Are You Ready to Graduate From Renting to Owning a Home?

With graduation season in full swing, many may be pondering a change in their living quarters. Some may be moving out of Mom and Dad’s house into dorms, or maybe out of dorms into their own apartments.

But what if you’re ready to take an even bigger step—moving out of a rental into a home you can call your own?

Buying a house, after all, is a great way to put down roots and build wealth (since homes tend to appreciate so you can sell later for a profit). But purchasing property isn’t a simple process, so you should make sure you’re prepared.

So, how do you know if you’re ready to move from an apartment to a house? Ask yourself these questions below to get a sense of where you’re at—or what you have to do to transition easily into home-buying mode once the time is right.

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Can you afford to buy a home?

For starters, let’s talk money. Buying a home is a hefty purchase, probably the largest you’ll ever make. So, you’ll need a down payment (typically recommended to be 20% of the home’s purchase price) and steady income (i.e., a job) to pay your mortgage.

There are other costs also associated with homeownership:

  • Closing costs (typically 2% to 5% of the home’s purchase price)
  • Home insurance (cost varies by state)
  • Maintenance
  • Utilities
  • Budget for unseen repairs and emergencies

While renting might seem more economical than owning at first glance, that’s not always the case; our rent vs. buy calculator can help you compare the costs. You might be surprised by the results!

Another good first step to figuring out whether you can afford a house is to enter your salary and town of residence into a home affordability calculator, which will show you how much you’d pay for a mortgage on a typical house in that area. Or talk with a loan officer about whether you would qualify for a mortgage, and how much you can spend comfortably. Such consultations are free, and will give you a concrete dollars-and-cents sense of where you stand.

Are you settled in your job?

Your job situation is not only important in terms of income to buy a home, but also whether you’re happy where you work and plan to stay put. Because once you own a home, your career prospects do narrow somewhat, purely because a home anchors you to one area.

“Homeowners tend to have fewer job opportunities compared to renters, since renters can easily accept a job in another city or state,” says Reid Breitman, managing partner at Kuzyk Law, in Los Angeles. “A homeowner may decline such an opportunity because they don’t want to go through the cost, time, and expense of selling their home. So, it may be better to wait to purchase a house until after you’re firmly established in your employment situation.”

Do you know where you want to live?

Since moving once you own a home is not as easy as just packing your bags (which, let’s face it, is a hassle in itself), you really need to make sure you’re picking a home in an area where you’ll be happy.

“It’s not easy to just sell a house and move to a new one if intolerable neighborhood issues come up, since the transaction cost to sell—up to 8% to 10% of the sale price for brokerage feesescrowtitle, and other costs of sale—would be relatively very expensive,” Breitman says. “So you need to really scope out the neighborhood.”

When in doubt, try renting for a few months to make sure you like the area before you start shopping for a home to own for good.

How much home maintenance are you willing to tackle?

If you love the challenge of fixing a leaky faucet and figuring out which shrubs will flourish in your yard, homeownership may be right up your alley. But if the idea of mowing a lawn or messing with the HVAC makes you depressed, then you may want to stick with renting, which gives you a roof over your head without the work.

“Apartment renters don’t have many home-related responsibilities,” explains Brian Davis, director of SparkRental, in Baltimore. “If something breaks, they call the landlord. Often, they don’t even need to worry about setting up utilities; they either come with the building, or the process is merely changing the name on an existing utility account.”

Living in a house you own is a different story. There’s no landlord to call if anything goes wrong; it’s all up to you. So you have to be either adept as a handyman, or willing to find and pay someone else to do such tasks. Or else consider buying a condo or co-op, where the lawns and public areas around your home are maintained by hired help.

Bottom line: Owning a home is a big commitment. So before you jump into it, you should have confidence that it works for your circumstances.

“No one should feel like they have to follow a template, that by reaching a certain age or having a certain number of children they need a house in the suburbs,” Davis says. “So forget the clichés and movies, and decide based on you.”

 

Posted by Julie Ryan Evans on realtor.com

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Getting Pre-Approved Should Always Be Your First Step

In many markets across the country, the number of buyers searching for their dream homes greatly outnumbers the number of homes for sale. This has led to a competitive marketplace where buyers often need to stand out. One way to show you are serious about buying your dream home is to get pre-qualified or pre-approved for a mortgage before starting your search.

