Here's a few things to know
about buying real estate in Florida
Talk to a mortgage broker now. He or she will help you figure
out the maximum price that you can afford.
Futhemore, you are free to choose any lender you like, however
in order for the purchase process to stay on track it is prudent
to work with a lender/s that the realtor refers you to in oder
to avoid most potential financing obsticales that may occur.
Here are a couple of tips for you.
If you have never bought real estate before, you can take money
out of your IRA without a penalty! Check with the IRS for
more information at www.irs.gov
As a homeowner, the interest you pay on your mortgage interest
and real estate taxes is tax deductible.
Use the chart below to help you determine what type of mortgage
best suits your needs. Rember the determining factor is how long
will you own the respective property for.
Starting 4th year, interest rate adjusted every 3 years (for 3/3
ARM) and every
Scoring your Credit - How's your FICO?
In today's increasingly automated society, it should come as no
surprise that when you apply for a mortgage, your ability to pay
can be reduced to a single number. All the years you've been paying
your mortgage, car payments, and credit card bills can be analyzed,
sliced, diced, spindled and mutilated into a single indicator
of whether you're likely to meet your future obligations.
All three of the major credit reporting agencies (Equifax, Experian
and TransUnion) use a slightly different system to arrive at a
score. The best known is called the FICO score, based on a model
developed by Fair Isaac and Company (hence the name) and used
by Experian. Equifax's model is called BEACON, while TransUnion
uses EMPIRICA. While each of the models considers a range of data
available in your credit report, the primary factors are:
• Credit History How long have you had credit?
• Payment History Do you pay your bills on time?
• Credit Card Balances How much do you owe on how many accounts?
• Credit Inquiries How many times have you had your credit
checked?
Each of these, and other items, are assigned a value and a weight.
The results are added up and distilled into a single number.
FICO scores range from 300 to 800, with higher being better. Typical
home buyers likely find their scores falling between 600 and 800.
FICO scores are used for more than just determining whether or
not you qualify for a mortgage. Higher scores indicate you are
a better credit risk, and thus may qualify for a better mortgage
rate.
What can you do about your FICO score? Unfortunately, not much.
Since the score is based on a lifetime of credit history, it is
difficult to make a significant change in the number with quick
fixes. The most important thing is to know your FICO score and
to ensure that your credit history is correct. Conveniently, Fair
Isaac has created a web site www.myFICO.com) that let's you do
just that. For a reasonable fee, you can quickly get your FICO
score from all three reporting agencies, along with your credit
report. Also available is some helpful information and tools that
help you analyze what actions might have the greatest impact on
your FICO score. Each of the credit services offers similar services
on their web sites: www.equifax.com, www.experian.com, and www.transunion.com.
Armed with this information, you will be a more informed consumer
and better positioned to obtain the most favorable mortgage available
to you.
Take Advantage of Loan Pre-QualificationA number of factors determine
the price range of homes you'll want to preview - one of these
factors is loan pre-qualification.
As your agent, I will help you pre-qualify. Items considered when
pre-qualifying for a mortgage loan include:
• Employment History
• Credit History and Scores
• Monthly Income and Expenses 
Credit Bureau Scores range from 300 to 900 points, the higher
the score the lower the risk of default.
Credit Score Scale:
Excellent: 720-850
Very Good: 700-719
Acceptable: 675-699
Uncertain: 620-674
High Risk:
560-619
Extremely High Risk: 500-559
Therefore the higher the risk you are based on your credit score,
the more interest and upfront points the lender may charge to
justify loaning you the money.
Facts and Fallacies about your Credit Score
Fallacy: My score will drop if I apply for new credit.
Fact: If it does, it probably won't drop much. If you apply for
several credit cards within a short period of time, multiple requests
for your credit report information (called "inquiries") will appear
on your report. Looking for new credit can equate with higher
risk, credit scores are not affected by multiple inquiries from
auto or mortgage lenders within a FOURTEEN DAY period of time.
Typically, these are treated as ONE inquiry and will have little
impact on the credit score.
Fallacy: My score determines whether or not I get credit.
