Advice

What Are The Costs Of Buying A Home?

There is more to buying a home than the asking price and down payment needed. If you are financing the purchase, you'll pay interest and fees to borrow the money to buy the home along with other real estate costs associated with the sale that may add up to be more than expected.

Watch this short video to learn more about the costs of buying a home: 

What Are The Financial Considerations When Buying A Home?

Buying a home and taking out a mortgage might make sense if/when you have a steady source of income and a good record of paying your bills on time. 

If you are looking to use financing for the purchase, lenders will look at your ability to repay the mortgage and how positive your credit history is when deciding if you qualify for a loan. It's important to research that home prices in areas you are looking in are stable as values could go down during your ownership. Homeownership has other expenses during ownership such as property taxes, homeowner’s insurance, water, and other personal & municipality utilities that are due quarterly or annually. 

Most importantly, only buy a home if are willing to stay put for at least 5+ years. Buying and selling a home are expensive processes that involve fees, economic factors and time horizons so make long enough to make these costs worth it. Once you are a homeowner, you’re responsible for maintenance and repairs – from small ones like a leaky faucet to major ones like replacing a roof. Be sure to build an emergency fund to cover unexpected expenses within your budget or establish one after the purchase. 

Finally, consult your financial or tax advisor as there are potential tax advantages to homeownership so make sure you understand them given your financial situation to determine whether there is an advantage to you buying instead of renting. 

What Is The Difference Between a Mortgage Broker & A Mortgage Lender? 

A lender is a financial institution that makes loans directly to you. A broker does not lend money but finds a lender and may work with many lenders. Some financial institutions operate as both lenders and brokers, so you should ask whether a broker is involved in your loan transaction. Most brokers are paid a fee for their services on a specific loan. The fee may be in the form of a commission or other payment from you or the lender. Whether you use a broker or a lender, you should always shop around for the best loan terms and the lowest interest rates and fees. 

➡️ Learn More About The Mortgage Process 

Does A Pre-Approval Affect My Credit Score? 

Usually, your lender will pull your credit reports during the preapproval process. This is known as a hard inquiry and will usually lower your credit scores by a few points. If you're shopping for a mortgage, you have a window of time where multiple inquiries are counted as a single inquiry for your credit scores. 

As part of the mortgage pre-approval process, you must authorize the lender to review your credit report from one or more of the three national credit bureaus (Experian, TransUnion or Equifax), and allow them to obtain credit scores based on those reports. When the lender requests those credit checks, a notation known as a hard inquiry appears on your credit report. Because hard inquiries are associated with the acquisition of new debt, they can cause your credit scores as calculated by the FICO® Score and VantageScore® scoring models to dip. This score reduction is usually short-lived, and the inquiry will drop off your credit report completely after two years.

What is a FICO Score & How Does It Affect Me? 

A FICO® score is a particular brand of credit score used by lending institutions. There are three major agencies that collect credit data -- Experian, Equifax, and TransUnion, however, FICO® or the Fair Isaac Corporation is a pioneer in developing a method for calculating credit scores based on information collected by credit reporting agencies. Today, other companies also have credit scoring formulas (“models”), but lenders use a FICO® score when deciding whether to offer you a loan and in setting the rate and terms. FICO also has different variations of its basic scoring model tailored to different types of lenders (for example, home loans or car loans) so you could have several different FICO scores, even when they are all calculated from the same credit agency’s data. FICO scores range from 300 to 850. Usually, a higher score makes it easier to qualify for a loan and may result in a better interest rate. Like all credit scores, FICO scores can change over time according to your credit behavior.

What is a debt-to-income ratio & why is the 43% debt-to-income ratio important? 

Your debt-to-income ratio is all your monthly debt payments divided by your gross monthly income. This number is one way lenders measure your ability to manage the monthly payments to repay the money you plan to borrow. To calculate your debt-to-income ratio, you add up all your monthly debt payments and divide them by your gross monthly income. Your gross monthly income is generally the amount of money you have earned before your taxes and other deductions are taken out.  For example, if you pay $1500 a month for your mortgage and another $100 a month for an auto loan and $400 a month for the rest of your debts, your monthly debt payments are $2,000. ($1500 + $100 + $400 = $2,000.) If your gross monthly income is $6,000, then your debt-to-income ratio is 33 percent. ($2,000 is 33% of $6,000.)