Even if you are in a market that is not as competitive, understanding your budget will give you the confidence of knowing if your dream home is within your reach.

Freddie Mac lays out the advantages of pre-approval in the ‘My Home’ section of their website:

“It’s highly recommended that you work with your lender to get pre-approved before you begin house hunting. Pre-approval will tell you how much home you can afford and can help you move faster, and with greater confidence, in competitive markets.”

One of the many advantages of working with a local real estate professional is that many have relationships with lenders who will be able to help you with this process. Once you have selected a lender, you will need to fill out their loan application and provide them with important information regarding “your credit, debt, work history, down payment and residential history.”

Freddie Mac describes the ‘4 Cs’ that help determine the amount you will be qualified to borrow:

  1. Capacity: Your current and future ability to make your payments
  2. Capital or cash reserves: The money, savings, and investments you have that can be sold quickly for cash
  3. Collateral: The home, or type of home, that you would like to purchase
  4. Credit: Your history of paying bills and other debts on time

Getting pre-approved is one of many steps that will show home sellers that you are serious about buying, and it often helps speed up the process once your offer has been accepted.

Bottom Line

Many potential home buyers overestimate the down payment and credit scores needed to qualify for a mortgage today. If you are ready and willing to buy, you may be pleasantly surprised at your ability to do so.

 

Posted by The KCM Crew

Are you ready to get pre-approved? Visit our website to get started!

3 Tips for Making Your Dream Home a Reality [INFOGRAPHIC]

Some Highlights:

  • Realtor.com shared their “5 Habits to Start Now If You Hope to Buy a Home.”
  • Setting up an automatic savings plan that saves a small amount of every check is one of the best ways to save without thinking a lot about it.
  • Living within a budget will not only help you save money for down payments but will help you pay down other debts that might be holding you back.

 

Posted by The KCM Crew

Are you ready to buy? Visit our website to get started today!

Why You Should Still Talk to a Lender Even If You’re Not Ready to Buy a Home

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If you’re a first-time home buyer, you might think you’re not ready to purchase a house. Perhaps you’re concerned about your job situation, your previous credit history, or your high monthly expenses. Whatever the circumstances, every borrower and financial situation is unique.

Unless you’re a financial expert, it’s best not to self-diagnose your financial problems. You wouldn’t skip out on the dentist to fill your own cavities, so don’t try to solve your financial troubles yourself either. A loan officer can walk you through your options—and they won’t try to drill your teeth!

When you apply for home loans, mortgage loan officers look at your credit score, credit history, monthly liabilities, income, and assets. These officers see the entire financial picture, not just the investable funds. A reputable loan officer with experience can get you on the right track for buying a home.

Here are three common reasons people don’t want to apply for a mortgage and what you should do if you’re really serious about buying a home.

A less-than-ideal credit report

The reality is that mortgage companies are required to pull a copy of your credit report, which includes scores from all three credit reporting bureaus. Your credit report is the most accurate representation of your credit available. Don’t let your messy credit report keep you from talking to a lender. After looking at your credit report, the lender can actually tell you what debts are the biggest drain on your borrowing power so you can start making smart financial decisions to improve your score.

Not enough income

Let the mortgage company review your pay stubs, W-2s, and tax returns for the last two years. If you were self-employed, let the loan officer look at your tax returns and evaluate your credit to determine what down payment you can afford and what you can buy. The lender can give you an idea of what you need to do to qualify, including how much more money you need to make to offset a proposed mortgage payment. With an action plan and a strategy in place, it may just take you a matter of months to button up your financial picture to qualify.

Too much debt

Debt and liabilities definitely impact spending power. Every dollar of debt you have requires two dollars of income to offset it. So for example, if you have a car loan that’s $500 a month, you will need $1,000 a month of income to offset that monthly liability. If more than 15% of your income currently goes toward consumer debt, you’ll have to either pay off debt or get more income—perhaps via a cosigner—to qualify for mortgage financing. Again, let the lender look at your financial picture so they can tell you what it takes to make it work.

If you’re planning to buy a house in the future but aren’t financially ready, talk to a professional. Meet with them face-to-face, provide them with all of your financial documentation, let them run a copy of your credit report, and go through a pre-home buying consultation so they can either pre-approve you or tell you what to do to become pre-approved in the future.