Fact: Lenders use a number of facts to make credit decisions,
including your FICO score. Lenders look at information such as
the amount of debt you can reasonably handle given your income,
your employment history, and your credit history. Based on their
perception of this information, as well as their specific underwriting
policies, lenders may extend credit to you although your score
is low, or decline your request for credit although your score
is high.
Fallacy: A poor score will haunt me forever.
Fact: Just the opposite is true. A score is a "snapshot" of your
risk at a particular point in time. It changes as new information
is added to your bank and credit bureau files. Scores change gradually
as you change the way you handle credit. For example, past credit
problems impact your score less as time passes. Lenders request
a current score when you submit a credit application, so they
have the most recent information available. Therefore by taking
the time to improve your score, you can qualify for more favorable
interest rates.
Fallacy: Credit scoring is unfair to minorities.
Fact: Scoring considers only credit-related information. Factors
like gender, race, nationality and marital status are not included.
In fact, the Equal Credit Opportunity Act (ECOA) prohibits lenders
from considering this type of information when issuing credit.
Independent research has been done to make sure that credit scoring
is not unfair to minorities or people with little credit history.
Scoring has proven to be an accurate and consistent measure of
repayment for all people who have some credit history. In other
words, at a given score, non-minority and minority applicants
are equally likely to pay as agreed.
Fallacy: Credit scoring infringes on my privacy.
Fact: Credit scoring evaluates the same information lenders already
look at - the credit bureau report, credit application and/or
your bank file. A score is simply a numeric summary of that information.
Lenders using scoring sometimes ask for less information - fewer
questions on the application form,for example.
Loan Application Checklist
For many buyers, applying for the mortgage loan is one of the
more stressful aspects of buying a home. The loan application
need not be a stressful time. By following a few easy steps, you'll
sail through the loan application process.
1. Make a list of any questions you have about the loan program.
Be sure you understand the advantages and disadvantages of the
various mortgage programs for which you may qualify, including
the advantages and disadvantages of Fixed Rate Mortgages versus
Adjustable Rate Mortgages.
2. Decide if you want to lock-in or float the loan's interest
rate.
Locking-in the rate means that the lender commits to the mortgage
interest rate for the loan typically at the time the loan application
is submitted. By floating the rate, you can lock-in the interest
rate anytime between the loan application day and closing. Buyers
opt to "float the loan" when they believe interest rates will
drop after their loan application date and prior to closing. The
risk is that rather than dropping, interest rates may rise, increasing
the mortgage payment.
3. Decide if you want to pay additional points to lower your interest
rate.
Typically you can elect to pay additional points (each point is
1 percent of the mortgage loan payable in cash at closing) to
lower the interest rate of your mortgage loan.
4. Gather your paperwork.
Divorce: What You Need to Know About Your House, Your Home Loan
and Taxes
How to Avoid Costly Housing Mistakes During and After
a Divorce
Divorce is rarely easy and often means a lot of difficult decisions.
One of the most important decisions is what to do about the house.
In the midst of the heavy emotional and financial turmoil, what
you need most is some non-emotional, straightforward, specific
information and answers. Once you know how a divorce affects your
home, your mortgage and taxes, critical decisions are easier.
Neutral, third party information can help you make logical, rather
than emotional, decisions.
Probably the first decision is whether you want to continue living
in the house. Will the familiar surroundings bring you comfort
and emotional security, or unpleasant memories? Do you want to
minimize change by staying where you are, or sell your home and
move to a new place that offers a new start?
Only you can answer those questions, but there will almost certainly
be some financial repercussions to your decision process. What
can you afford? Can you manage the old house on your new budget?
Is refinancing possible? Or is it better to sell and buy? How
much house can you buy on your new budget?
Creative Financing
Seller Financing
As the seller, you have the option of financing the buyer's purchase
with the equity you have in the property. You can finance part
or the entire mortgage for the buyer. Before setting-up a private
mortgage, it is wise to consult with your attorney.