Evidence from studies of mortgage loans suggest that borrowers with a higher debt-to-income ratio are more likely to run into trouble making monthly payments. The 43 percent debt-to-income ratio is important because, in most cases, that is the highest ratio a borrower can have and still get a Qualified MortgageThere are some exceptions. For instance, a small creditor must consider your debt-to-income ratio, but is allowed to offer a Qualified Mortgage with a debt-to-income ratio higher than 43 percent. In most cases your lender is a small creditor if it had under $2 billion in assets in the last year and it made no more than 500 mortgages in the previous year. Larger lenders may still make a mortgage loan if your debt-to-income ratio is more than 43 percent, even if this prevents it from being a Qualified Mortgage. But they will have to make a reasonable, good-faith effort, following the CFPB’s rules, to determine that you have the ability to repay the loan.

What’s The Difference Between My Principal & Interest Payment & My Total Monthly Payment? 

The difference between your principal and interest payment and your total monthly payment is that your total monthly payment usually includes additional costs like homeowners insurance, taxes, and possibly mortgage insurance. The principal and interest payment on a mortgage is probably the main component of your monthly mortgage payment. The principal is the amount you borrowed and have to pay back, and interest is what the lender charges for lending you the money. 

For most borrowers, the total monthly payment you send to your mortgage company includes other things, such as homeowners insurance and taxes that may be held in an escrow account. If you have an escrow account, you pay a set amount with every mortgage payment for these expenses. Your mortgage company typically holds the money in the escrow account until those insurance and tax bills are due, and then pays them on your behalf. If your loan requires other types of insurance like private mortgage insurance, these premiums may also be included in your total mortgage payment as well.

➡️ Learn More Using My Budgeting Tools

What Are My Down Payment Options?

There are many options when it comes to the amount of your down payment and how it affects how much money you have to pay at closing and the overall cost of your mortgage in the long-term as well as your options to restructure in the future. 

Watch this short video to learn more about your down payment options.   

➡️ Get Your Home Loan Toolkit 

How Can I Figure Out If I Can Afford To Buy A Home & Take Out A Mortgage?

Focus on a mortgage that is affordable for you given your other priorities, not how much you qualify for.

Lenders will often tell you how much you are qualified to borrow – that is, how much they are willing to loan you. Several online calculators will compare your income and debts and come up with similar answers based on standard ratios but how much you could borrow is very different from how much you can afford to repay without stretching your budget. To do so, you’ll need to take a hard look at your family’s income, expenses and savings priorities to see what fits comfortably within your budget.

Don’t forget other mortgage- and home-related costs when determining your ideal payment. Homeowner’s insurance, property taxes, and possibly private mortgage insurance or homeowners association fees are typically added to your monthly mortgage payment, so be sure to include these costs when calculating how much you can afford. There may also be costs for repairs and maintenance of your home. You can get estimates from your insurance agent, local tax assessor, homeowners association, and lender. Knowing how much you can comfortably pay each month will also help you estimate a reasonable price range for your new home. 

What Is A Loan Estimate? 

The Loan Estimate took effect on Oct. 3, 2015 and is a three-page form that you receive after applying for a mortgage that tells you important details about the loan you have requested.

It provides you with important information, including the estimated interest rate, monthly payment, and total closing costs for the loan as well as estimated costs of taxes and insurance, along with how the interest rate and payments may change in the future. In addition, the form indicates if the loan has special features that you will want to be aware of, like penalties for paying off the loan early, know as a prepayment penalty or increases to the mortgage loan balance even if payments are made on time known as negative amortization. 

When you receive a Loan Estimate, the lender has not yet approved or denied your loan application. The Loan Estimate shows you what loan terms the lender expects to offer if you decide to move forward. If you decide to move forward, the lender will ask you for additional financial information.

➡️ See a sample Loan Estimate form with interactive tips and definitions. 

How Do I Get My Credit Ready for a Mortgage? 

Review your credit profile before you seek a mortgage or mortgage preapproval and, if needed take steps to improve your credit before the lender checks it. Ideally you should begin this process at least a year before you start house hunting, but even a few months of focused activity can help you spruce up your score. You can take the following steps to help get your credit ready for the mortgage process:

  • Check your credit score. When you do so, be sure to review the risk factors that accompany it, since these are the items in your credit report that are having the biggest negative impact on your score. 
  • Go over your credit reports and correct any fraud or inaccuracies that could be hurting your credit score. Free credit monitoring from Experian can help you quickly spot any credit irregularities. 
  • Stop applying for new credit and limit credit card purchases to avoid increasing your utilization ratio. 
  • Reduce how much you owe and try to pay down debt, especially high credit card balances. 
  • Focus on paying all your bills on time.