Many times, potential buyers are not ready, but having a conversation with a professional—so you know where you stand and where you are going—can be tremendously beneficial. You can also take a look at your financial health with a free credit report from Credit.com.

 

Posted on realtor.com

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The Mortgage Process: What You Need to Know [INFOGRAPHIC]

Some Highlights:

  • Many buyers are purchasing a home with a down payment as little as 3%.
  • You may already qualify for a loan, even if you don’t have perfect credit.
  • Take advantage of the knowledge of your local professionals who are there to help you determine how much you can afford.

Posted by The KCM Crew

7 Smart Tips For Renters With Bad Credit

renting

Wondering how to rent with bad credit? Even if you’re a first-time renter, there are ways to land a place without a perfect score.

Bad credit? You might have a tough time qualifying for that rental you love so much.

Real talk: Many landlords now rely on a credit check to vet potential renters, especially in competitive markets. (Just try hunting for an apartment for rent in Chicago, IL, and you’ll feel the pinch of a poor score.) Like it or not, your credit history can be used to assess how much of a financial risk you may pose to a landlord. Are you going pay your monthly rent on time, or does your credit report indicate that you have a history of paying bills late?

But there’s hope. Many renters lease apartments with bad credit (or no credit at all, if you’re a new college grad, for example) and work to boost their scores while renting. So how can you land an apartment if your score is lackluster?

Here’s how to rent with bad credit:

  1. Find a guarantor or co-signer. This is both the easiest and most complicated approach: Ask a parent, trusted friend, or relative with good credit to co-sign the rental application with you. In theory, it’s an easy solution, because while you’ll be the only one living in the apartment, your co-signer agrees to cover the payments in the event that you default on your rent. This can provide a landlord the extra reassurance they need. Of course, it’s complicated because someone else is on the hook for your behavior. You don’t actually want your co-signer to be forced to make payments for you, so be sure the monthly rent is an amount you can afford comfortably. Be realistic about what might happen to your relationship with your co-signer if you default on the lease.
  2. Be honest and show progress. Sometimes, bad credit isn’t a reflection of bad money management. You may have lost your job, suffered from medical problems, or experienced another financial setback that was out of your control. If this is the case, be upfront about it — before the landlord even runs your credit check. Your willingness to admit and own up to your bad credit is a point in your favor. It also gives you the opportunity to talk about the steps you’ve taken, and are currently taking, to improve your credit score. Whether it’s a proven track record of paying your bills on time or references from recent landlords, this will show your prospective property manager that you’re responsible and committed (even if your credit is less than perfect).
  3. Pay rent in advance or increase your security deposit. Bad credit makes landlords nervous because it indicates that since you defaulted on past bills, you might default on the rent. By paying a month or more in advance or offering a two-month security deposit, you can alleviate their concerns. Not only does this show your commitment, but it also provides them with extra cash that can cover some of the losses and damages should you skip out on the rent. (Which, of course, you won’t.)
  4. Get a roommate. Willing to share your living room and kitchen? Find a roommate. If the landlord will allow just one person to sign the lease, see if your roommate is willing to sign it solo. (Alternatively, try to move in with a roommate who is mid-lease and can add you without a credit check.) This way, the person on the lease is the one with more solid credit. Roommates come with another benefit: you’ll be able to share the bills. By reducing your financial burden, you can continue to pay down debt and repair your bad credit faster — a true win-win!
  5. Show solid income and offer to pay via direct deposit. Even if your credit history is a little shaky, being able to show a history of regular, consistent income can go a long way toward making a landlord feel better about you. When applying for an apartment, have proof of income ready, such as recent pay stubs, tax returns, and even a letter from your employer verifying your employment status and income. Offering to have your rent automatically deducted from your bank account can also help.
  6. Compromise by paying a little more. Some landlords charge additional “risk” fees if your credit score is poor. You may want to consider taking the hit if you really love the apartment, or if you need to quickly find a place to live. If you’re dealing with an individual property manager who is inclined to deny your application, you may be able to negotiate a slightly higher rent as a gesture of good faith.
  7. Bring recommendations. You’d bring letters of recommendation for a job application; why not bring the same when you’re trying to rent? Letters of recommendation can reassure a potential landlord that you’re a responsible person who won’t cause them any problems. Ask for letters from current and previous employers, landlords, and even past roommates who can vouch for your character. Even if your previous landlords were only for short-term rental arrangements, their endorsements can hold weight.

