Finances & Mortgages

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Financing

Get Pre-Approved!

Pre-approval, as opposed to pre-qualification, signifies that the loan application has been taken through a rigorous procedure. Here's why pre-approved buyers are ahead in the home buying game:

If you make an offer on a home and then apply for a loan, you are at the lender’s mercy, who is aware that you do not have time to shop around.

Pre-approval saves time spent looking at houses you can’t afford.

A pre-approval letter from a lender gives you an edge when multiple offers have been made on a house.

Pre-approved buyers can generally close escrow more quickly, since most of the work has already been done.

 

Mortgage Brokers vs. Mortgage Bankers

What's the difference?

Benefits of Brokers: Brokers work individually with borrowers. The broker is independent and searches for a loan based on his customer’s needs, not his employer’s needs. A broker matches clients with lenders then walks the paperwork through final approval and funding. Brokers’ fees are paid by the lender, so they are of no consequence to the buyer.

Benefits of Bankers: Mortgage bankers are direct lenders; working with them eliminates the middleman. Mortgage bankers themselves approve or reject loans and may prove more expeditious. Mortgage bankers must have substantial net worth if they are to survive. Because they are competing with both other bankers and brokers, mortgage bankers offer competitive rates.

 

Check Your Credit Report

Credit card companies and lenders rely on credit scores, which determine someone’s chances to borrow money — and how favorable the terms will be.

Check your own score yearly by ordering reports from the three major credit scoring companies: Equifax (www.equifax.com), Experian (www.experian.com), and TransUnion (www.tuc.com).

Notify the credit bureau of inaccuracies. Close accounts not in use. Request that late payments older than seven years be removed. Verify and update accounts and account numbers. Verify address and Social Security number.

How to Improve Your Score: Pay your bills on time. Reduce outstanding debt. Build up your savings. Don’t fall for illegal schemes that help you create a new credit identity.

 

Online Lending: Pros and Cons

Pros: Online lenders usually offer competitive interest rates. If your credit profile is good, a few hours on your PC can lead to multiple offers. Most online companies use traditional approval and funding. Info is easy to compare without sales double-talk. Borrowers can skip the middleman.

Cons: Online lenders face less accountability. Online lenders may not have earned their reputations. Online companies may not have the legal authority to make loans in your area. Internet suspicion may still be too big a deterrent for you.

Take the following precautions: A poorly designed site is a bad sign. If you can’t learn anything about the company, try another. Ask your Realtor for names of reputable online lenders.

 

Lock In Your Loan

A lock-in holds an interest rate and points for a specified period of time, usually 30-60 days. Depending on the lender, you can lock-in at the time of application, during loan processing, at the time of loan approval, or later.

A lock-in at application is useful when interest rates are on the rise, protecting against rate increases. If interest rates are falling, it may be best to wait until after application approval to lock in.

Lock-ins aren’t always free. Some lenders charge up-front fees, which may or may not be refunded upon application withdrawal or denial. Other lenders charge the fee at settlement. The fee may be a flat fee, a percentage of the mortgage amount, or a fraction of a point added to the lock-in rate.

 

Closing Costs

Administration fee l Appraisal fee l Appraisal review fee l Closing/escrow/settlement fee l Courier fee l Credit Report l Document preparation l Flood certification fee l Flood monitoring l Home inspection l Home warranty l Homeowner’s association transfer fee l Homeowner’s insurance l Homeowners insurance impounds l Lender’s Inspection fee l Loan discount l Loan Origination Fee l Loan tie-in fee l Mortgage broker fee l Mortgage insurance impounds l Mortgage insurance l Notary fees l Pest inspection l Pre-paid interest l Property tax impounds l Recording fees l Sub-escrow fee l Tax service fee l Title insurance l Underwriting fee l Up front mortgage insurance premium l VA funding fee l Warehousing fee l Wire transfer fee.

 

Should You Borrow From Your 401k?

Pros:

l Doesn’t affect your credit rating l Low interest l You pay yourself the interest l You won’t be charged the 10 percent early withdrawal penalties plus income taxes l You don’t have to qualify for the loan l No collateral needed

Cons:

l You forfeit accrued interest l The interest is not tax deductible l Some plans allow no contributions to the 401(k) during the loan l If you lose or quit your job, the loan is often due in full in 30-60 days l If you default on the loan, it is considered a withdrawal and you will owe a 10 percent penalty plus a hefty tax payment

 

Capital Gains Exclusions

According to the IRS, a principal residence can take many forms: conventional home, condominium, mobile home, house trailer, tenant-stockholder cooperative housing unit—even a boat, as long as it has sleeping, cooking and sanitary facilities. If you split your time between two residences, it’s defined as the home you own and use as a residence for “a majority of the time during the year.” Other considerations: l the location of your property in relation to your place of employment. l the location where your family members reside. l the address you use on your federal and state tax returns, driver’s license, automobile registration and voter registration card. l the mailing address you use predominantly for bills and correspondence. l the location of your banks. l the location of your “religious organizations and recreational clubs.”

 

 

Tax Benefits

 Vladimir is a single, childless guy who rents a house for $1200 a month. His federal income tax liability for the year: Adjusted gross income: $128,000 ∙ Standard deduction: single $4400 ∙ Personal exemption $2800 ∙ Taxable income $120,800 ∙ Vladimir's 2008 federal income tax: $32,129.

But if Vladimir buys a house with a mortgage payment of $1200 per month, everything changes:

Adjusted gross income $128,000 ∙ Itemized deduction for state income taxes: $3500 ∙ Itemized deduction for real estate taxes: $1500 ∙ Itemized deduction for mortgage interest: $11,400 ∙ Personal exemption $2800 ∙

 

Homeowners Insurance: A Primer

 What does homeowners insurance cover? In general: l The structure of your home and other structures on your land. l Your personal property – furniture, clothing, electronics, appliances, etc. l Living expenses while your damaged home is being repaired and you have to live somewhere else for a time. l You, when someone is hurt on your property and you're found to be at fault.

What doesn’t it cover? l Flood. l Mold damage. l Theft or damage of your auto, boat or recreational vehicle on your property. l Water main breaks and floods your house, or if a sewer line breaks and floods your house with sewage. l Earthquakes.

 

Home Insurance Savings Tips

Set higher deductibles to lower your premiums.

Most companies offer discounts for smoke detectors, burglar alarms, third-party alarm monitoring systems, dead bolts, fire extinguishers, Neighborhood Watch programs.

Earn “multiple coverage” discounts by using one carrier for all of your insurance.

Premiums will be higher if fire stations and fire hydrants are too far away.

Going without a claim for three to five years may warrant a discount. Most companies reward longevity of service. Some companies offer discounts if you’ve paid off the mortgage.

Discounts often apply if your home was built or rebuilt within the past 10-15 years.

Check out non-smoker, early retirement, and live-in-housekeeper discounts.

 

 

=taxable income: $108,800 ∙ =Vladimir’s federal income tax: $28,409. He just saved almost $4000 by buying a house instead of paying rent.