Know the four factors that determine whether or not you qualify for a loan.
The two types of ratios lenders look at to know your monthly spending.
The pros and cons of using collateral when you apply for a home loan.
Your credit score affects a lender's decision to issue you a loan.
The types of closing costs you need to look for in your closing disclosure.
The ultimate question: how much of my own money do I need to buy a home? The answer is – it depends! But let’s take a step back and start with why. Borrowers need a down payment to show the lender that you are serious about the investment of buying your own home, by being willing to put in your own money (called a down payment), not just the lender’s money. The amount could vary, depending on which loan program you use.
Conventional – Requiring 3% down
Jumbo – Requiring 5-20% down
FHA – Requiring 3.5% down
VA – Requiring 0% down
USDA – Requiring 0% down
Various down payment sources may be used. The first, most obvious one, would be cash from savings. The next would be gift funds (see the Ask Ark section below for eligibility requirements for gift funds) and the last would be down payment assistance programs. These programs help prospective home buyers get into a home faster by offering assistance through a grant for down payment costs or closing costs. Find more information in the Resources section below.
At the same time, the more money you have after closing, the less likely you are to default. All in all, a lender is looking to understand: Does the applicant have a financial cushion to fall back on if their income is unexpectedly interrupted?
Have they shown a pattern and habit of saving money over time? In most cases the lender will want to verify that an applicant has an amount equal to 2 months’ worth of their total housing payment (including real estate taxes and homeowner’s insurance) saved up in a capital account, after they subtract any cash required for down-payment & closing costs.
It’s also important to know what the source of your assets are. Is it savings? Was it a gift? Was it a one-time settlement or bonus? Discuss your entire financial status/picture with your Mortgage Advisor.
Closing costs are fees associated with your home purchase that are paid at the closing of a real estate transaction. Closing is the point in time when the title of the property is transferred from the seller to the buyer. Typically, home buyers will pay between about 2 – 5% of the purchase price of their home in closing fees. So, if your home cost $150,000, you might pay between $3,000 and $7,500 in closing costs.
Closing costs vary widely based on where you live, the property you buy, and the type of loan you choose. Here is a list of fees that may be included in closing. It’s not likely that your loan will include all the fees listed here. Closing fees can be rolled into the loan or paid at closing. They're usually broken down into three categories: lender fees, third-party fees, and taxes.
Often you are asked to put down two months of property tax and mortgage insurance payments at closing.
Understand the options for buying a foreclosed home.
Home buyers often think they want to buy a foreclosure. Unfortunately, as many full-service mortgage lenders can attest, many buyers jump in before truly understanding what the purchase of a distressed property entails in terms of additional costs, repairs paperwork and effort.
Foreclosure is one of the four types of distressed properties. You might possibly save money with any of the four, but the further along the process from original ownership to bank ownership, the more money you, the new buyer, might have to sink into repairs.
Before you decide to go the foreclosure route, become an informed consumer! Speak to a Realtor and a great mortgage lending company like Ark Mortgage. In addition, these tips can help:
1. Pre-foreclosure: In a pre-foreclosure, the owners are behind in their mortgage payments and are in danger of default. This is documented by a “lis pendens” notification, filed at the local clerk or record keeper’s office and available for public view. This doesn’t mean the property is necessarily available for purchase. Owners may still come up with the necessary funds or apply for a loan modification before deciding to sell the home to avoid potential foreclosure.
2. Short Sale: In a short sale, the property is typically no longer worth the amount the owners still owe on their mortgage. The owners attempt to sell the home for the highest amount a potential buyer offers, and then ask the bank to forgive the difference between the sale proceeds and the amount they still owe. In a short sale, you are negotiating with the bank, not the owners, and the process can take several months.
3. Foreclosure Auction: Also known as a sheriff’s sale or trustee sale, this is where the bank owns the property and publicly auction it off to the highest bidder. Evicted (and often bitter) former owners may have removed appliances, pipes, wiring, heating systems and more.
4. REO: Foreclosed properties that remain unsold at auction become Real Estate Owned properties. They have been repossessed by the lender, such as a mortgage services company, who is now attempting to sell them through Realtors and other means. Such sales can take years, which means that REOs, left empty and neglected, are often in the worst condition of all. There can be water damage, vandalism, overgrown landscaping and the like.
You can find listings of distressed properties on the Multiple Listing Service, websites like those sponsored by Fannie Mae, Freddie Mac and the Department of Housing and Urban Development, bank websites and specialty websites like RealtyTrac.
If you’ve decided to bid on a foreclosure, be aware that distressed properties are normally auctioned off “as is” and can require varying amounts of repair, especially if former occupants were unable to afford their upkeep. This might be a deterrent for buyers with limited funds for repairs or who need to move in quickly. Purchasers might also be responsible for any unpaid taxes, liens and encumbrances left by the previous owners. These can include fees for utilities, sewer and trash removal, as well as Homeowners’ Association fees and home equity lines of credit.
