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Frequently Asked Questions

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• Benefits Of Buying

• Top 10 Tax Breaks

• Hiring A Realtor

• Before You Begin

• Mortgage Loans

• Home Search

• Contracts, Offers, & Purchase Details

• Title & Closing Preparations

• General Real Estate Questions

• Homeowner Associations

With high home prices, shouldn't I just rent?

Home prices have historically always appeared high, especially to a first time homebuyer.  The cost of owning a home is oftentimes much less than you'd think by factoring in all of the benefits of homeownership.  As a fairly general rule, homes appreciate about five percent a year. Some years will be more, some less. The figure will vary from neighborhood to neighborhood, and region to region. 

Now, lets take a closer look…let's presume you bought a $200,000 house.  Suppose you put as much as twenty percent down – that would be an investment of $40,000 (many homes are available for zero down).  At an appreciation rate of 5% annually, a $200,000 home would increase in value $10,000 during the first year. That means you earned $10,000 with an investment of $40,000. Your annual "return on investment" would be a whopping twenty-five percent.  In addition to your home's appreciation (equity), the interest on your mortgage loan and your property taxes are both tax deductible.  So, our government is essentially subsidizing a portion of your home purchase, too.  In the long run, your rate of return of homeownership is higher than most any other investment you could make. 

Other benefits of homeownership include reliable and stable monthly housing costs.  Naturally, when you rent a place to live, you can certainly expect your rent to increase.  When you arrange for a fixed rate mortgage on your home purchase, you largely maintain the same monthly payment amount for the life of the loan (principal and interest).  Even if you get an adjustable rate mortgage, your payment will stay within a certain range for the entire life of the mortgage – and interest rates aren’t as volatile now as they were in the late seventies and early eighties.  Imagine how much rent might be ten, fifteen, or even thirty years from now? Which makes more sense?

Don't forget about forced savings, too.  Some people are just lousy at saving money, and a house is an automatic savings account. You accumulate savings in two ways. Every month, a portion of your payment goes toward the principal. Admittedly, in the early years of the mortgage, this is small. Over time, however, it accelerates at a much greater rate.  This forced savings is in addition to the asset appreciation we mentioned, above. 

THE TOP 10 TAX BREAKS ON A HOUSE

Your home offers a score of tax deductions and credits designed to help offset the cost of housing and to keep the housing market fueled with new buyers. Here's a look at the Top 10 Tax Breaks, On The House.  Also, you may wish to visit the Internal Revenue Service's website for more details on each item:

1. Mortgage Loan Interest: The Mother Of All Tax Breaks, because interest payments comprises a large portion of your mortgage payment in the early years of the loan's term, mortgage interest on a maximum of $1 million in mortgage debt secured by a first and second home is deductible. Deductions reduce your taxable income against which your taxes due are calculated. The $1 million level applies to joint tax filers. You get half the deduction if you file single or separately.  Likewise, home equity loan interest is deductible, but limited to the smaller of $100,000 (half as much for each member of a married couple if they file separately), or the total of your home's fair market value as determined by a complicated formula you may need a tax professional's help to decipher.
    
2. Home Improvement Loan Interest: The interest on a home improvement loan is also deductible, but calculated differently. You can deduct all the interest on a home improvement loan provided the work is a "capital improvement" rather than repairs, maintenance or cosmetic upgrades. Capital improvements typically increase your home's value (say, because you added a room), prolong it's life (a new roof) or adapt it to new uses (universal design improvements to assist older people or people with disabilities). You get tax benefits from repair work (painting, repairing, etc.) only when you sell your home but you can use a home equity loan to make repairs and deduct the interest -- up to the limits.
    
3. Points: Points, each equal to 1 percent of the loan principal, are charged by lenders as part of the cost of the loan. You can fully deduct points associated with a home purchase mortgage, but not a mortgage broker's commission. Refinanced mortgage points are deductible too, but only when they are amortized over the life of the loan. Once you refinance a second time, the balance of the old points from a refinanced loan offer an immediate write off, as you begin to amortize the new points.
    
4. Property Taxes: Property taxes or real estate taxes are fully deductible. Any local city or state property tax refunds reduces your federal property tax deduction by the same amount.
    
5. Capital Gains Exclusion: Home buying investors' best tax shelter comes from provisions in the Taxpayer Relief Act of 1997 which allows married taxpayers who file jointly to keep, tax free, up to $500,000 in profit on the sale of a home used as a principal residence for two of the prior five years. The amount is halved for those filing single or separately. You can use the benefit as often as you qualify.
    
6. Home-Based Business Deduction: Home offices that use a portion of your home exclusively for business could qualify you to deduct a percentage of costs related to that portion. Included are a percentage of your insurance and repair costs, utility bills and depreciation. Under clarified provisions of the Taxpayer Relief Act of 1997, if your home office qualifies, you don't have to allocate a home sale's capital gains between the home and the business.  Previously if you used, say, 10 percent of your home for a home-based business, 10 percent of the gain from a sale would be subject to capital gain taxes and you couldn't use the capital gains tax exclusion on that portion. The clarified provision does not excuse you from a recapture tax if you've taken a depreciation deduction because of the home-based business.
    
7. Selling Costs and Capital Improvements: When you sell your home, you can reduce your taxable capital gain by the amount of your selling costs, which include real estate commissions, title insurance, legal fees, advertising and inspection fees. Cost typically stemming from decorating or repairs -- painting, wallpapering, planting flowers, maintenance, and the like -- are also selling costs if you complete them within 90 days of your sale and with the intention of making the home more saleable. Selling costs are deducted from your gain. Gain is your home's selling price, minus deductible closing costs, minus selling costs, minus your tax basis in the property. Your basis is the original purchase price, plus the cost of capital improvements, minus any depreciation.
    