If you plan ahead and spruce up your credit score beforehand, you can increase the likelihood of mortgage preapproval, minimize the impact of the modest credit score reduction that comes with the preapproval process and embark on your quest for a home well-equipped for success. 

When Can I Remove Private Mortgage Insurance (PMI) From My Loan? 

Federal law provides rights to remove Private Mortagge Insurance (PMI) for many mortgages under certain circumstances. Some lenders and servicers may also allow for earlier removal of PMI under their own standards. The federal Homeowners Protection Act (HPA) provides rights to remove Private Mortgage Insurance (PMI) under certain circumstances and the law generally provides two ways to remove PMI from your home loan: (1) requesting PMI cancellation or (2) automatic or final PMI termination. 

You have the right to request that your servicer cancel PMI when you have reached the date when the principal balance of your mortgage is scheduled to fall to 80 percent (%) of the original value of your home. This date should have been given to you in writing on a PMI disclosure form when you received your mortgage. If you can't find the disclosure form, contact your servicer. You can also ask to cancel PMI earlier if you have made additional payments that reduce the principal balance of your mortgage to 80 percent (%) of the original value of your home. For this purpose, “original value” generally means either the contract sales price or the appraised value of your home at the time you purchased it, whichever is lower (or, if you have refinanced, the appraised value at the time you refinanced). Even if you don’t ask your servicer to cancel PMI, your servicer still must automatically terminate PMI on the date when your principal balance is scheduled to reach 78 percent of the original value of your home. For your PMI to be cancelled on that date, you need to be current on your payments on the anticipated termination date. Otherwise, PMI will not be terminated until shortly after your payments are brought up to date. 

There is one other way you can stop paying for PMI. If you are current on payments, your lender or servicer must end the PMI the month after you reach the midpoint of your loan’s amortization schedule. (This final termination applies even if you have not reached 78 percent of the original value of your home.) The midpoint of your loan’s amortization schedule is halfway through the full term of your loan. For 30-year loans, the midpoint would be after 15 years have passed. This standard for ending the PMI halfway through the loan’s term is more likely to occur for people who have a mortgage with an interest-only period, principal forbearance, or a balloon payment. Keep in mind that you must be current on your monthly payments for termination to occur.

If you have lender-paid mortgage insurance, different rules apply.

Source: Consumer Financial Protection Bureau (CFPB)

How Will My Home Be Marketed To Ensure That It Is Sold?

I always reference that selling a home is like a pizza, there are a lot of pieces to it as far as marketing and exposure and it's important to do a mix of it all - traditional and modern marketing in order to maximize full exposure. There isn't one thing that sells a home and in theory, if there was only one thing then sellers would/are able to do it themselves (i.e.: putting it on the MLS, sign on the yard, etc.) and their home would sell and there wouldn't be a need for (good) real estate brokers. 

How Is My Home Going To Be Priced and Why? 

When pricing I want to provide you with three (3) pricing scenarios - a high, a middle, or suggested price & worst-case price, all backed by data and sales & will be used by potential buyers or their representing agents as well as the financial institutions for lending purposes if the potential buyer will be purchasing with financing. The main goal is to always get the most market value for your home but we also need to prepare and have a plan if changes need to be made based on the feedback we receive from consumers & the market activity while keeping in mind the current active homes for sale that are on the market and ones we will be competing with within these price point. 

Based on these pricing scenarios, the main goal with the listing price is to generate interest amongst our ideal client and highest probability buyer which will translate to buyer interest > inquiries > property showings > increased probability (%) of offers & the goal is to create competition amongst well-qualified buyers to compete for your home & to put you (the seller) in a position to have a few offers to choose from so you can leverage interest & move forward with an that is most favorable to your goals, all others will be kept as a backup until the property is Under Contract. 

The first four (4) weeks on the market are the most important & we will have strong feedback & interest to go off of based on the market activity and feedback from prospective buyers & their agents. I do not want the property to sit without any movement or activity so every week you will receive an activity report & every 2-4 weeks we will revisit the plan & I will provide you with the parameters and feedback to see if we need to alter anything or if the market has changed in any way that nay or may not be favorable to you. The initial task goal is to have multiple offers to choose from & be under contract within 4-5 weeks on the market & we do this by being well prepared with all aspects of the sale which I will take care of. 

As far as marketing, my belief and approach focus around a proactive marketing approach, meaning having several scenarios outlined for you to compare your options as far as pricing, terms, and having a marketing game plan for all the phases of the sale that are to follow so we are not figuring things out as we go along and marketing aimlessly to people who aren't our type of buyers rather than be prepared for a few different scenarios and plans of actions should they arise. As a listing agent, my role is to provide as much exposure for your home to targeted consumers to increase the probability of interest and offer submittal, translating to an offer.