1. Search public records for liens and outstanding taxes, then hire a title company to run a full, insured title search. That way, you’ll have a better idea of the chain of ownership and what you’ll ultimately owe, should your bid win.
2. Hire a real estate agent, preferably one with a Short Sale and Foreclosure Resource (SFR) designation from the National Association of Realtors, as well as a reputable inspector and a lawyer who specializes in foreclosure sales.
3. Have the real estate agent help you set a maximum bid amount, based on comparable sales and values in the neighborhood, so you don’t get caught up in the excitement of the auction.
4. If you can preview the property in advance (often this is not permitted), listen carefully to your inspector’s suggestions so you have an educated estimate as to necessary repair costs.
5. Before the auction, discuss your maximum bid strategy, plus the expected costs of outstanding liens and repairs, with a full-service mortgage lender like Ark Mortgage so you can get pre-approved for your estimated loan amount. Unless you intend to pay cash, you will need a pre-approval letter to participate in the auction. Tell your Home Mortgage Advisor that you intend to buy a foreclosure. That way, they can budget for how much your taxes may increase once the home is in better shape. Understand that the loan amount will typically be based on the property’s current appraised value.
6. Attend foreclosure auctions of other properties before bidding at your own, so you better understand the process.
7. Be sure to register for your auction and reconfirm that morning since it is common for auctions to be postponed or canceled, especially if the owner comes up with a way to cover arrears. If you do plan to bid, arrive an hour before the auction starts and pick up an Auction Bidder Card.
If you do decide that purchasing a distressed property is right for you, we hope these tips help set you up for success. Contact Ark Mortgage for more information.
So many things to consider, but when approached methodically, it can be easily achieved.
It’s not an easy question, but rather one that involves many considerations.
Know your budget before you buy a second home.
The minimum credit score requirement for the different types of loans available.
If you want to buy a home and you aren’t paying 100% cash, any competent residential mortgage banker will confirm that your credit score is going to matter. First, it will help determine if you’re likely to qualify for any mortgage and second, it will help establish what interest rate you may be charged.
So, what is a credit score? How is it determined? And how can you fix a bad one? Read on.
A credit score is a grade based on your credit history—how many entities have extended credit to you, how much credit they have extended and how diligently you’ve paid your debts. There are bureaus that compile and report on credit history: Experian, TransUnion and Equifax. These credit bureaus gather and analyze data to arrive at a FICO score—a measure of consumer credit risk. Because creditors generally don’t report information to all bureaus, you are likely end up with three different FICO scores. Mortgage lenders typically use the middle one. One of the most reliable sources to review your FICO score is myFICO.com.
Credit scores can range from 300 to 850 points, but the rating is not just based on how quickly you pay off your debts. While payment history does account for 35% of the score, the total amount owed is important (30%), because the larger your debt, the higher the risk. The length of time you’ve used credit is taken into account (15%)—the longer, the better—and also how much “new” credit you’ve recently accessed (10%). Finally, your overall mix of credit is worth 10%. A diverse mix may be comprised of student loans, car loans and unsecured revolving debt (credit cards).
Since the Dodd-Frank Wall Street reform was signed into law in 2010, it has become more difficult for people with poor credit to qualify for mortgage loans. However, different types of loans have different requirements. While it’s possible (but difficult) to get an FHA loan with a credit score as low as 500, the down payment needed is higher (10%). With a score of 580 or more, you can qualify for an FHA loan with as little as a 3.5% down payment and the approval is more likely. Veteran’s (VA) loans and conventional loans from mortgage services companies like Ark Mortgage typically require a score of 620 or higher.
The higher the credit score, the more likely a borrower will qualify for a lower interest rate with mortgage lending firms. A score of 760 (or higher) traditionally receives the lowest rates. Additionally, lenders may also require that there be no late or delinquent payments for the past 12 months, a low debt-to-income ratio (amount you owe compared to the amount you earn) and a solid employment history (2 years minimum). Factors that reduce the lender’s risk and might compensate for lower credit scores include a larger down payment, high income, substantial savings and a long employment history with your current employer.
If your credit isn’t as high as it could be, the best thing to do is start the reparation process before starting to shop for a home. Here are some steps you can follow:
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Factors to keep in mind when deciding whether to purchase a move-in ready home or new construction.
One question often confronting home buyers is: would it be less expensive to buy a pre-existing home, or should I purchase new construction? Even if the price is the only determinant, the answer may not be as clear-cut as you might think.
First, know what you can comfortably afford. Use one of our mortgage calculators to determine your maximum affordable payment (MAP). Then select a mortgage lending bank like Ark Mortgage to arrange for financing so when you determine which type of home you want and the mortgage services you need, you’re ready to act quickly.
