Great penthouse unit in the Lake Heron Community. The two bedroom with loft for extra living space boasts an updated kitchen with granite countertops and stainless steel appliiances. The complex is less than a 10 minute drive to downtownAnnapolis and all that has to offer.
When it comes to your mortgage payment you most likely know it’s made up of the principal and interest. What a lot of buyers over look is the third part of that payment, the escrow. It’s this part of the payment that can cause your mortgage to go up or down. This account is set up to make sure you have the money to pay for your homeowner’s insurance, PMI and taxes.
Lenders will require you to have homeowner’s insurance. You can pick the company and the policy as long as it meets the lenders requirements, but the monthly premium payments come from the escrow account. The other portion of the account is property taxes you will pay on the house. When the payment is due, the lender will pay the amount.
The exact amount of escrow will be determined when the final details of the loan are worked out. But here’s how you can determine the amount you should be paying. Call a local insurance agent and get a quote on the house you are thinking of buying then ask your real estate agent for the taxes on the property. Add the two together and then divide by 12. This is roughly what you will pay for your escrow. Keep in mind that this amount will change since property taxes can go up or go down as well as your insurance premium. Every year your lender will review the amount in escrow to determine if you have enough in the account. If PMI has to be added, depending on your down-payment, this could affect the total mortgage payment.
Now that you have found the house that you love and put in an offer, while you wait for the answer from the sellers take some time and get some more of your financial house in order.
In order to process your home loan the lender will need some information from you.Mary Beth Henderson of Embrace Home Loans recommends getting this list together now to make the processing of your loan easier.
Last two years of W2s. I know you haven’t seen them since you did your taxes but it’s time to go back through your files and find them.
The good news is once you find the W2s it should be easy to find the second thing you will need, your last 2 years complete tax returns. If you can’t find them you can ask the IRS for a copy but that will take some time. The IRS does not charge for a copy of the last three tax years. Click here for more information
You will need the last 30 days paystubs or retirement award letter.
Annual statement from Social Security if applicable
2 months of official bank statements or last statement from 401K accounts. Make sure you have all the pages of the statement.
Copy of your driver’s license.
Getting these few pieces of paper together will help keep the process on track and get you into your dream home faster.
Buying a house starts with your finances. By Michelle Doell
The first step in buying a house really begins way before you hit the streets looking. It starts with your finances. If you are looking to buy a house it is never too early to start thinking about it. The things you do today will affect how things will go with the home buying process.
Pay all your bills on time. This tip is a no brainer for most but you need to be diligent as you move into the process of buying a home.
Start a separate account for your house fund. It’s important to separate the funds from your normal checking account. If you label it your house fund you are more likely to save the money. One possible idea to boast the savings…Do you use coupons at the grocery store or a store rewards card? Chances are you saved money when you went to the store. The amount is normally printed at the bottom of the receipt. Take the money you just saved and put it in the house fund. You will be surprised how fast that will add up.
Avoid opening new lines of credit. The amount of money you can get a loan for depends on your debt to income ratio. If you have too many lines of credits (credit cards, car loans or other loans) the amount the bank or lender can give you will be lower. So think twice before you sign up for that great credit card offer or buy a car.
Before you set off looking for that perfect home, sit down with a mortgage lender to get prequalified. This will let you know exactly how much you are able to spend. Your lender should also be able to tell you an estimate of what your monthly payment would be at that level as well as how much you will need for closing costs.
Remember just because you got prequalified does not mean you can go out and get credit cards or a new car. “Opening new lines of credit can both lower your credit score and raise your debt to income ratio making it no longer possible to qualify for a home.” Mary Beth goes on to say “ Underwriters like to see “rainy day” money in borrowers accounts, in particular first time buyers. Not only should you try to save your down payment, but also a couple months extra in savings in case of an unforeseen event that might challenge your ability to pay your bills.”
How Much Can I Spend on a House?
By Michelle Doell
How much you can spend on a house is always a good place to start the home buying process? You are really the only one who can answer that question. A lender can pre-qualify you for a loan amount but it’s not always the right amount to spend. It’s really all about your budget.
The first thing you should do is get that pre-qualification done. This will give you a ballpark figure of the amount of the house. Once you are approved you should sit down and really be honest about your budget. I know it’s hard but write it all down, even those trips to Starbucks or those fabulous shoes you like to buy. Once you buy a house, you will still want to do those things so you want to make sure you have the money for it. As many would say you don’t want to be house poor. Don’t worry no one else needs to see this. It is just so you have an idea of what you would be comfortable spending.
Here are three things to think about in your budget.
Cost of Commuting: Figure out if there is a difference in mileage from the neighborhood of choice to work and calculate the amount of gas that it would take. I know in my case I underestimated the amount of gas I would need to commute to my work from my new home. While it seems like a small thing, it is about $100 a month and that’s a big chunk of change. If you are commuting by public transit, check to see how much that bus, train or subway ticket will now cost each day.
