind when buying a condo.
1. Work with the Experts
Having an experienced lending and real estate team on your side will make buying a condo (or any type of home) much easier. Go through the preapproval process with your lender so you can see how much home you can afford before touring condos. A lender will guide you through the mortgage process, which can be a bit more involved than buying a single-family house. Many lenders will want to know what percentage of the units are owned vs. rented. When there are more owners than renters, it shows the complex is being run well and that the property isn’t depreciating. You’ll also need a reliable real estate agent who has closed condominium sales. They can help you find a condo that fits your budget, location, and amenities needs, and serve as a liaison between you and the selling party.
2. Location is Key
In real estate, location is an essential, and condos are no exception. When you’re shopping for your new home, make sure you tour the condo building and the unit you’re interested in. Be sure to ask what the sound insulation is like in the unit. Take note of the conditions of the grounds, common areas, interior and exteriors of the complex. The quality of the publicly visible spaces is often reflective of the building’s property management. Consider visiting your condo site during different times of the day and week to get a better sense of what the atmosphere is like. To hear additional opinions on the quality and safety of the community, ask people who already live there how they like it. Additionally, think about factors like parking options, community amenities, and access to main roads when scouting condo locations. Since you don’t own the land the building sits on, the location, amenities, and health of the condominium play a crucial role in its resale value.
3. Condo fees/HOA regulations
When you’re living in a communal space like a condo building, you’ll need to abide by the rules set by the condo board/HOA. The condo board is made up of other residents who manage the budget and set policy for the rest of the community. The community’s covenants, conditions, and restrictions (CC&Rs) dictates rules regarding parking, noise level, use of communal areas, trash disposal, unit modification, etc. Always review the CCRs to ensure you understand and agree with the policies. Additionally, you may need to pass an interview with the condo board before going to the closing table.
One of the main reasons people choose to live in a condo over a single-family home is because many maintenance tasks will be taken care of by someone else. However, this convenience comes at a price. When you own a condo, you’ll need to pay a monthly condo fee in addition to your mortgage payments. The fee covers upkeep costs that affect everyone in the complex, such as utilities and shared amenities. Your fee can increase over time, and if there’s a major issue that needs to be fixed right away, you may need to chip in extra for what’s known as a “special assessment.” In your search, you should ask how much the condo fee is, what services the fee goes towards, and how often special assessments come up. It’s also wise to request to see a copy of the association’s meeting minutes and current budget. A fair and competent condo HOA will be transparent about how their using their resident’s money.
4. Personal Preference
Condo living involves giving up some freedoms to have a more managed lifestyle. It may not be for you if you don’t want your noise level, pet choices, and home renovation projects to be regulated by an HOA. Being very close to your neighbors means having to deal with their daily sounds, which can be an issue if you value a quiet environment. Still, if you’re okay with a few limitations, the perks of owning a condo can improve your quality of life. Being in a condo community means you can access fun features that may not have been able to otherwise, such as a pool or gym. Living in a condo also puts you in the perfect position to make new friends and get involved in exciting social events with your neighbors.
Whether you’re buying your first place, want to downsize, or are simply over the long list of maintenance chores, a condo can be a great choice for a home. While there are unique considerations to keep in mind when looking for a condo, a thriving location and competent management will make a world of difference.
If you have any questions about buying a condo, contact one of our licensed Mortgage Loan Originators. If you are ready to begin the home buying process, click here to get started!
The pre-approval may be issued before or after a home is found. A pre-approval is an initial verification that the buyer has the income and assets to afford a home up to a certain amount. This means we have pulled credit, collected documents, verified assets, submitted the file to processing and underwriting, ordered verification of rent and employment, completed an analysis of credit, debt ratio and assets, and issued the pre-approval. The pre-approval is contingent upon no changes to financials and property approval/appraisal.
Finding your dream home can be as easy as ordering it yourself! Prefab houses are a convenient way to buy a home with the features you want without the effort of scouring real estate listings. Here’s your guide to buying a prefab home.
What is a Prefab Home?
A prefabricated (prefab) home is a type of house that is partially or entirely built off-site then delivered to a permanent location for setup. Common types of prefab houses include kit homes, manufactured homes (similar to mobile homes), and modular homes, but we’ll discuss the modular homes in this blog. With modular homes, large sections of the house are created in a warehouse, where they will be assembled on a foundation at the build site. You’ll work with the manufacturing company to decide what model and features you want. After all the modules are pieced together, the home will be connected to utilities. After the structure passes a final inspection, the home will be move-in ready!
What are the Benefits?
Opting for a prefab home lets you have a brand-new, customized home without the longer wait associated with stick-built homes (traditional construction). The timeframe will depend on how large the house will be, but it’s generally quicker than starting from the ground up. You might think that prefab houses all look the same, but that couldn’t be further from the truth—models come in a variety of architectural styles and sizes. There’s no need to worry that your home will look bland or indistinguishable from others. Another benefit of going with prefab is that is can be cheaper than purchasing a home than already exists or a building a home using conventional methods. It may be an appealing option if you find the market prices in your area are out of your budget.
Financing Your Prefab Home
As with buying an existing home, you’ll need to have an appraisal of the property to get approved for a mortgage. Even though the structure hasn’t been built yet, your lender needs to be confident the loan amount doesn’t exceed the home value (known as the loan-to-value-ratio, LTV). When you send in your loan application, you’ll also submit construction documents and blueprints for evaluation.
When it comes to financing your prefab modular home, it’s not much different than getting a mortgage for a new build house. Fannie Mae, Freddie Mac, FHA, USDA and VA offer “construction-to-perm” loans that combine building and purchasing into a single loan. With this loan type, you only have one closing and one set of closing costs that happen before construction. The construction portion of the loan is short-term, and funds will be disbursed to the builders during the installation period. After the home is built, the loan converts into a regular mortgage. This financing method saves you the hassle of applying for a construction loan and a mortgage separately and paying closing costs for each loan. Be sure to meet with your lender to discuss the best option for your needs.
What You Should Know
As you shop around for the right home manufacturer to do business with, don’t hesitate to ask their representatives in-depth questions about their process, timeframe, materials, fees, customization levels, and more. When it comes to putting together your home, there’s no such thing as too many questions. Be sure you have enough in your budget to cover fees like a manufacturing deposit, down payment (if applicable), closing costs, and unexpected changes during assembly. If your plot of land is undeveloped and not connected to utilities, you’ll need to pay to get them installed before setting the foundation. Additionally, be prepared to apply for a building permit from your local zoning department.
Note that even though modular homes are usually finished faster than a new build, the move in phase will not be as immediate as with preowned homes. You should also keep in mind that though there is a degree of customization to prefab homes, you’ll be limited to what models and features are offered by the manufacturer. If you want a high degree of control over what features your home will have, consider looking into a custom home or using a renovation loan to makeover your existing property. It’s wise to work with a loan originator early on and get pre-approved, which will make the process smoother.
Prefab homes can be a good option if you want to live in a freshly constructed home but don’t want to deal with the long building schedule of a stick-built structure. Modular homes prove that you don’t have to sacrifice style over price and quality.
If you have any questions about the home buying process, contact one of our licensed Mortgage Loan Originators. If you are ready to begin the home buying process, click here to get started!