Carrying Back a Second Mortgage
In the case of "carrying back a second mortgage", the seller loans
the buyer part of the seller's equity. In this scenario, the buyer
would finance the majority of the loan with a traditional mortgage
lender and finance the remaining amount with the seller. Typically
the buyer would pay a slightly higher interest rate on the loan
financed by the seller.
The Purchase Price
The seller and buyer's mutually agreed upon purchase price for
the property. As the seller, you should know up-front that the
buyer would like you to finance the deal. Knowing that you will
be financing the deal may affect your willingness to make adjustments
to the sales price.
The Down Payment
The size of the down payment may affect the buyers commitment
to honoring the mortgage contract. The larger the down payment
the buyer invests, the stronger his/her motivation to protect
the investment. In addition to making the monthly payments, the
buyer's commitment to the investment would include a willingness
to maintain and upgrade the property, as well as make tax and
insurance payments.
The Interest Rate
At a minimum, the interest rate you charge should match current
interest rates traditional mortgage lenders are offering for loans
of the same term. You may want to charge an additional percentage
point as compensation for the work involved with servicing the
loan.
The Buyer's Credit & Income
You'll want to review the buyer's credit history to determine
the buyer's willingness to pay his/her debts. A credit report
will give you a better understanding of the buyer's financial
history. Red flags would include late payments and loan defaults.
If a buyer has a less than commendable credit history, you may
decide not to finance the loan or you may require a larger down
payment.
In addition to the buyer's credit history, you'll want to review
the buyer's income sources. Is the buyer's salary sufficient to
make the monthly payments? Does the buyer have additional income
sources that could be accessed if the buyer lost his/her job?
Amortization
The amortization period is the length during which the loan is
repaid. The longer the amortization, the longer you are at risk
that the buyer will default on the loan.
Balloon Payment
A common practice is to have the full amount of the loan due on
a certain date, usually in 5 to 10 years. As the lender, this
gives you a profitable short-term investment with the provision
that your principal investment will be recouped in just 5 to 10
years.
The buyer is usually in a better position to secure traditional
financing after 5 to 10 years. Both the buyer's equity in the
property and record of timely mortgage payments can help the buyer
secure a loan to cover the balloon payment.
Escrow for Tax and Insurance
Lenders typically require borrowers to pay 1/12 of their annual
taxes and insurance costs as an escrow payment due with each mortgage
payment. Then, the lender makes the borrower's annual tax and
insurance payment. While this adds time and hassle to the seller-financer,
it also protects you from the unfortunate situation of having
a buyer make his/her mortgage payments but not tax and/or insurance
payments.
Lender's Title Insurance
A smart investment is a lender's title insurance policy. The policy
protects your lien on the property from being defeated by a prior
lien or other interest in the property, which, if exercised, would
wipe out your security. Things that can affect your rights as
the seller-financer include marriage, divorce, death, forgery,
a judgment for money damages, a failure to pay state or federal
taxes, and more. Be sure to include the cost for your lender's
title insurance as one of the buyer's closing costs.
Closing the Sale
Both buyer and seller will be responsible for paying the usual
closing costs. You will also want the buyer to pay all the costs
associated with setting up the mortgage financing. This would
include the cost of having your attorney create the mortgage note.
The Cost of Your Mortgage Loan
Locking-in the Rate
When shopping for a mortgage, the lender may give you a quote
for the mortgage interest rate and points (additional fees charged
by the lender usually paid at closing by the borrower). These
only represent terms available at the time of the quote. They
may not be available by the closing date (which may be weeks or
months in the future). To ensure the rate and points are the same
at closing as they are when quoted, you'll need to lock-in the
interest rate (also known as a rate lock or rate commitment).
Obtain a Written Agreement
Floating the Rate
Buyers opt to float the loan when they believe interest rates
will drop after their loan application date and prior to closing.
The risk is that rather than dropping, interest rates rise, increasing
the mortgage payment.
Most lenders will commit, in writing, to a mortgage interest rate
for a specified time period while your loan application is processed
- this is known as "locking-in" the rate.