8. Moving Costs: A move triggered by a new job comes with some deductible moving costs. To qualify, you must meet certain requirements including, moving within one year of starting your new job, moving 50 miles farther from your old home than your old job was and working full-time at the new job for 39 of 52 weeks following the move. Deductions include travel or transportation costs and expenses for lodging and storing your household goods.
    
9. Mortgage Tax Credit: Mortgage Credit Certificates (MCCs) allow qualifying low-income, first-time home buyers to take a mortgage interest tax credit of up to 20 percent (the amount varies by jurisdiction) of the mortgage interest payments made on a home. This credit is available every year you keep the loan and live in the house purchased with the certificate. Unlike a deduction that reduces your income, the credit is subtracted, dollar for dollar, from the income tax owed. For example, with a 20 percent tax credit, if you paid $10,000 in interest, your tax credit would be $2,000. If you owe $2,000 in income taxes without the credit, you would end up owing nothing to the IRS after the credit was applied. The remaining 80 percent of your mortgage interest -- $8,000 -- is taken as a normal mortgage interest deduction.
    
10. Energy Tax Credits: The newest home-based tax credits were made possible last year by the Energy Policy Act of 2005. Tax credits of up to $500 in 2006 and 2007 are available for upgrading heating and air conditioning systems, insulations, windows, doors and thermostats, caulking leaks, installing pigmented metal roofs and for otherwise putting the bite on energy waste in your home. Qualified solar energy and fuel cell systems can net tax credits of up to $2,000. Some states also offer tax credits or rebate deals that could reduce the federal credit. Related tax credits are available for consumers who buy alternative- and clean-fuel burning cars and for entrepreneurial consumers who install clean-fuel vehicle refueling property at the principal residence of the taxpayer.

• Over time, history has shown that owning a home is one of the very best financial investments.

If you were viewing the Home Buyers Resource Page about how we make a difference for home buyers click here to return.

Should I try and 'time the market' when buying real estate?

One problem with attempting to time your purchase to the business cycle is that no one can accurately predict the future.  The business cycle is in  constant change. However, since 1983, we have experienced two fairly long expansions with only a slight recession in between each.  For most buyers, it doesn't make sense to wait years to buy a home.  By waiting, oftentimes homebuyers miss out on substantial gains (appreciation) that are difficult to recognize and anticipate.  Ultimately, these buyers end up paying higher prices and delay the many benefits of homeownership as discussed herein. 

A strategy for buyers in a down market (a.k.a. "buyers market").  People who already have a home usually need to sell it in order to buy their next one.  And, if a "move-up" seller wants to buy another home during a down market, that means they usually have to sell the one they already own.  They may temporarily win on one transaction, but lose on the other.  If a seller wants to sell his home to take advantage of a "hot" market when prices are rising (a.k.a. "sellers market"), they generally have to buy their next home during that same hot market.  As you see, once you buy your very first home, timing becomes even less important in the long run.  The opposite, but same is true, of a rising market.  Buyers markets are temporary, and should be taken advantage of when possible. 

The bottom line here is that the sooner you invest yourself in home, the sooner you will reap the huge stream of benefits that accrue from homeownership. 

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BEFORE YOU BEGIN

HOW CAN I DETERMINE MY HOUSING NEEDS BEFORE I BEGIN THE SEARCH?

Your home should match the way you live, with spaces and features that appeal to the whole family. Before you begin looking at homes, make a list of your priorities - things like location and size. Should the house be close to certain schools? your job? to public transportation? How large should the house be? What type of lot do you prefer? What kinds of amenities are you looking for? Establish a set of minimum requirements and a 'wish list." Minimum requirements are things that a house must have for you to consider it, while a "wish list" covers things that you'd like to have but aren't essential.

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WHAT OTHER ISSUES SHOULD I CONSIDER BEFORE I BUY MY HOME?

Consider local zoning laws, which could affect remodeling or making an addition in the future.  Sometimes the local homeowners association will have a say about your landscaping, storage of vehicles, exterior paint colors, and more.  Be sure to read the community covenants thoroughly. 

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Most importantly, ask about the house and neighborhood, focusing on quality of life issues. Making a list of questions ahead of time will help you organize your thoughts and arrange all of the information you receive.
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location, location, location.  Does it really matter?

Location is a very important factor whether you are buying a single family home, a condo, or an investment property. Buyers will typically pay less to live near a busy street, next to a business, apartment complex or where the view is of a distraction (mobile home park, for example).

If two homes were exactly the same and home one was located on a cul-de-sac backing to a park and home two was siding a busy street and backed to a shopping center, which home would you want? Which home would you pay more for? Obviously home one would be more desirable for the mass market than would home two. The difference in price could be 5% to 20%. Many times, unknowing buyers will settle for a nice home inside, but will overlook the potential of a 'poor location' to sell or appreciate in the future.  We can assist you in avoiding such mistakes.

CONTRACTS, OFFERS, & PURCHASE DETAILS

HOW DO I MAKE AN OFFER?

Your Home Team will assist you in making an offer.  The contract offer will include the following:

• Price you are offering
• Amount of earnest money
• Down payment and financing details
• Proposed move-in date
• Proposed closing date
• Complete legal description of the property
• Length of time the offer is valid
• Other specific details of the transaction

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HOW DO I DETERMINE THE OFFER PRICE AND TERMS?