 

Posted by Paula Pant on Trulia

 

4 Ways Mortgage Lenders Can Help You Buy a Home

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In the long home-buying journey, lenders are often pegged as the bad guy—the villain who holds the purse strings and decides whether (or not) to loosen ’em up and grant you a mortgage.

OK. Let’s take a step back. This bad rep is mostly a bad rap. Because the reality is that lenders make homeownership possible for the majority of Americans who do not have the ready cash to buy a home. And even if you’re a less-than-ideal home buyer, because of bad credit or lack of a down payment, they can actually help your loan go through.

Here are five ways lenders can assist you on the path to homeownership, and some recommendations as to how you can make the most of this relationship.

1. Lenders can get you pre-approved

If you know you’re ready to buy—before you’ve even seen the inside of a single house—it’s wise to head to a lender to get pre-approved for a mortgage, pronto. This means lenders check your financial history and determine how much money they’re willing to loan you to buy a home. “You want to apply before you’re entirely under the gun,” says Steven Bogan, regional managing director for Glendenning Mortgage Corporationin Haddonfield, NJ. “If you wait until you’ve made an offer on a house, you could run into problems.”

Pre-approval is proof to home sellers—and yourself!—that you won’t have problems getting the loan you need, once that special house comes your way. It is best to seek a pre-approval at least a month or two in advance, Bogan says. Requirements for approval in a post-housing bubble world can create headaches even for stellar borrowers.

But don’t start too early. Pre-approvals are only good for 30 to 60 days, so make sure you’re really ready to hit the pavement and start looking for houses. Still, don’t stress if your pre-approval expires; getting it re-upped isn’t a big deal.

“We usually just need to run your credit again, maybe get an updated pay stub or bank statement, and you’re good to go,” says Bogan.

2. If you can’t get pre-approved, lenders can show you how

So what if you apply for pre-approval and get denied? It hurts, but don’t worry—the pre-approval process isn’t a one-shot deal. Most lenders will be happy to work with you, even if you aren’t pre-approved right off the bat.

“The majority of lenders will give buyers a step-by-step path they need to follow to get up to approval,” says Bogan. And that usually involves boosting your credit score (more on that next).

3. Lenders can help you boost your credit score

One of the most common reasons home buyers don’t get approval is a lousy credit score—the all-important numerical summary of how reliable they’ve been paying off debts, from credit cards to college loans. You want a simple equation? The lower your score, the less likely you are to get a loan. The good news is that you can take action to boost your credit score. A credit repair company will show you the ropes, but will charge for those services.

You’ve actually got a free credit-boosting guide at your disposal: the lenders who just passed you up for a loan. In most cases, they’ll be happy to show you what you need to do to boost your credit score. And while it usually takes a few months for the credit bureaus to record these changes, lenders have another ace up their sleeve: They can do a “rapid re-score” that corrects and updates info on your credit report in a matter of days.

4. Lenders can help atypical borrowers

Many home buyers are employed, earning a regular W-2 income—a generally safe bet for lenders. But If you’re self-employed, a contractor or running your own business, and your income is more prone to valleys and peaks, a good relationship with a lender can help you cut past reservations about your loanworthiness. “Basically, we’re just going to look at the last two years of tax returns, instead of W-2’s and pay stubs,” says Bogan.

However, Bogan does recommend applying even earlier if you’re a non-W-2 wage earner, since there is more paperwork and more of an investigative process into your earnings. And unlike everyone else, you’ll need to consider your timing. “Say, for example, 2016 tax returns are almost due, and it was a great year incomewise. It would probably be in your advantage to wait until after you’ve filed your taxes to apply for a mortgage,” Bogan says.

No matter what your situation, though, to get the best help, you’re actually going to have to call. “You absolutely want to talk with somebody in person,” says Bogan. So skip the online forms, and ask your friends and family (or your Realtor®, if you have one already) to recommend someone you can sit down with to get the process rolling.

Posted by Angela Colley on realtor.com