If you elect to lock-in an interest rate, it is best to deal with
a lender who provides a written lock-in agreement. Be sure to
read this agreement carefully, some lock-in agreements become
void due to actions beyond your control - such as a change in
the maximum rate for VA-guaranteed loans.
Lock-in Options
The following lock-in options are common among lending institutions.
Be sure to ask the mortgage lenders you are considering which
lock-in options they offer.
• Lock-in interest rates and points.
This will give you a clear understanding of how much your mortgage
will cost. Neither your interest rate nor points increase during
the lock-in period. This protects you against rising market conditions.
• Lock-in interest rates and floating points.
Your interest rate is locked-in and will not change for the lock-in
period, while your points may rise and fall with market conditions.
With this option, your lender may allow you to lock-in the points
at the current market condition some time between submitting the
loan application and closing.
• Floating interest rates and floating points.
This gives you the option to lock-in the interest rate at some
time between submitting the loan application and closing. This
puts you at risk if interest rates and points rise and may not
be best for a homebuyer with a tight budget.
The Cost of Locking-in the Rate
It is not unusual for a lender to charge a fee for locking-in
an interest rate and points. This fee may vary depending on the
amount of time you want to lock-in the rate (the lock-in period).
The fee may be charged when you lock-in the rate (and is rarely
refundable if you withdraw your application, if your credit is
denied or if you do not close on the loan) or it may be included
in your closing costs. The amount of the fee and when it is charged
will vary among lenders.
The Lock-in Period
Most lenders will offer lock-in periods of 30-60 days. Some lenders
may only have short lock-in periods. And still others may offer
a longer lock-in period (expect higher fees for longer lock-in
periods).
The lock-in period should be long enough for the loan approval
process and to allow for any other contingencies that may delay
closing.
The Lock-in Expiration Date
If unexpected circumstances prevent the loan from settling prior
to the last day of the lock-in period (whether caused by you or
others in the process - including the lender), you lose the interest
rate and points that were locked. Prevailing interest rates and
points are usually charged under these circumstances. Be sure
to ask your lender before you lock-in what interest rates and
points will be charged if the loan is not closed before the lock-in
period expires.
Definitions
Fixed Rate Mortgage
A fixed rate mortgage has the same interest rate and monthly payment
throughout the term of the mortgage. The payment is calculated
to payoff the mortgage balance at the end of the term. The most
common terms are 15 year and 30 years.
Fully Amortizing ARM
This is the most common type of ARM. The monthly payment is calculated
to payoff the entire mortgage balance at the end of the term.
The term is typically 30 years. After any fixed interest rate
period has passed, the interest rate and payment adjusts annually.
A Fully Amortizing ARM will also have a maximum rate that it will
not exceed. This calculator uses a maximum interest rate of 12%.
Below is a list of the most common types of Fully Amortizing ARMs.
Common Adjustable Rate Mortgages
ARM Type Months Fixed
10/1 ARM Fixed for 120 months, adjusts annually for the remaining
term of the loan.
7/1 ARM Fixed for 84 months, adjusts annually for the remaining
term of the loan.
5/1 ARM Fixed for 60 months, adjusts annually for the remaining
term of the loan.
3/1 ARM Fixed for 36 months, adjusts annually for the remaining
term of the loan.
1 year ARM Fixed for 12 months, adjusts annually for the remaining
term of the loan.
Interest Only ARM
An Interest Only ARM only requires monthly interest payments.
Since you are not paying any principal, as you are with the other
two types of mortgages described above, this can lower your monthly
payment. However, since your mortgage's principal balance is not
decreased, you will have a balloon payment at the end of the mortgage's
term. Like a Fully Amortizing ARM, an Interest Only ARM will often
have a period where the interest rate is fixed, and then it is
adjusted annually. An Interest Only ARM will also have a maximum
interest rate that it will not exceed. This calculator uses a
maximum interest rate of 12%.
Mortgage amount
Expected balance for your mortgage.
Term in years
The number of years over which you will repay this mortgage. The
most common mortgage terms are 15 years and 30 years. Please note
that for the Interest Only ARM you will have a balloon payment
for the entire principal balance at the end of the loan term.
