Home Buying 101 & Wealth Building

Learn how to prepare for your home purchase and maximize your wealth building efforts…

 

It is important that you know the important concepts that are  needed as you purchase your home so that you can make your home purchase “neat and simple” in your mind, even though it may appear daunting and fearful in the minds of others who have not prepared properly and don’t know what to expect in the home buying process.

 

Not only is it appropriate to keep your finances in good order in general by keeping things neat and simple—so too is it important that you keep the home buying process neat and simple as it allows you to build wealth more efficiently.

 

If you allow it (you lack the mental fortitude that is needed to manage your finances effectively) the home buying process can be a stressful experience.

 

Your goal should be to keep the home buying  process as neat (understandable as possible to your mind) and simple (knowing the steps that are ahead of you right now instead of being shocked as it occurs in your future) so that you can reduce or eliminate the stress or anxiety that it can cause in your life (your family members and those whom you are around will also feel it as well).

 

The home buying process is often stressful for many because those who lack the preparation go in not understanding their current cash flow position, current credit position and not having a clue about how their overall finances are integrated within their life.  By having a real understanding of how your finances are all integrated it may provide you the direction that you need to achieve better results with less effort.

 

It is imperative that you know what lies ahead whether it be your home purchase or any other major financial maneuver that you may make during your lifetime.

 

You must be determined to learn what not to do on the front end–not after you are in the middle of a transaction or after you know you have made mistakes!

 

In this discussion TheWealthIncrraser.com will show you highly effective ways that you can make your home purchase less stressful—yet put you on a serious path toward building wealth.

 

Ok, here we go…

 

Are You Really Ready For a Home Purchase?

 

The first and in many cases the most important question to ask is are you ready for a home purchase.  Do you have an effective down payment and reserves along with a properly funded emergency fund?   If you don’t, will you be in position after your home purchase to build your emergency fund or add to your emergency fund in a way that will put you in a stronger financial position?

 

Are you ready for making an offer, negotiating, making a counter offer, inspection and possible amendment (addendum) so that you can close on your purchase in a timely manner?

 

Do you know all of your maintenance responsibilities and do you know the age and functionality of the major components in the home that you anticipate buying?  Are you aware of environmental factors inside and around the home that you are considering for purchase?

 

Are you ready for the interior and exterior maintenance that is required including gutter maintenance, yard maintenance along with all of the associative costs of home ownership?

 

Do you currently know your cash flow position now–and after you purchase your home?  Do you know your front end and back end ratios along with the discretionary income that you will have left over on a monthly basis so that you can enjoy life and save at a level that will take you toward your goals throughout your lifetime?

 

Do you know how long you plan on staying in the property in question and have you looked at the end–when you plan on moving–at this time to see if a purchase serves your greater interest?

 

These are the types of questions that you must ask and answer on the front end–not after your home purchase!

 

Do You Have the Understanding & Application of Credit Knowledge that is Necessary?

 

You must know how to build and manage your credit effectively throughout your  lifetime.

 

You must know in certain terms that you must always pay on time, use your credit responsibly by not running up balances that make it difficult for you to pay off, know how the time length of your credit activity affects your credit and credit score, know the types of credit that you have and why it is important that you have an appropriate mix based on your future goals–and know the importance of keeping inquiries at a minimal level–depending on your future goals.

 

Having that understanding is one thing, actually using that understanding to effectively manage your unique credit position throughout your life is a totally different question!  However, if you are to make your home buying and home ownership period of your life as enjoyable for you and your family as possible you must put yourself in position to understand and apply your credit knowledge in a practical way throughout your lifetime.

 

Do You Know All Areas of Your Finances that You Must Address & Are You Prepared to Address those Areas?

 

In addition to knowing your credit position prior to your home purchase you must also know your comprehension of your overall finances.  Have you addressed your insurance, investments, taxes, emergency fund, education planning, estate planning/wills and your retirement planning in a way that maximizes the benefits to you and your family.

