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6. Should
I lock-in my interest rate or “float?”
Interest rates on mortgages
fluctuate daily according to the marketplace. At
application, Buyers have two choices. The Buyer can
lock in on the rate that is quoted, or the Buyer may
“float” the interest rate, meaning the rate
continues to move with the market.
The benefit of a lock-in is
you have peace of mind knowing what your mortgage
payment will be from the time you are approved.
With floating, you may be able to get a lower rate
by waiting for rates to go down. Either decision
should be based on your comfort level and after
you’ve carefully considered the money markets which
affect interest rates. Most lenders will not allow
you to lock-in until you have a property under
contract. The best advice is to know the market
trends and listen for advisement from a lender you
trust. Ultimately, it is
your
responsibility when to lock-in.
7. What is Earnest Money and
how does it relate to the down payment?
Earnest money is deposited by
the Buyer at the time a contract is presented to
show you’re “earnest” about buying the Seller’s
home. Earnest money checks range from a few hundred
dollars to several thousand. For the average home
in this area, earnest money typically is
approximately $1,000 or 1% of the sales price. The
earnest money is held in a trust account by either
the listing or selling broker and credited to you at
closing for your down payment or closing costs.
The down payment, on the other
hand, is the cash the Buyer pays at closing to make
up the difference between the sales price and the
loan amount. Down payments range from zero to 20%
or more depending on the type of loan. Usually, the
lower the down payment, the higher the monthly
payment for the loan.
8. How
can I find out about the property tax liability?
The total
amount of the previous year’s property taxes is
usually included in the listing information. Tax
rates can change from year to year, city to city,
even neighborhood to neighborhood. Taxes are paid
in arrears, and are not even assessed until November
of the current tax year. For the most current tax
information, contact the county assessors office.
The first half of the taxes are due in December and
the second half are due in June the following year.
Most lenders set up an escrow account where they
will estimate (usually based on the most recent
assessment) and then prorate over a 12 month
period. You will pay 1/12 of your taxes every
month, then the lender will pay the taxes when they
are due.
9. I am low on cash - How can I cover my down payment and
closing costs?
Down payment and closing cost
funds can come from several resources. First, of
course, is your own savings or equity from the sale
of your old home. For some Buyers-especially
first-time Buyers-that is a difficult task. That’s
why many lenders and government agencies allow
purchasers to receive money from sources other than
their own pocket.
Co-signer:
A
co-signer on a loan is a person who applies with you
for a mortgage. It also means that person will take
on risks associated with a loan, such as being held
accountable for the payments if you default on the
loan. In addition, this debt will appear on their
credit report.
Gifts:
You
can receive a gift from relatives or friends to use
as a down
payment. The gift can be in a lump sum from one
source, or you may use several gifts to use on your
down payment. A popular program from FHA is the
Bridal Registry, where newlyweds receive cash gifts
and place them into a designated account to be used
for the down payment. Relatives can also dip into
their own 401(K) programs for gift money to their
children or grandchildren for purchasing a home.
Loans:
You
can borrow from your own 401(K) or Individual
Retirement Account (IRA) for down payment money.
While you will lose the investment dollars until
they are paid back into the account, you are allowed
to pull that money out without penalty and then
repay it over time. Keep in mind that the loan is
calculated in your debt/income ratios. Check with
your financial advisor on any tax consequences
before pulling your money out of retirement savings
plans.
Personal Assets:
Cash can also be drawn from other investments
and assets you may own. Stocks can be sold for
cash, as can items such as a second car, boat, etc.
If you want to hold onto those items but still need
the equity out of them, you can approach your bank
or credit union and apply for a loan secured by
those items. Again the monthly payment will be
added into your debt/income ratios.
Seller:
As
your Buyer’s agent, we may be able to negotiate
Seller subsidies in the contract negotiating
process. Many loan programs will allow the Seller
to assist the buyer with up to 3% of the sales
price. Sellers can also pay for points or a number
of items paid for before settlement. It is very
common in our market place for Sellers to contribute
to Buyer’s closing costs. The purchase price is
adjusted to cover the needed costs. The only catch
is the appraisal must be at least the purchase
price.
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 (or .125) of a percentage point. When
shopping for loans, ask lenders for an interest rate
with 0 points and then see how much the rate
decreases with each point paid. Discount points are
smart if you plan to stay in a home for a longer
length of time since they can lower the monthly | 