Your representation agreement with your agent will determine the information that can and should be disclosed when you are ready to make an offer on a property.  Ultimately, you will want to follow your own instincts on deciding a fair price. Calculating your offer should involve several factors: what homes sell for in the area, the home's condition, how long it's been on the market, financing terms, and the seller's situation. By the time you're ready to make an offer, you should have a good idea of what the home is worth and what you can afford. Be prepared for give-and-take in the negotiation, which is very common when buying a home.

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WHAT IS EARNEST MONEY?

Earnest money is money you offer to the seller to demonstrate your seriousness about buying their home. It must be substantial enough to demonstrate good faith and is oftentimes 1% to 5% of the purchase price (though the amount can vary with local customs and conditions). If your offer is accepted, the earnest money will be deposited immediately in a "trust account."  Upon closing, it will be credited to you and applied towards your down payment and purchase costs. If the offer is rejected, your money is returned to you. If you back out of a purchase contract in opposition to the agreed upon terms and obligations of the parties, you could forfeit the earnest money.  On the other hand, under ordinary circumstances, buyers are generally allowed opportunities to inspect the property and title documents, confirm value through appraisal, and consummate one's mortgage loan approval without much genuine risk of loss.  Often times, if these conditions are not satisfactorily met pursuant to the terms of the contract, the buyers earnest monies will be refunded.  Bear in mind, however, that earnest money is almost always at risk to some degree, and you should discuss your risk tolerance and exposure with your agent before making the offer.

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WHAT DOES A HOME INSPECTOR DO, AND HOW DOES AN INSPECTION FIGURE IN THE PURCHASE OF A HOME?

An inspector checks the safety of your potential new home. Home Inspectors focus especially on the structure, construction, and mechanical systems of the house.

The Inspector does not evaluate whether or not you're getting good value for your money. Generally, an inspector checks: the electrical system, plumbing and heating and ventilation systems, insulation, the foundation, doors, windows, ceilings, walls, floors, and roof.  Be sure to hire a home inspector that is qualified and experienced.

Typically, an inspection clause in your purchase contract protects you and gives you an 'out" when buying a specific home should serious problems be discovered.  In certain cases,  buyers may choose to negotiate repairs with the seller if the seller is agreeable.  

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SHOULD I BE PRESENT FOR THE HOME INSPECTION?

It's a good idea!  During or following the inspection, the home inspector will answer questions about the condition of the home in many different areas.  This is your best opportunity to get intimately familiar with the largest investment you may ever make.   Its also an opportunity to ask the inspector about general maintenance questions.

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ARE OTHER TYPES OF INSPECTIONS REQUIRED?

It's a good idea to consider having your home inspected for the presence of a variety of health-related risks like radon gas, lead based paint, mold, etc.  On occasion, if your home inspector discovers a serious problem beyond their area of expertise, a more specific inspection may be recommended.

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ARE POWER LINES A HEALTH HAZARD?

There are no definitive research findings that indicate exposure to power lines resulting in greater instances of disease or illness.  High tension power lines may, however, be unsightly and be a deterrent to future home buyers of the property.

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DO I NEED INSURANCE?

Yes. A paid homeowner's insurance policy (or a paid receipt for one (binder)) is required at closing.  Arrangements will have to be made prior to closing day.  Insurance agents are a great resource for information on home safety and they can give tips on how to keep insurance premiums low.  Be sure to ask your insurance company about any special protection and riders you may need (water damage; sewer drain coverage; valuable asset coverage; etc).

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IS THE HOME LOCATED IN A FLOOD PLAIN?

If you live in a flood plain, the lender will require that you have flood insurance before lending any money to you. But if you live near a flood plain, you may choose whether or not to get flood insurance coverage for your home. Work with an insurance agent to construct a policy that fits your needs.

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TITLE AND CLOSING PREPARATIONS

WHAT CAN I EXPECT TO HAPPEN ON CLOSING DAY?

The closing agent will list the money you owe the seller (purchase price minus earnest money), and any amounts the seller owes you (e.g. unpaid taxes for the year in which you are buying the property).  You will review and sign various documents such as settlement statements, tax agreements, utility agreements, and so forth.  You'll pay the title company closer the remainder of any down payment and closing costs you owe.  You will sign the a mortgage Note, giving your written promise to repay the loan.  In addition, you will also sign a Deed of Trust giving the lender security in the way of a lien against the home, in the event you do not repay the loan as agreed.  The seller will then sign over a Deed, giving you title to the house.  The deed and mortgage will be recorded with the county in which the property is located, and you will become a homeowner.

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WHAT ARE SOME OF THE DOCUMENTS WILL I GET AT CLOSING?

• Settlement Statement
• HUD-1 Form (itemizes fees charged and completed by the closing agent)
• Mortgage Note
• Deed of Trust
• Tax Agreement
• Bill of Sale (for any personal property)
• Utility Agreement

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WHAT MAKES UP CLOSING COST?

Closing costs are usually made up of the following charges, below.  Note, this is not an all-inclusive list:

• Interest (paid from date of closing to 30 days before first monthly payment)
• Loan Origination fee (covers lenders administrative cost)
• Recording fees
• Survey fee (if applicable)
• First premium for PMI or Mortgage Insurance (if applicable)
• Title Insurance (yours and lender's)
• Loan discount points (if any)
• First payment to escrow account for future real estate taxes and insurance
• Paid receipt for homeowner's insurance policy
• Any documentation preparation fees
• Property taxes (to cover tax period to date)
• Escrow fees (if applicable)

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WHAT SHOULD I LOOK OUT FOR DURING THE "FINAL" WALK-THROUGH?