 

You maximize the benefits by examining all of the above areas at a level that is the absolute best that is within you–and then make improvements where necessary based on your current financial ability and “your recently learned skills” that allows you to comprehend your overall finances and act in a manner that serves your and your family’s best interest.

 

Conclusion

 

Although the home buying process can be difficult for many,  you can ease the process considerably by:

 

1)  determining “your readiness for your home purchase at this time”

2) determining “your level of credit preparedness at this time” 

3) determining “your level of overall preparedness with all areas of your finances at this time”

 

By doing so  you can choose a mortgage product and home that best fits your needs at this time and during your desired period of home ownership.

 

You want to put yourself in position to continue to build wealth during your period of home ownership and at the various stages in your life.  Your determination and commitment to learn in advance of your home purchase how to approach your finances in an intelligent, consistent and proactive manner will set you apart and make your home purchase and home ownership period much more prosperous than those who fail to take the beneficial steps that were addressed in this discussion.

 

All the best to your home buying and home ownership success…

 

 

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2017 Home Buying Season Tips for Success

Learn how you can make your home purchase a more successful and enjoyable experience…

 

As the 2017 home buying season kicks in, TheWealthIncreaser.com thought that a helpful page to help those who are entering into the home buying arena for the first time was an appropriate topic of discussion that could help many aspiring homeowners make good decisions in the home buying process that could put the power of a home purchase in their hands—and not in the hands of creditors and others who have no real concern for their and their family’s future.

 

Where do I start in the home buying process?

 

As a potential homeowner your first step is to look within and determine if purchasing a home will serve your best interest on a number of fronts.

 

Do you know and understand your responsibilities as far as owning a home is concerned?

 

Are you ready to pay homeowner’s association fees, homeowners insurance, taxes, lawn maintenance, home upkeep and confront all of the potential emergency situations that may arise during your period of homeownership?

 

The above as well as other questions must be answered satisfactorily by you!

 

You can more readily determine your readiness for “your” home purchase from a mental and financial perspective by doing a pre and post home purchase analysis at this time to determine if you have the financial strength on a monthly and annual basis for homeownership that puts you in control—and keeps you in control!

 

You must know what to expect upfront in the home buying process…

 

You must know that there are a number of loan options available and you must know your housing ratio and your housing versus debt ratio on the front end to help you readily determine if you are financially capable of handling the home purchase and other debt that you will carry on a monthly basis.

 

You must know the importance of creating a properly funded emergency fund now or soon after your home purchase and you must know and understand fully why doing so protects you and your family from future financial risks—therefore helping to ensure that you significantly increase the odds that you can maintain and keep your home.

 

Types of Loans Available

 

It is important that you realize that home loans generally fall into two categories—Government Backed and Conventional. 

 

Government backed include FHA (3.5% down payment required by you or gift of same amount from someone else), VA (0% down payment but funding fee requirement that can be financed into the loan) and USDA (loan for rural areas in the United States).  Government backed FHA loans will generally have a MIP or mortgage insurance premium added to the monthly payment if you put less than a 20% down payment.

 

Conventional are issued by non-governmental companies (private loan companies, credit unions and large banks) and they come in many forms such as ARM or adjustable rate mortgage, fixed rate and many other creative options that are available depending on the company offering the loan.  Conventional loans will generally have a PMI or private mortgage insurance premium added to the monthly payment if you put less than a 20% down payment.

 

You must have working knowledge of the Home Buying Process…

 

You must know that you will have to bring an Earnest Money Deposit at the time of your offer contract to show your seriousness of intent to purchase your home (process varies from state to state so check with your agent) and it will be credited at closing toward your closing costs and/or purchase price if you ultimately purchase the property.  Always realize that closing costs and other special stipulations in your offer contract are negotiable between you and the seller, therefore you want to choose a competent real estate agent to represent your and your family’s  financial interests.