Utilities Cost: I moved from my apartment with very low utilities to a house. My bill increased 5 times from what it had been in my apartment. Luckily, I had budgeted for that and you can too. As soon as you find a home you can call the electric company or gas company. Ask them what the past usage for the home has been. While you may use more or less electricity/gas it will give an idea of what to budget for.
Rainy Day Fund: I know everyone says you should have one of these funds and there is a reason. It’s true. Yes you just bought a house and nothing should go wrong. In reality things will go wrong and you need to have the means to fix it. For us it was the roof. The roof itself is in great shape, as the inspection pointed out. However, we found out that our shingles were recalled after we moved in and they don’t make them anymore. Well, when the first hurricane hit, we lost a lot of shingles and had to have the entire roof redone. So a rainy day fund is not just a cliché.
Now that you know what you would feel comfortable paying in a mortgage you are a step closer to the right house price. Your lender can help you here. There is a lot that goes into that payment. You have the principle, interest and escrow. The escrow is different for everyone. So the lender is really the best person to tell you how much your payment will be on any one house. While you are looking you can use the mortgage calculators you find online (I even have one on my website) but keep in mind the final payment will most likely be more. Don’t be afraid to ask! Lenders are there to help and if they aren’t you might want to look for another one.
Thinking of taking the Home Ownership Plunge this New Year? Here are five things that make 2015 the year to buy.
1. Rents are on the rise. The foreclosure crisis did more than just lower housing prices it has raised rents around the country. All the people who had a home foreclosed on now need a place to live. The number of rentals has really gone up in the past year. So that means you have a lot more competition when it comes to getting a place to rent and rents will be going up. Industry experts expect rents to increase by 3.5% while home prices are expected to rise just 2.5% in 2015.
2. Mortgage rates are expected to rise. Mortgage rates are at an all time low but that is expected to change. The Fed has signaled they may raise rates on short-term funds. If that happens banks will pass that increase on to you, the consumer, by raising their rates. The Mortgage Bankers Association predicts rates will rise to 5%. While that doesn't see that much it adds up over the life of a loan. Take for example a loan of $349,000 at 4% will run you about $1666 a month. That same loan at 5% will run about $1874. That's $2496 a year more than 4% and $75,000 over the course of the loan.
3. Fanny Mae and Freddie Mac lower down payment requirements. The government controlled mortgage giants have lowered the down payment requirements to 3%. That means instead of coming up with $17,500 for a downpayment on a $350,000 loan, you can put down $10,500. Keep in mind in parts of Maryland you can qualify for USDA loans with no down payment. As well as VA loans with no down payment. With a USDA or VA loan and closing help from a seller, it is very possible to buy a home with zero cash at the closing table.
4. Homes will become less affordable. Currently home prices are affordable but leading experts say prices will rise more than incomes this year. In other words your paycheck will not buy you as much house as it has before.
5. Stop lining the landlord's pockets with your money. I know you have heard it before. I did the same thing, pay rent for years and help my landlord build wealth. Now as a home owner I am paying myself. For example, the average rent for a townhouse in Chesapeake Beach is $1800. Over a year that rent adds up to $21,600. So why would you pay that kind of money to someone else when you could build equity by paying yourself $21,600 every year.
Trust me I know it's hard to take that giant leap into home ownership. I was in your shoes just a few years ago. If you have any questions, send me an email michelle.doell@kw.com or give me a call or text on my cell 410-474-8995 or Office 410-972-4000. I am more than happy to sit down and talk with you about the home buying process. It's what I am here for.
Cost of Commuting: Figure out if there is a difference in mileage from the neighborhood of choice to work and calculate the amount of gas that it would take. I know in my case I underestimated the amount of gas I would need to commute to my work from my new home. While it seems like a small thing, it is about $100 a month and that’s a big chunk of change. If you are commuting by public transit, check to see how much that bus, train or subway ticket will now cost each day.
Utilities Cost: I moved from my apartment with very low utilities to a house. My bill increased 5 times from what it had been in my apartment. Luckily, I had budgeted for that and you can too. As soon as you find a home you can call the electric company or gas company. Ask them what the past usage for the home has been. While you may use more or less electricity/gas it will give an idea of what to budget for.
Rainy Day Fund: I know everyone says you should have one of these funds and there is a reason. It’s true. Yes you just bought a house and nothing should go wrong. In reality things will go wrong and you need to have the means to fix it. For us it was the roof. The roof itself is in great shape, as the inspection pointed out. However, we found out that our shingles were recalled after we moved in and they don’t make them anymore. Well, when the first hurricane hit, we lost a lot of shingles and had to have the entire roof redone. So a rainy day fund is not just a cliché.