Before closing, you will have an opportunity to view the house before taking title to the property.  Check to verify that the seller has completed any repair work in response to any inspection agreement. The house should be in the same, or better, condition as when you last viewed it.  This is a scheduled appointment with the seller of the property, but you have no obligation to do a final walkthough.  The seller may be present if requested.  Oftentimes the seller will even be gracious enough to show you around your new home, or even demonstrate things like the operation of the sprinkler system.

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GENERAL REAL ESTATE QUESTIONS

WHAT ARE "HOME WARRANTIES", AND SHOULD I CONSIDER THEM?

Home warranties offer you protection for a specific period of time (e.g., one year) against potential problems like unexpected repairs on appliances or home systems, not covered by homeowner's insurance. Warranties are becoming more popular because they offer protection during the time immediately following the purchase of a home, a time when many people find themselves cash-strapped. 

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WHAT IS AN ESCROW ACCOUNT? DO I NEED ONE?

An escrow account is a place to set aside a portion of your monthly mortgage payment to cover annual charges for homeowner's insurance and property taxes. An escrow account (also known as an Impound Account) is established by your lender.  Escrow accounts assure money will always be available for these payments. If you use an escrow account to pay property tax or homeowner's insurance, make sure you are not penalized for late payments since it is the lender's responsibility to make those payments.

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WHAT IS RESPA?

RESPA stands for Real Estate Settlement Procedures Act. It requires lenders to disclose information to potential customers throughout the real estate transaction process.  In doing so, it protects borrowers from abuses by lending institutions, title companies, etc. RESPA mandates that lenders fully inform borrowers about all closing costs, lender servicing and escrow account practices, and business relationships between closing service providers and other parties to the transaction.

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BESIDES RESPA, DOES THE LENDER HAVE ANY ADDITIONAL RESPONSIBILITIES?

Lenders are not allowed to discriminate in any way against potential borrowers. If you believe a lender is refusing to provide services to you on the basis of race, color, nationality, religion, sex, familial status, or disability, contact HUD's Office of Fair Housing at 1-800-669-9777.

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WHAT SHOULD I DO IF I CAN'T MAKE A PAYMENT ON LOAN?

Call or, write to your lender as soon as possible. Clearly explain the situation and be prepared to provide them with financial information.

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ARE THERE ANY OPTIONS IF I FALL BEHIND ON MY LOAN PAYMENTS?

Yes. Talk to your lender or a HUD-approved counseling agency for details. Listed below are a few options that may help you get back on track.

For FHA loans:

• Keep living in your home to qualify for assistance.
• Contact a HUD-approved housing counseling agency (1-800-569-4287 or TDD: 1-800-483-2209) and cooperate with the counselor/lender trying to help you.
• HUD has a number of special loss mitigation programs available to help you:
  • Special Forbearance: Your lender will arrange for a revised repayment plan which may Include temporary reduction or suspension of payments; you can qualify by having an Involuntary reduction in your Income or Increase In living expenses.
  • Mortgage Modification: Allows refinance debt and/or extend the term of the your mortgage loan which may reduce your monthly payments; you can qualify if you have recovered from financial problems, but net Income Is less than before.
  • Partial Claim: Your lender maybe able to help you obtain an interest-free loan from HUD to bring your mortgage current.
  • Pre-foreclosure Sale: Allows you to sell your property and pay off your mortgage loan ,to avoid foreclosure.
  • Deed-in lieu of Foreclosure: Lets you voluntarily "give back" your property to the lender; it won't save your house but will help you avoid the costs, time, and effort of the foreclosure process.<
• If you are having difficulty with an-uncooperative lender or feel your loan servicer is not providing you with the most effective loss mitigation options, call the FHA Loss Mitigation Center at 1-888-297-8685 for additional help.

For Conventional Loans:

Talk to your lender about specific loss mitigation options. Work directly with him or her to request a "workout packet." A secondary lender, like Fannie Mae or Freddie Mac, may have purchased your loan. Your lender can follow the appropriate guidelines set by Fannie or Freddie to determine the best option for your situation.

Fannie Mae does not deal directly with the borrower. They work with the lender to determine the loss mitigation program that best fits your needs.

Freddie Mac, like Fannie Mae, will usually only work with the loan servicer. However, if you encounter problems with your lender during the loss mitigation process, you can coil customer service for help at 1-800-FREDDIE (1-800-373-3343).

In any loss mitigation situation, it is important to remember a few helpful hints. Explore every reasonable alternative to avoid losing your home, but beware of scams. For example, watch out for:

• Equity skimming: a buyer offers to repay the mortgage or sell the property if you sign over the deed and move out.
• Phony counseling agencies: offer counseling for a fee when it is often given at no charge.
• Don't sign anything you don't understand.

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WHAT STEPS COULD I TAKE TO LOWER MY HOMEOWNER'S INSURANCE COSTS?

Be sure to shop around among several insurance companies. Newer homes and homes constructed with materials like brick tend to have lower premiums. In particular, consider the added premium and insurability of wood shake shingle roof coverings. 

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WHAT IS MEGAN'S LAW ABOUT?