 

You will also have to perform a home inspection (generally costs several hundred dollars or more and includes HVAC, Plumbing, Roof, Water Heater and Structural Areas etc.), a termite inspection, a radon inspection, a lead-based paint inspection (for homes built prior to 1978) and possibly other inspections depending on the community in which you purchase your first home.

 

If the home that you are considering for purchase needs renovation–you may be able to use an FHA 203K Renovation Loan or a Fannie Mae Renovation Loan to make your purchase and repairs more manageable!

 

In addition be sure to budget for appliance repair and/or replacement and consider a home warranty.

 

Be sure that you are aware of environmental concerns in the area that you are considering for your home purchase.  You may also need to do additional inspections at additional cost such as pool system, or other inspections based on the features of the home and property.

 

In addition, your property must appraise for the purchase price, otherwise you may have to bring additional cash to closing or re-negotiate the terms of settlement.

 

Your lender will also require that Title Insurance is purchased for their protection and you want to be sure to purchase a policy for yourself and your family’s protection as well.   By doing so you reduce your risk of losing the property due to issues in the “chain of title” up to policy limits on the contract.  You also want to properly title your property with the right deed typebased on what is best for your and your family’s  future goals.

 

Depending on your state, the above fees and possibly other fees—will be paid at closing or paid outside of closing (POC) and you must budget for them or negotiate them appropriately on your home purchase contract.

 

In addition be sure to seriously consider getting a one year home warranty that covers many of the items mentioned above.  You can start by trying to negotiate for the seller or your real estate agent to pay for the one year home warranty coverage.  If unsuccessful with those options consider purchasing a one year home warranty policy yourself to protect yourself and your family for the first year of ownership.

 

A properly funded emergency fund—in combination with the one year home warranty will help ensure a more pleasurable home ownership experience for you and your family.

 

In addition, if major systems such as HVAC, Water Heater, Appliances etcetera are more than 10 years old consider having them replaced or at least properly serviced prior to closing–and doing one and/or both can be negotiated in the contract (purchase price might increase but you would have more peace of mind by having a new system or possibly know the remaining life if the system has been recently serviced).

 

Lease Purchase Option

 

With many consumers suffering from poor credit as a result of the massive financial downturn in 2008 and subsequent years many consumers are now pursuing other creative options to purchase their first home or rebound after the loss of a home they once owned or had a mortgage loan on.

 

A lease option or rent to own allows someone with poor credit the option to purchase a home in the future (usually 12 to 24 months into the future) at an agreed upon price.

 

The 12 to 24 month period is usually allowed to give the purchaser time to improve their credit so they can get a loan—or get a loan at a better rate.   In many instances the property can be titled and deeded in the name of the person(s) who is leasing to own and the purchaser (and all parties involved) signs off at closing that they have the option to purchase if done so within the period outlined in the closing documents at an agreed upon price.  If you exercise the lease purchase option in the future the property will then be fully titled and transferred in your name(s).

 

In addition, a lease option can take on many other forms and variations.  It is you (the person who enters into a lease purchase option) who must weigh the pros and cons if you sincerely pursue this homeownership option.

 

Although TheWealthIncreaser.com believes that an intelligent, consistent and proactive approach in which you get your credit and finances in order on the front end is more appropriate, a lease with option to purchase may be appropriate for some.  Be sure to make it a win-win situation for all parties involved or at the very least—a winning situation for you and your family by doing your due diligence about lease purchases on the front end.

 

Conclusion:

 

Your successful home purchase begins with you determining that the home purchase that you are considering is really what you want, knowing the costs associated with your home purchase and home ownership (maintenance), knowing that you purchased in a stable and appreciating (although no way to know for certain due to forces outside of your control) area, knowing that the amenities that you desire are in close proximity, knowing about environmental concerns near and around the home that you are considering for purchase—and any other factor(s) that may be of concern for you and your family.