Next, recognize that it is cheaper initially to buy a pre-existing house. If you buy a new house, the median sale price in the U.S. was $408,800 in September 2021, according to the U.S. Census Bureau and the U.S. Department of Housing and Urban Development; the median price homebuyers paid to buy an existing home was $352,800 in the same month, according to the National Association of Realtors.
Obviously, prices vary depending on location—New York/New Jersey metropolitan area homes tend to run higher than other parts of the country. See our new site Ark Homes to get a better idea of what a house in your desired area would cost you. Other factors affecting price: design, labor, materials, interior and exterior finishes, size of plot and more.
It’s important to keep these points in mind when deciding between purchasing new and pre-existing construction:
A new home is like a blank canvas—everything is waiting for you, the first buyer, to add your personal touch. But to avoid expensive surprises after you buy, when purchasing a new construction home — especially in a subdivision or development — you should do some basic research before you sign the contract. Consider the following guidelines
New construction comes in three varieties:
If you are considering a purchase in a new subdivision, ask yourself, how customized and unique are you hoping your house to be? Keep in mind that in subdivisions you can choose from various materials and finishes, but there’s usually a limit to how much you can change, and floor plans are typically not customizable. Some builders will allow you to purchase your preferred materials separately if they don’t supply them, but they may or may not credit you to cover those costs.
Other issues to consider: Subdivisions are not usually built in the center of town. Will the commute become an issue? The properties might be built closer together than houses outside developments. Will you mind having less privacy? And are you ok with minimal landscaping? It might take years for the area to look “lived in” with mature trees and plants.
Unless you are paying cash, work with a good Mortgage Advisor licensed in the state you are purchasing in. Some builders will insist that you use their lenders, but often you can override this. Sometimes their lender may offer monetary incentives, but you very well might do better elsewhere, especially with fees and how they structure the loan. Your preferred lender might be able to structure a deal that, when taking into account loan program, interest rate, down payment, length of term and many other factors, can save you tens of thousands of dollars in the long run over the builder’s lender.
Make sure you hire a Buyer’s Agent to represent you and protect your interests. In most subdivisions and developments, the on-site real estate agent works for the seller, not you. Their job is to maximize the developer’s profit. Buyer’s Agents are normally compensated by the builder or Selling Agent, but they work in the buyer’s interest. Make sure to have your Buyer’s Agent contact the builder before your initial visit (otherwise, they might not get paid!) and even if the builder discourages it, have them at every walk-through and copy them on all correspondence. They can advise you how to negotiate the purchase price. Be forewarned: some builders don’t like to drop their prices but may consider paying for closing costs or throwing in upgrades. Your Agent may have knowledge as to a particular builder’s negotiating style.
Aside from your Buyer’s Agent, others on your team should include a real estate lawyer since builder’s contracts and addendums can be confusing. Also make sure you have a competent inspector who should accompany you on your final pre-closing visit, so you can write up a “punch list” of requested repairs of anything not completed as per the sales contract.
Research the neighborhood before purchasing. Personally visit the schools, the houses of worship, the shops, and the neighborhood at different times of day. Search social media for comments about the builder’s other projects. Were the owners happy with the construction? With the amenities? Also, check out the zoning laws so you know what might be built in the neighborhood in the future.
Check the builder’s reputation before purchasing. Ask about the projected date of completion of the home and then add on a few months — construction can often run overtime. Be sure your contract includes a cost escalation clause to protect you against rising prices.
Don’t settle on a layout based on virtual reality. Ask if there is a model of the home that you can visit, even if it’s part of a different development or located in a different town. Understand that the size or dimensions of the lot you choose may require the final design of your home to vary from the model.
Also understand up front what exactly is included in the standard purchase price because the model homes they show are typically packed with upgrades that may not be included in your price. Be sure you can afford the colors, finishes, and fabrics of your choice. Ask if the building lot and landscaping are included in the sale price or will require additional payment. When your budget won’t include everything you desire, choose square footage and location over upgrades. You can always upgrade later but you can’t affordably increase the size of the home or move it to a different location. Also, never over-improve. Owning the most expensive home in a subdivision may impede resale later.
Get everything in writing, including a home warranty, and know in advance what the warranty covers. Check out the rules of the Homeowner Association (HOA) if there is one and the monthly required fees to maintain the upkeep of the development. Finally, ask the builder to leave any leftover paint, tiles, and carpet scraps behind. They will help you maintain the property as well as assist you when shopping for furniture and decorations.
Always find out how much home you can afford to buy before you shop, but if you are ready to acquire your new property, contact one of our Mortgage Advisors ASAP. We’ll give you great guidance and make sure you are getting the best loan for your situation.
ArkHomes
400 Rella Blvd, Suite 300
Montebello, NY 10901
(888) 275-8501
Shulum Ekstein
ExTeam LLC
412 Main Street Monroe NY 10950
(845) 388-1450