Expected rate change
The annual adjustment you expect in your ARM. The range for this
calculator is minus 3% to plus 3%. Use a negative value if you
believe interest rates will decrease, a positive value if you
believe they will increase.
Interest rate
Annual interest rate for each mortgage type. Typically an ARM
will have a lower interest rate than a fixed rate mortgage. The
rate of an Interest Only ARM will vary by lender.
Months rate fixed
This is the number of months the rate is fixed for an ARM. During
this period the interest rate and the monthly payment will remain
fixed. The rate will then adjust annually by the expected rate
change.
Interest rate cap
This is the maximum interest rate for this mortgage. The mortgage's
interest rate will never exceed the interest rate cap.
Monthly payment
Monthly principal and interest payment (PI) for the Fixed Rate
Mortgage and the Fully Amortizing ARM. This is an interest only
payment for an Interest Only ARM.
Definitions
Price of home
Purchase price of the home you wish to buy.
Cash on hand
Cash you have for the down payment and closing costs.
Interest rate
The current interest rate you can receive on your mortgage.
Term in years
The number of years over which you will repay this loan.
Property tax rate
Your property tax rate. 1% for a $100,000 home equals $1,000 per
year in property taxes.
Home insurance rate
Your homeowner's insurance rate. 0.5% for a $100,000 home equals
$500 per year for homeowner's insurance.
Loan origination rate
The percentage the lending institution charges for its origination
fee. 1% for a $100,000 home equals $1,000.
Points paid
The total number of points paid to reduce the interest rate of
your mortgage. Each point costs 1% of your mortgage balance.
Other closing costs
Estimate of all other closing costs for this loan. This should
include filing fees, appraiser fees and any other miscellaneous
fees paid.
Total closing costs
Total upfront costs to close your loan. This is the sum of the
loan origination fee, amount paid for points and other closing
costs.
Total for down payment
Total funds remaining for down payment.
Mortgage amount
Total amount of loan.
Investment return
The rate of return you could receive if you invested your closing
costs and down payment instead of purchasing a home.
The actual rate of return is largely dependant on the type of
investments you select. From January 1970 to December 2003, the
average compounded rate of return for the S&P 500, including
reinvestment of dividends, was approximately 11.7% per year. During
this period, the highest 12-month return was 64%, and the lowest
was -39%. Savings accounts at a bank pay as little as 1% or less.
It is important to remember that future rates of return can't
be predicted with certainty and that investments that pay higher
rates of return are subject to higher risk and volatility. The
actual rate of return on investments can vary widely over time,
especially for long-term investments. This includes the potential
loss of principal on your investment.
Monthly rent payment
Amount you currently pay for rent per month.
Income tax rate
Your current marginal income tax rate.
Expected inflation rate
What you expect for the average long-term inflation rate. This
has been calculated by the Consumer Price Index from 1925 to 2002
to be 3.1%. Inflation rate is used to adjust amounts subject to
annual increases. These amounts include rent, insurance and tax
payments.
Home appreciates at
Annual appreciation you expect in the home you are purchasing.
Future sales commission
The percent of your home's selling price you expect to pay to
a broker or real estate agent when you sell your home.
House payment
Total of principal, interest, taxes and insurance (PITI) paid
per month for your home. Insurance includes Principal Mortgage
Insurance (PMI) and homeowner's insurance.
Principal payment
Total of principal paid per month on your mortgage.
Tax savings
The value of the tax deduction you receive on your mortgage's
interest and home's property taxes. For example, if you have $900
in interest and $100 property taxes per month, the value of the
tax deduction would be $280. (At a tax rate of 28%).
Net house payment
Your house payment minus the value of the tax deduction and principal
payment.
Net home price
Net selling price of your home after subtracting any sales commissions.
Monthly PI
Monthly principal and interest payment.
Monthly PMI
Monthly cost of Private Mortgage Insurance (PMI). For loans secured
with less than 20% down, PMI is estimated at 0.5% of your loan
balance each year.
Get Registered to Pre-Qualify
|