Washington State’s 1990 Community Protection Act included America’s first law authorizing public notification when dangerous sex offenders are released into the community. However, it was the brutal 1994 rape and murder of seven-year-old Megan Kanka that prompted the public demand for broad based community notification. On May 17, 1996, President Clinton signed Megan's Law. Megan's Law requires the following two components:

Sex Offender Registration – The 1994 Jacob Wetterling Act requires the States to register individuals convicted of sex crimes against children. Sex offender registration laws are necessary because:

• Sex offenders pose a high risk of re-offending after release from custody;
• Protecting the public from sex offenders is a primary governmental interest;
• The privacy interests of persons convicted of sex offenses are less important than the government’s interest in public safety;
• Release of certain information about sex offenders to public agencies and the general public will assist in protecting the public safety.

Community Notification – Megan’s Law allows the States discretion to establish criteria for disclosure, but compels them to make private and personal information on registered sex offenders available to the public. Community notification:

• Assists law enforcement in investigations;
• Establishes legal grounds to hold known offenders;
• Deters sex offenders from committing new offenses;
• Offers citizens information they can use to protect children from victimization.

Colorado Specific Information On Megan's Law - Sexually violent predators must re-register quarterly for life. The public has access to information on registered sexual offenders in their local jurisdiction through their local law enforcement agency. Lists of offenders in other jurisdictions may be available through the Colorado Bureau of Investigation depending on the requesting individual’s need to know. In Colorado, the Sex Offender Registration (SOR) information is considered a public record.

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LOANS

WHAT IS A MORTGAGE?

Generally speaking, a mortgage is a loan obtained to purchase real estate. The "mortgage" itself is a lien (a legal encumbrance) on the home or property that secures your promise to pay the debt.

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HOW DO I CHOOSE THE RIGHT LENDER FOR ME?

Choose your lender carefully. Look for financial stability and a reputation for customer satisfaction. Be sure to choose a company that gives helpful advice and that makes you feel comfortable. A lender that has the authority to approve and process your loan locally is preferable, since it will be easier for you to monitor the status of your application and ask questions. Plus, it's beneficial when the lender knows home values and conditions in the local area. Your Home Team can give your many terrific recommendations.

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HOW ARE PRE-QUALIFYING AND PRE-APPROVAL DIFFERENT?

Pre-qualification is an informal way to see how much you may borrow. You can be 'pre-qualified' over the phone with no paperwork by telling a lender your income, your long-term debts, and how much of a down payment you can afford. Without any obligation, this helps you arrive at a ballpark figure of the amount you may have available to spend on a house.
 

Pre-approval is a lender's actual commitment to lend to you a specific amount of money. Pre-approval gives you a definite idea of what you can afford and shows sellers that you are serious about buying. It is always best to get yourself pre-approved before seriously shopping for a home.

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WHAT STEPS NEED TO BE TAKEN TO SECURE A LOAN?

The first step in securing a loan is to complete a loan application. To do so, you'll need the following information.

• Pay stubs for the past 2-3 months
• W-2 forms for the past 2 years
• Information on long-term debts
• Recent bank statements
• Tax returns for the past 2 years (in some cases)
• Proof of any other income
• Address and description of the property you wish to buy
• Sales contract

During the application process, the lender will order a report on your credit history and a professional appraisal of the property you want to purchase. The application process typically takes between 1-4 weeks.

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WHAT IS A LOAN-TO-VALUE (LTV) & HOW DOES IT DETERMINE THE SIZE OF MY LOAN?

The loan to value ratio is the amount of money you borrow compared with the price of the home you are buying. Many different loans each have their own LTV limits. For example: With a 95% LTV loan on a home priced at $200,000, you could borrow up to $190,000, and would have to pay the difference of $10,000 as your down payment.

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The LTV ratio reflects the amount of equity borrowers will have in their homes once they close the sale. The higher the LTV the less cash homebuyers are required to pay out of their own funds. So, to protect lenders against potential loss in case of default, higher LTV loans (80% or more) usually require PMI or MIP (private mortgage insurance) be added to the loan payment in order to protect the lender against default .

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WHAT TYPES OF LOANS ARE AVAILABLE AND WHAT ARE THE ADVANTAGES OF EACH?

        Fixed Rate Mortgages: Payments remain the same for the the life of the loan

                        Advantages:

• Predictable
• Housing cost remains unaffected by interest rate changes and inflation.

        Adjustable Rate Mortgages (ARMS): Payments increase or decrease with changes in interest rates.  Increases are subject to limits and a ceiling.

                        Advantages:

• Generally offer lower initial interest rates
• Monthly payments can be lower

• May allow borrower to qualify for a larger loan amount

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WHEN DO ARMS MAKE SENSE?

An ARM may make sense if you anticipate a move in the near future and aren't so concerned about potential increases in interest rates.

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WHAT ARE DISCOUNT POINTS?

Discount points allow you to lower your interest rate. They are essentially prepaid interest, With each 'point' equaling 1% of the total loan amount. Generally, for each point paid on a 30-year mortgage, the interest rate is reduced by 1/8 to 1/4 of a percentage point. Discount points are smart if you plan to stay in a home for some time since they can lower the monthly loan payment. Points are tax deductible when you purchase a home and you may be able to negotiate for the seller to pay for some of them.

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CAN I PAY OFF MY LOAN AHEAD OF SCHEDULE?

Yes. By sending in extra money each month or making an extra payment at the end of the year, you can accelerate the process of paying off the loan. When you send extra money, be sure to indicate that the excess payment is to be applied to the principal. Most lenders allow loan prepayments without any penalties.  Ask your lender for details.

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ARE THERE SPECIAL MORTGAGES FOR FIRST-TIME HOMEBUYERS?