 

Also realize that a cash purchase and other creative ways to purchase your home is always an option.  What has been presented in this discussion is the “most common and effective ways” that you can purchase your home that allows you to use the tax code and a low down-payment to possibly build wealth.

 

Those (Mortgage Lenders) who originate, process and underwrite your loan for your home purchase mainly want to see that you are willing to pay based on your credit profile—and you have the ability to pay based on your current income!

 

You can determine if you meet both tests yourself—upfront by creating a monthly cash flow statement at a minimum and having a mastery of your credit at this time.

 

By knowing your monthly income and housing ratios as it relates to your home purchase and having a working knowledge of your credit and credit score you will put yourself well ahead of most 1st time home buyers—or any home buyer.

 

By knowing that you will have to put up earnest money, come up with a down payment and pay costs both inside and outside of closing (i.e. home inspection, insurance, have 3 to 4 months of escrow or your monthly housing payment in your bank account at or after closing etc.) you set your mind up for what is expected and you help reduce your stress levels now and in your future—significantly.

 

The closing process time frame involving lenders from the time of your application to closing is normally 30 days (short end of spectrum) up to 60 days (long end of spectrum) and will vary based on the lender and the type of loan that you select.

 

You will also have a 3 Day Review Period after you see your settlement or closing cost totals and you can use that period to challenge what you don’t like and/or get additional clarification.

 

You can also use a proactive approach to compare loans when loan shopping as well.  In addition,  you must realize that a home loan pre-approval gives you more negotiating power than a home loan pre-qualification in most cases.

 

Also be aware of your due diligence period and any special stipulations in the contract.  Once the contract is accepted and you meet the lending criteria and inspection contingency there may be no turning back.  Always have an approach to learning that gives you the clarity that you need to succeed prior to engagement–thereby turning the tide on who is most prepared!  Be sure to use the glossary of finance and real estate terms to enhance your understanding of this page, real estate and personal finance in general.

 

It is imperative that you fully understand–or overstand (this cannot be misunderstood by you) upfront that if you see the house that you want and you are eligible for financing and the inspection contingency is met along with all of the other stipulations that are spelled out–closing must proceed–otherwise there will be major consequences as a result of not closing for any reason that is not explicitly spelled out in the contract.

 

Down Payment, closing costs, taxes, insurance and other settlement related fees can push closing and other related costs in the 3% to 5% range (or possibly higher) of the purchase price depending on your state and local jurisdiction, how you (or your agent) negotiate closing costs and the type of loan that you choose.

 

Always remember that even though closing costs are negotiable you as the purchaser want to be in the driver’s seat–meaning you want to make the first gesture at the time of the offer contract as to what percentage you are willing to pay.

 

Also realize that many lenders use a 12 month bank statement for VOR or Verification of Rent in the underwriting process instead of relying on a statement from your leasing office stating that you have paid your lease in a timely manner during your lease period.  You can thank the financial turmoil of the past decade for this and other home loan tightening guidelines as it relates to your home purchase.

 

After your loan is underwritten and closing occurs your lender will wire the funds at closing to the seller and/or attorney depending on your state (and/or mortgage company if an outstanding loan exists) and you will be expected to bring the down payment amount along with settlement fees (bank certified check or what form of payment is customary in your state) that you agreed to (minus your earnest money deposit that you put up in the offer contract) to the closing–plus a small cushion that will generally be refunded to you in most states.

 

If all of the above goes smoothly—the keys to entry, closing documents along with your new home will be your responsibility and you will be in position to enjoy your new home.  Your home purchase will be recorded at the local, county and/or  state level depending on your jurisdiction letting the world know that you are on your way toward true ownership (ownership without owing anyone) with each payment that you make!

 

It is the desire of TheWealthIncreaser.com that you will take a sincere approach and apply what you now know–to achieve results that will truly show…

 

All the best to your home purchase success…

 

MORTGAGE CALCULATOR…

 

Lending Patterns in the United States...

 

Other Helpful Calculators…

 

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