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Fact or Fiction? 6 Down Payment Myths You Should Stop Believing Immediately - con't

4/29/2018

Myth No. 5: You shouldn't put more than 20% down

Let's say you're lucky enough to have saved more than 20% down. Odds are good some well-meaning friend is going to tell you to put only 20% down—no more, no less. After all, now that you've successfully avoided PMI, why fork over more cash than you have to?

A couple of reasons, Fleming says: First, a higher down payment could signal to your lender that you're a trustworthy borrower and get you a lower interest rate on your mortgage. Plus, the more you pay upfront, the less you're borrowing—which means lower mortgage payments.

But you'll have to put down at least 5% more to see that difference, according to Fleming.

"Your interest rate drops a little more with 25% down, and even more with 35% down," he says.

Compare your options to see if it makes more sense to pay the extra down or to keep that money in investments that can work for you.

Myth No. 6: You can take out a loan for a down payment

Truth: There's nothing wrong with getting help with your down payment, but it has to be a gift. If a lender suspects the money might be a loan, repaying said loan will be factored into your mortgage approval amount and you’ll qualify for less than you might have wanted.

In order to prove it's a gift, you’ll have to get a letter from the gifters, swearing that they don’t plan on asking for the money back. And don't try to game the system—lying on a mortgage application is a felony.

Fact or Fiction? 6 Down Payment Myths You Should Stop Believing Immediately

4/29/2018

If you're thinking about buying your first home, that pesky down payment has probably kept you awake more than a few nights. We get it—while a pre-approval is crucial for determining your buying power, it's the down payment that shows you mean business.

But saving up is hard. In a study conducted by NerdWallet, 44% of respondents said a lack of a down payment was the roadblock keeping them from buying a home.

Making things even worse? Your well-meaning friends and family have probably given you at least one piece of well-meaning, but ill-informed advice, leaving you in more of a blind panic than you need to be.

We're not saying that saving for a down payment will be a cake walk, but separating fact from fiction can go a long way. Here's the truth you need to know.

Myth No. 1: You need 20% down

In the NerdWallet study, 44% of respondents also believed you need 20% (or more) down to buy a home. For decades, this was standard, but it isn’t always the case anymore.

“It really depends on the type of buyer you are,” says Robert Garay, a broker associate and team leader of the Garay Groupat Lifestyle International Realty in Miami.

For instance, a Federal Housing Administration (FHA) loan only requires 3.5% down. If either you or your spouse served in the military, you're likely to be eligible for a Veterans Affairs (VA) loan, which can be approved for 0% down. The same goes for United States Department of Agriculture (USDA) loans.

And if you're a qualified buyer, you can get approved for a conventional loan with less than 20% down, but there’s a catch: You’ll be on the hook for private mortgage insurance, or PMI. PMI is paid directly to your lender, not toward your principal. Think of it essentially as insurance you pay to prove to the lender you won’t default on your loan.

Myth No. 2: Paying mortgage insurance is smarter than paying a bigger down payment

Perhaps that mortgage insurance seems like a small price to pay in order not to deplete your bank account and win the house. So what if you make some additional payments for a while?

It might not be a big deal, but you’ll want to calculate what you'll pay in the long run. Take, for example, conventional loans. If you put less than 20% down, you'll get stuck with PMI, but only until the principal balance reaches 78% or less of the original purchase price.

FHA loans, on the other hand, require mortgage insurance for the life of the loan. That means you'll be paying an extra monthly fee for as long as you live in the home (or until you pay off the mortgage).

Before you brush off mortgage insurance, compare your options—and know that paying less upfront could mean paying much more over the life of your loan.

Myth No. 3: Cash is king

If you're shopping in a competitive market, you've likely heard horror stories about first-time buyers getting snubbed over investors or all-cash buyers. If you're working with a loan and a small amount down, it might seem like your chances of getting picked over the other guys are slim to none.

There is some truth to this belief. Cash offers offer one big benefit to a seller: They're guaranteed to close on time with no loan approval hiccups.

But on the flip side,“That myth assumes that sellers care most about a fast and certain close, and that’s not always true,” says Casey Fleming, mortgage adviser and author of "The Loan Guide: How to Get the Best Possible Mortgage."

Often, if you make the bigger offer, or you write a killer personal letter that resonates with the seller, you stand a better chance of getting approved over an all-cash offer.

Fleming’s seen it happen: “I’ve actually beat out all cash offers with 10% down because our offer price was a little higher,” he says. “I’ve also had deals where we were competing against a higher cash offer and the seller took ours because the buyers were a young family wanting to raise their kids in the home—and that meant something to the seller.”

Myth No. 4: Down payment assistance is easy!

We hate to burst your bubble—or discourage you from trying to get down payment assistance if you qualify—but finding, applying, and getting approved for help isn’t always easy.

First, there are no national, or even many state-run, assistance programs.

“Pretty much every program is locally run, sometimes by county or even by city,” Fleming says. You can check the Department of Housing and Urban Development's website for a smattering of state-run "homeowner assistance" options, but you'll have to do some digging.

And then there’s the other rub. “You have to be under a certain income to qualify, usually the median income in the county,” Fleming says.

Some programs may make special exceptions—say, for single parents—but in general, income is going to be a big factor.

For example, to be eligible for down payment assistance in Grand County, CO, applicants must work a minimum of 32 hours per week in the area and meet income limits. Nevada's "Home Is Possible Down Payment Assistance Program" has a cap on income, credit score requirements, and the cost of the home bought. In Tamarac, FL, applicants must meet income requirements, wait until an open enrollment period and then get picked from a lottery system.