Yes. Lenders now offer several affordable mortgage options which can help first-time homebuyers overcome obstacles that made purchasing a home difficult in the past. One of the most common is sponsored by the Colorado Housing and Finance Authority (CHFA), and the program offers down payment and closing costs assistance to buyers.  In addition, there are other options which allow the buyer to obtain monies from non-profit organizations to apply towards these initial costs of homeownership.  Our team has a complete list of the most beneficial first time buyer loan programs available. 

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HOW LARGE OF A DOWN PAYMENT DO I NEED?

Some mortgages don't require a down payment at all! Most first time buyers will find that they need a 3% down payment, or less.  The larger the down payment, the less you have to borrow, and the more equity you'll have in your property. Mortgages with less than a 20% down payment generally require PMI (a mortgage insurance policy) to secure the loan. When considering the size of your down payment, consider that you'll also need some of your money set aside for closing costs, moving expenses, and - possibly -repairs and decorating.

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WHAT IS INCLUDED IN A MONTHLY MORTGAGE PAYMENT?

The monthly mortgage payment mainly pays off principal and interest. But most lenders also include local real estate taxes, homeowner's insurance, and PMI (if applicable).  If the property is part of a homeowners association (HOA), the dues will be collected separately from the mortgage payment.

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WHAT FACTORS AFFECT MORTGAGE PAYMENTS?

The amount of the down payment, the size of the mortgage loan, the interest rate, the length of the repayment term and payment schedule will all affect the size of your mortgage payment.

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HOW DOES THE INTEREST RATE FACTOR IN SECURING A MORTGAGE LOAN?

A lower interest rate allows you to borrow more money than you could with a high rate. Interest rates can fluctuate as you shop for a loan, so ask-lenders if they offer a rate "lock-in" which guarantees a specific interest rate for a certain period of time.  Typical rate locks last for 15 to 60 days.  Remember that a lender must disclose the Annual Percentage Rate (APR) of a loan to you. The APR shows the cost of a mortgage loan by expressing it in terms of a yearly interest rate. It is generally higher than the interest rate because it also includes the cost of points, mortgage insurance, and other fees included in the loan.

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WHAT HAPPENS IF INTEREST RATES DECREASE AND I HAVE A FIXED RATE LOAN?

If interest rates drop significantly, you may want to investigate refinancing. It costs money to refinance a loan, but most experts agree that if you can obtain a rate 1%, or more, below your existing rate, that it may be worthwhile to refinance.  Your lender can prepare a cost/benefit analysis to show you if its wise to refinance.

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HOW CAN I FIND OUT INFORMATION ABOUT MY CREDIT HISTORY?

There are three major credit reporting companies: Equifax, Experian, and Trans Union. Obtaining your credit report is as easy as calling and requesting one. Once you receive the report, it's important to verify its accuracy. You are entitled to a free credit report from each bureau, once per year.  Contact the reporting companies at the numbers listed for more information.

CREDIT REPORTING COMPANIES

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WHAT IF I FIND A MISTAKE IN MY CREDIT HISTORY?

Simple mistakes are easily corrected by writing to the reporting company, pointing out the error, and providing proof of the mistake. You can also request to have your own comments added to explain problems. For example, if you made a payment late due to illness, explain that for the record. Lenders are usually understanding about legitimate problems.

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WHAT IS A CREDIT BUREAU SCORE AND HOW DO LENDERS USE THEM?

A credit score is a number, based upon your credit history, that represents the possibility that you will be unable to repay a loan. Lenders use it to determine your ability to qualify for a mortgage loan. The better the score, the better your chances are of getting a loan. There are multiple credit scoring systems, but the most common is the FICO score.  Credit scores range anywhere from about 400 on the low end, to 850 on the high end.  Ask your lender for details.

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HOW CAN I IMPROVE MY SCORE?

There is no quick and easy way to improve your credit score, long term.  You can only work towards improving it by maintaining a good credit history. This means paying your bills on time and not overextending yourself by buying more than you can afford.

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HOW DO I CHOOSE THE BEST LOAN - PROGRAM FOR ME?

Your personal situation will determine the best kind of loan for you. By asking yourself a few questions, you can help narrow your search among the many options available and discover which loan suits you best.

• Do you expect your income and finances to change over the next few years?
• Are you planning to live in this home for a long period of time?
• Are you comfortable with the idea of a fluctuating mortgage payment amount?
• Do you wish to be free of mortgage debt as your children approach college age or as you prepare for retirement?

Your lender can help you use your answers to questions such as these to decide which loan best fits your needs.

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WHAT IS THE BEST WAY TO COMPARE LOANS AMONGST DIFFERENT LENDERS?

First, prepare a checklist for the information from each lending institution. You should include the company's name and basic information, the type of mortgage, minimum down payment required, interest rate and points, closing costs.  Most importantly, ask each lender for a Good Faith Estimate.  This will show the monthly payments and estimated closing costs from each lender, so that you can make accurate judgments when shopping for a loan.  Speak with companies by phone or in person. It is important to compare apples to apples, so be sure to call every lender on the list the same day, as interest rates can fluctuate daily.

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ARE THERE ANY COSTS OR FEES ASSOCIATED WITH THE LOAN ORIGINATION PROCESS?

When you submit your application, you may be asked to pay a loan application fee to cover the costs of a home appraisal and your credit report.. Most lenders will not require the appraisal fee up front until you have located a property to purchase.  These initial application fees are generally non-refundable.