What Targeted Marketing Will Be Done To Sell My Home? 

The real estate industry is changing with information being public to consumers. Today's buyers and sellers are wiser and have access & transparency to a large portion of the process than they had in the past. The majority of people moving in this day and age do so for economic and lifestyle reasons and many are able to expand their home buying search areas as they don't need to be tied down to a certain area and have all the available transportation to them, this is happening before our eyes during the COVID-19 pandemic but also has been a trend before the virus. I've provided a Buyer Profile Report in my Pricing Analysis which outlines our ideal client the type of buyers we will be targeting in our search as well as the areas where the highest probability (%) of buyers are located and where they are moving from so we provide proper exposure of the home in those markets. 

What Will Be The Term Of The Listing Agreement? 

Personally, I do not hold you to any long-term listing agreements but I would need at least a mutually agreed on time. The sales process usually takes 45-65 days to close after an offer is accepted, if the buyer is using financing in the transaction and could be quicker if the buyer is closing with cash funds. 

How Will Prospective Buyers Be Qualified? 

When listing a home I always make sure to have the agent send me a most recent pre-approval or I have a conversation with the agent to learn a little more about their clients, financially and personally. During these times with COVID-19, this will be a strictly enforced request now more than ever, where I will ask agents to send me a pre-approval letter or a proof of funds (if cash) dated no later than 30 days so we know that the people that are even seeing the home are fully qualified with favorable terms to us. During the showing, I will provide booties, masks, and disinfectants or all at the home. This is all done to make sure we minimize the traffic of random buyers and people who aren't qualified but also to make sure we don't have everyone and anyone through your home for safety reasons during these times but mainly to be effective in our process. We can also set up a specific time for showings if you wish but this may limit our exposure to prospective buyers but precautions will be a first priority. 

What Happens After Offer Acceptance? 

I will be involved in the process from start to finish, which means from writing this email& putting together this analysis for you up until the last day of closing. This includes active communication, weekly/bi-weekly calls, or whatever forms of communication you choose fits best as well as providing you with an activity report & showing feedback that goes over and tracks the activity and interest we are getting. When we receive offers, I will review all of them with you & go over the pros and cons of each one so that you can make a decision as to what offer makes the most sense for you based on terms and price. I will also open up my resources to you like attorneys and title or any professional that I have used and trust in the sale process. I never pressure anyone to use any of the people I recommend but like the home sales process feel it is beneficial to speak to a few people to compare options. 

Overall, I will handle the negotiations, inspections, and appraisal for you but before we even list I will check with the town that all your permits have been closed (if any) and make sure that we will have no issues in obtaining a certificate of occupancy which are all paid for and procured by me. I will be the one who will take care of all those forms for you as well as make sure all the required documentation are provided to everyone involved in the sale and most importantly that we are moving smoothly across all phases of the sale as well as simultaneously preparing for the next phase so there are no hold-ups and hiccups from our end. 

Once we are under contract, I will schedule and take care of the inspections and physically be there for all appointments and other meetings that are required (unless I am asked not to be). I believe that when listing a home with an agent, my job is not only to market your home and ultimately sell it to net you the most money in your pocket but also to take as much risk and responsibility off of you and onto me because that is what service is and my responsibility in the process. I will provide you will all outcomes, whether they are good or bad, and in the end, I will always be there as an advisor for you, but you will be making all the decisions and I will only be providing you with as much information as possible/available so you can make the best decision for you and your family.

What are Commission Rates for Services in New Jersey?

For the listing services for the marketing and managing the sale, I fully understand commission is an important part of the process and believe that there needs to be value-added and results/feedback provided and correlated for what is being paid by the seller to the value that is given. All commissions are negotiable in the state of New Jersey and it is encouraged that all sellers interview multiple services offered amongst a few agents/brokers. in order to get an understanding of all of their available options in order to compare the value that is offered to the price being paid for the service at closing. Selecting a Listing Agent should be a process based on transparency and integrity backed by knowledge of someone who will meet the expectations of being the best advisor in the sale to help meet your home selling goals.

What is the Easy Exit Agreement?

My Easy Exit Agreement allows you to cancel the agreements if there’s ever a time where you’re not happy with the services I am providing, if so, just let me know and I will correct it or release you (with no conditions) from the listing within 24 hours. Although this isn't standard practice by the industry, it is something I personally offer because I want to create accountability within the relationship.

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