Still, if you think you might qualify, call your local housing authority office—it can usually point you in the right direction.

What is Private Mortgage Insurance (PMI)?

4/10/2018

When it comes to buying a home, whether it is your first time or your fifth, it is always important to know all the facts. With the large number of mortgage programs available that allow buyers to purchase homes with down payments below 20%, you can never have too much information about Private Mortgage Insurance (PMI).

What is PMI?

Freddie Mac defines PMI as:

“An insurance policy that protects the lender if you are unable to pay your mortgage. It’s a monthly fee, rolled into your mortgage payment, that is required for all conforming, conventional loans that have down payments less than 20%.

Once you’ve built equity of 20% in your home, you can cancel your PMI and remove that expense from your mortgage payment.”

 As the borrower, you pay the monthly premiums for the insurance policy, and the lender is the beneficiary. Freddie Mac goes on to explain that:

“The cost of PMI varies based on your loan-to-value ratio – the amount you owe on your mortgage compared to its value – and credit score, but you can expect to pay between $30 and $70 per month for every $100,000 borrowed.” 

According to the National Association of Realtors, the average down payment for all buyers last year was 10%. For first-time buyers, that number dropped to 5%, while repeat buyers put down 14% (no doubt aided by the sale of their homes). This just goes to show that for a large number of buyers last year, PMI did not stop them from buying their dream homes.

Here’s an example of the cost of a mortgage on a $200,000 home with a 5% down payment & PMI, compared to a 20% down payment without PMI:

What Is Private Mortgage Insurance (PMI)? | Keeping Current Matters

The larger the down payment you can make, the lower your monthly housing cost will be, but Freddie Mac urges you to remember:

“It’s no doubt an added cost, but it’s enabling you to buy now and begin building equity versus waiting 5 to 10 years to build enough savings for a 20% down payment.”

Bottom Line

If you have questions about whether you should buy now or wait until you’ve saved a larger down payment, meet with a professional in your area who can explain your market’s conditions and help you make the best decision for you and your family.

Fall Maintenance Tips

10/14/2017

As the weather outside continues to remind us, summer is in the past. You may be considering some repairs around the house to prepare it for the cold months of winter. On that note, I've compiled a list of fall maintenance ideas to help you get started!

Gutters and downspouts

Check to make sure they are working properly.

Fireplace and flue

Repair cracks, and crumbling mortar. Check and replace gasket on woodstove if necessary.

Siding

Inspect exterior caulking, and repair if necessary.

Storm windows and doors

Check for any cracked or broken glass. Tighten or repair loose or damaged frames and repaint if necessary. Replace broken, worn, or missing hardware; tighten and lubricate door hinges and closers, and check for broken or missing glazing.

Weather-stripping

Inspect and repair stripping around windows and doors.

Hot-water heating system

Lubricate pump and motor; bleed air from radiators or convectors.

Forced warm-air heating system

Vacuum heat exchanger surfaces; clean and lubricate blower blades and motor; check fan belt tension and adjust if necessary.

Gas burner

Clean burners and ports.

Oil burner

Lubricate fan and motor bearings.

Thermostat

Clean heat sensor, contact points, and contacts; check accuracy and replace if necessary.

Garage Doors

Clean and lubricate hinges, rollers, and tracks; tighten screws.

Foundation

Check grading for proper slope away from foundation wall.

Trees

Trim back all tree limbs and vegetation away from roof.

Heating

For steam heating, check shut-off valve for leaks and drain lower water cut-off per manufacturer's instructions.

Roof

Inspect roof surface, flashing, and eaves; repair if necessary.

Each year, fires kill more Americans than any other natural disaster. According to the U.S. Fire Administration, 80% of fire deaths occur in residences. While no home can ever be completely fireproof, there are many steps you can take to greatly reduce the risk of fire for your family and your home:

  • Smoke detectors are the most important part of your home fire safety! Make sure your home has smoke detectors at least in every bedroom, and test them frequently.
  • Use appliances wisely. Overheating, unusual smells, shorts and sparks are all warning signs that an appliance needs to be shut off and either repaired or replaced. Unplug appliances when not in use.
  • Never overload circuits or extension cords. Don't place cords or wires under rugs, over nails, or in high traffic areas.
  • Portable heaters need at least three feet of space from any combustible materials.
  • Fireplaces should be used with fire screens, and chimneys should have annual cleanings.
  • Have at least two fire extinguishers in your home, with one in a designated place in the kitchen. Cooking fires are the leading cause of both home fires and home fire injuries in the U.S.
  • Extinguish candles before going to bed or when leaving a room.
  • If smoking indoors, always use an ashtray and exercise caution. Careless smoking is the leading cause of fire deaths in the U.S.
  • Properly inspect and maintain your home's heating system. Poorly maintained heating systems cause many fires.
  • Consider the installation of a home sprinkler system. Such systems are now much more affordable and greatly diminish the risk of fire injuries.

These are just a few ways that you can make your home a safer place from fire. More information can be found on the U.S. Fire Administration's website, www.usfa.fema.gov, or by contacting your local fire department. I hope you've found this list helpful. If you're doing any repairs or preventative maintenance that requires the help of professionals, I'd be happy to give you some referrals. I'm also available to answer any of your real estate or home owning questions. You can also find more tips for homeowners on my website! Call if I can be of help to you.

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