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WHAT RESPONSIBILITIES DO I HAVE DURING THE LENDING PROCESS?

To ensure you won't fall victim to loan fraud, be sure to follow all of these steps as you apply for a loan:

• Be sure to understand everything before you sign.
• Refuse to sign any blank documents.
• Do not overstate your income or how long you have been employed.
• Do not overstate your assets, and accurately report your debts.
• Do not alter your income tax returns for any reason. Tell the whole truth about gifts. Do not list fake co-borrowers on your loan application.
• Be truthful about your credit problems, past and present.
• Be honest about your intention to occupy the house.
• Do not provide false supporting documents.

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WHAT HAPPENS AFTER I'VE APPLIED FOR MY LOAN?

It usually takes a lender between 1-4 weeks to complete the evaluation of your application. Its not unusual for the lender to ask you for more information once the application has been submitted. The sooner you can provide the information requested, the faster your application will be completed. Once all the information has been verified, the lender will call you to let you know the outcome of your application. If the loan is underwritten and approved you'll soon be able to move into your new home.

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WHAT IS THE U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT?

Also known as HUD, the U.S. Department of Housing and Urban Development was established in 1965 to develop national policies and programs to address housing needs in the U.S. One of HUD's primary missions is to create a suitable living environment for all Americans by developing and improving the country's communities and enforcing fair housing laws

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HOW DOES HUD HELP HOMEBUYERS AND HOMEOWNERS?

HUD helps people by administering a variety of programs that develop and support affordable housing. Specifically, HUD plays a large role in homeownership by making loans available for lower- and moderate-income families through its FHA mortgage insurance program and its HUD Homes program. HUD owns homes in many communities throughout the U.S. and offers them for sale at attractive prices and economical terms. HUD also seeks to protect consumers through education, Fair Housing Laws, and housing rehabilitation initiatives.

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WHAT IS THE FHA?

An agency within HUD, the Federal Housing Administration was established in 1934 to advance opportunities for Americans to own homes. By providing private lenders with mortgage insurance, the FHA gives them the security they need to lend to buyers who might not be able to qualify for conventional loans. The FHA has helped millions of U.S. citizens buy a home.

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HOW CAN THE FHA ASSIST ME IN BUYING A HOME?

With the FHA, you don't need perfect credit or a high-paying job to qualify for a loan. The FHA also makes loans more accessible by requiring smaller down payments than conventional loans. In fact, an FHA down payment could be as little as a few months rent.

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HOW IS THE FHA FUNDED?

Lender claims on loan defaults are paid by the FHA mortgage insurance program fund. This fund is made up of MIP (mortgage insurance premium) paid by FHA-insured loan borrowers. No tax dollars are used to fund the program.

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WHO CAN QUALIFY FOR FHA LOANS

Anyone who meets the credit requirements. Those who can afford the mortgage payments and cash down-payment.  And, those who plan to use the mortgaged property as a primary residence may apply for an FHA-insured loan.

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WHAT IS THE FHA LOAN LIMIT?

FHA loan limits vary by location of the property.  The maximums are linked to the average area home prices.  FHA loan limits are periodically subject to change. Ask your lender for details and current limits in the areas you wish to buy.

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WHAT ARE THE STEPS INVOLVED IN THE FHA LOAN PROCESS?

With the exception of a few additional forms, the FHA loan application process is similar to that of a conventional loan.

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HOW MUCH INCOME DO I NEED TO HAVE TO QUALIFY FOR AN FHA LOAN?

There is no minimum income requirement to obtain an FHA loan, but you must make enough income to qualify for a specific loan amount.

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WHAT QUALIFIES AS AN INCOME SOURCE FOR THE FHA?

Seasonal pay, child support, retirement pension payments, unemployment compensation, VA benefits, military pay, Social Security income, alimony, and rent paid by family all qualify as income sources. Part-time pay, overtime, and bonus pay also count as long as they are steady. Special savings plans-such as those set up by a church or community association - qualify, too. Income type is not as important as income steadiness with the FHA. You must prove steady income for at least three years, and demonstrate that you've consistently paid your bills on time. There are some exceptions to these rules, and for students.

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CAN I CARRY DEBT AND STILL QUALIFY FOR FHA LOANS?

Yes. Short-term debt doesn't count as long as it can be paid off within 10 months. And some regular expenses, like child care costs, are not considered debt.

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HOW LARGE A DOWN PAYMENT DO I NEED WITH AN FHA LOAN?

You must have a down payment of at least 3% of the purchase price of the home. Most affordable loan programs offered by private lenders require between a 3%-5% down payment, with a minimum of 3% coming directly from the borrower's own funds, but there are also some zero money down loan programs available, too.

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WHAT CAN I USE TO FUND A DOWN PAYMENT AND CLOSING COSTS ON AN FHA LOAN?

Besides your own funds, you may use cash gifts from family members, or money from a private savings club.

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HOW DOES MY CREDIT HISTORY IMPACT MY ABILITY TO QUALIFY FOR AN FHA LOAN?

The FHA is generally more flexible than conventional lenders in its qualifying guidelines. In fact, the FHA allows you to re-establish credit if:

• two years have passed since a bankruptcy has been discharged
• all judgments have been paid
• any outstanding tax liens have been satisfied or appropriate arrangements have been made to establish a repayment plan with the IRS or state Department of Revenue
• three years have passed since a foreclosure or a deed-in-lieu has been resolved

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CAN I QUALIFY FOR AN FHA LOAN WITHOUT A CREDIT HISTORY?

Yes. If you prefer to pay debts in cash or are too young to have established credit, there are other ways to prove your eligibility. Talk to your lender for details.

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WHAT TYPES OF CLOSING COSTS ARE ASSOCIATED WITH FHA-INSURED LOANS?

Except for the addition of an FHA mortgage insurance premium, FHA closing costs are similar to those of a conventional loan. The FHA requires a single, upfront mortgage insurance premium equal to 2.25% of the mortgage to be paid at closing. This initial premium may be partially refunded if the loan is paid in full during the first seven years of the loan term. After closing, you will then be responsible for an annual premium - paid monthly - if your mortgage is over 15 years or if you have a 15-year loan with an LTV greater than 90%.

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CAN I ROLL CLOSING COSTS INTO MY FHA LOAN?

No. Though you can't roll closing costs into your FHA loan, you may be able to use the amount you pay for them to help satisfy the down payment requirement. Ask your lender for details.

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ARE FHA LOANS ASSUMABLE?

Yes. You can assume an existing FHA-insured loan. Assuming a loan can be very beneficial, since assuming an existing loan can result in the buyer obtaining a lower interest rate than the current market would permit. Qualifying to assume a loan is similar to the qualification requirements for a new loan. The application process consists basically of a credit check, and no property appraisal is required. You must demonstrate that you have enough income to support the mortgage loan.

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WHAT IS MORTGAGE INSURANCE?

Mortgage insurance (PMI) is a policy that protects lenders against some or most of the losses that result from defaults on home mortgages. It's required primarily for borrowers making a down payment of less than 20%.

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HOW DOES MORTGAGE INSURANCE WORK? IS IT LIKE HOME OR AUTO INSURANCE?

Like home or auto insurance, mortgage insurance requires payment of a premium, and is for protection against loss by the lender. If a borrower can't repay an insured mortgage loan as agreed, the lender may foreclose on the property and file a claim with the mortgage insurer for some or most of the total losses.

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DO I NEED MORTGAGE INSURANCE? HOW DO I GET IT?

You need mortgage insurance only if you plan to make a down payment of less than 20% of the purchase price of the home. The FHA offers several loan programs that may meet your needs.

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WHAT IS PMI?

PMI stands for Private Mortgage Insurance. These are privately-owned companies that provide mortgage insurance. They offer both standard and special affordable programs for borrowers. These companies provide guidelines to lenders that detail the types of loans they will insure. Lenders use these guidelines to determine borrower eligibility. PMI's usually have stricter qualifying ratios and larger down payment requirements than the FHA, but their premiums are often lower and they insure loans that exceed the FHA limit.

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ARE interest-only loans A smart way to FINANCE a home?

HOW DOES THE LENDER DECIDE THE MAXIMUM LOAN AMOUNT THAT CAN AFFORD?

The lender considers your debt-to-income ratio, which is a comparison of your gross (pre-tax) income to housing and non-housing expenses. Non-housing expenses include such long-term debts as car or student loan payments, alimony, or child support. The lender also considers cash available for down payment and closing costs, credit history, etc. when determining your maximum loan amount.

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HOMEOWNER ASSOCIATIONS

QUESTIONS TO ASK THE HOMEOWNERS ASSOCIATION

Understanding the community Homeowners Association (HOA) is very important, since it impacts your financial obligations, perhaps significantly.  Below, is a list of sample questions to ask the HOA.  Note, the list is not an all inclusive, and is intended to raise questions that may help you identify areas of concern, if any.

    1. Does the project consist of any leased or rented units?  To what proportion?  Does any investor own more than one unit?

    2. Has the developer of the community turned over all the units to the HOA?

    3. Has it been difficult for owners to obtain any type of financing for the purchase or sale of any properties within this HOA?

    4. How financially stable is this HOA?

    5. As of the start of the current fiscal year, how many owners are delinquent with their dues of more than 30 days?  What are the totals?

    6. Will you send me a current set of financial statements? (Budget, P&L, Balance Sheet).

    7. Are any special assessments planned or currently in effect?  What is the nature of the assessment(s)?

    8. If so, what will the cost of the assessment be?

    9. What are the current HOA dues?  How often are they due (monthly, quarterly, annually?).  And, will dues likely change in the near future?

    10. Is the assessment for all units the same, or does it vary by size of unit?  If variable, what is the assessment range?

    11. What do the dues cover? Here are some typical expenses…

·         Trash

·         Water, Sewer, Heat, Hot Water, Other utilities?

·         Snow removal (how often?)

·         Separate structures such as detached garages, etc.

·         Amenities (Pool, Clubhouse, Tennis, etc.)

·         Insurance (what does it cover?)  Who is the Insurance Agency?

·         Exterior maintenance (Landscape, Mowing, Painting, Roofing, Fences, etc.)

    12. Does the HOA have a Right of First Refusal?

    13. Does the HOA collect “Working Capital” from new owners?  How much?

    14. What is the amount of the new owner transfer fees?

    15. Are parking spaces assigned, or first come - first serve?  How are open spaces distinguished from assigned?

    16. Who is the contact person for this HOA? (phone number?).

    17. Who is the HOA president?  Board members?  (phone numbers?)

    18. How many units/homes are participating in the HOA at this time?

    19. Are there any additional units planned to be added to this HOA in the future?

    20. Where are the meetings held?  How often?  Where?

    21. May I attend the next meeting?

    22. Are all units and facilities complete?  (Amenities, Common Areas, Renovations, etc).

    23. Can the community expand beyond its current size?