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Myths about Homeownership

Lenders evaluate mortgage applications a lot differently today than they did even 10 years ago. And even more has changed in the last 20 years. What used to close the door to homeownership may not be a factor today. Here are some common homeownership myths:

• Myth: You need great credit to become a homeowner.
  Fact: You may still be able to buy a home with less-than-perfect credit. And remember, you can improve your credit over time.
• Myth: You need to put 20% down to buy a home.
  Fact: There are many types of mortgage products and programs that allow low and no down payments. But remember to factor in other costs such as closing costs, property taxes, moving expenses, and repairs.
• Myth: You can’t buy a home in the U.S. if you’re not a citizen.
  Fact: If you’re a legal resident, you can purchase a home in the U.S.
• Myth: If you don’t have a bank account or credit cards, you can’t qualify for a mortgage.
  Fact: Having a bank account is always a good idea and helps you establish credit. However, lenders can approve you for a mortgage even if you don’t have a bank account or credit cards. You’ll likely need to keep records showing a history of payments you’ve made for items such as rent, utilities, and car payments.
• Myth: Lenders share your personal financial information with other companies.
  Fact: By law, banks and other financial institutions are restricted in their uses and disclosures of information about you. In some situations, you may choose to restrict the disclosure of your information if you don’t want it to be shared.
• Myth: If you’re late on your monthly mortgage payments, you’ll lose your house.
  Fact: If you have a financial hardship, like the death of your spouse or a medical emergency and fall behind, it’s possible to keep your home and get back on track if you contact your lender early.
• Myth: You can’t get a mortgage if you’ve changed jobs several times in the last few years.
  Fact: Not true. You can change jobs several times and still get a loan to buy a home. Lenders understand that people change jobs. The important thing is to show that you’ve had a stable income.

In this video, NAHB Chief Economist David Crowe explains the positive factors for home buyers in today’s marketplace. Although the popular home buyer tax credit program has ended, he explains, there are still plenty of good reasons to consider homeownership — including mortgage rates that are near historic lows, attractive home prices that appear to have stabilized in many markets, and an excellent selection of new and existing homes on the market:

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How Much Can I Afford?

To get a quick idea of what you can afford to spend, multiply your annual gross income (before taxes) by 2.5. For example, if your annual household income is $50,000, you might be able to qualify for a $125,000 home. This is just a rough estimate – the actual number will vary based on factors such as your debt and credit history.

Mortgage lenders typically use the housing expense and debt-to-income ratios to more accurately determine how much you can afford to spend on your mortgage.

• Housing Expense Ratio
  Mortgage lenders recommend that your monthly mortgage payment should be less than or equal to a quarter of your monthly gross income. This percentage can change based on the type of mortgage you choose and sometimes the area in which you’re looking to buy.
• Debt-to-Income Ratio
  You need to factor your other debts into determining an affordable monthly mortgage payment. Mortgage lenders look at whether your total debt is larger than 30-40% of your monthly gross income. Remember, debt is not just credit cards and student loans. It can also include alimony, child support, car loans, and housing expenses.

A mortgage lender, a housing counselor, or consumer credit counselor can help you better understand these guidelines. Before you talk to a financial professional, you can organize your financial picture by creating a budget [PDF 76K ]. Don’t forget that you also have to save for the down payment, closing costs, inspections costs, moving, and other related expenses.

Benefits of Home Ownership

Homeownership has many advantages – both financial and personal. But buying a home is an important decision. Look at the benefits and the differences between homeownership and renting to better understand if owning a home is right for you.

What are the benefits of homeownership?

• Tax savings.
  You may earn significant tax savings because you can deduct mortgage interest and property taxes from your federal income tax and many states’ income tax if you itemize your deductions.
• A more stable monthly housing expense.
  Your monthly housing loan or mortgage expense can remain the same for the life of your mortgage, depending on the type of loan you choose.
• Equity.
  You may build equity in your home over the life of your loan, which allows you to plan for future goals like your child’s education or your retirement.

Homeownership is not right for everyone. It may not be the right time in your life or you may not like the commitment associated with owning a home. Here are some differences between renting and homeownership:

• Renters are typically free from maintenance obligations such as repairs or lawn care.
• Homeowners often have more freedom in decorating, landscaping, etc.
• Renters can move more easily and more quickly than homeowners and there are higher costs associated with buying and selling a home.
• Homeowners have a financial investment and may build equity in their home.

A beautiful young mortgage bankers give 9 tips on buying a home:

Factors to consider before purchasing a home

BEFORE YOU BEGIN SHOPPING, IT IS HELPFUL TO SPEND TIME IDENTIFYING YOUR NEEDS AND YOUR WANTS

When touring homes you will find that there are many beautiful homes on the market. There are two things you must do before looking at homes:

Find out from your lender the largest amount for which you can qualify for to purchase a home. It is very easy to become excited about features found in homes out of your range.

1. Complete a reality checklist. Take some time to decide what features are “Requirements” (location, basement, number of bedrooms or bathrooms, eating space, architectural style, garage, etc.) and which features are “Extras” (fireplace, walk-in closets, wet bar, pool, siding, vaulted ceilings, deck, landscaping, etc.). There are many different features in homes that range from necessary to luxury. It is easy to get caught up in the excitement of a beautiful home loaded with amenities. It is important that you select a home that truly meets all or most of your requirements first and foremost!
2. As you tour homes, refer back to this list to make sure the home meets your requirements. The extras should only come into play when you are making your final decision between homes that meet all or most of your requirements.  

TAKE SOME TIME DRIVING AROUND THE AREA. Choosing the right neighborhood is as important as choosing the right house! There are many factors to consider when selecting a neighborhood that is right for you. Below are just a few of the many factors. You may think of others that are important to you. Please write them on your Requirements List so they do not get forgotten. 

SCOUT OUT THE NEIGHBORHOOD! It is important that you scout the neighborhood in person. You live in more than just your house. Talk to people who live there. Drive through the entire area at different times of the day — morning, afternoon, evening and late at night, as well as going during the week and on weekends. Look carefully at how well other homes in the area are being maintained; are they painted, are the yards well cared for, are parked cars in good condition? etc.  

Why use an agent to buy a home?

When you start the process of buying a new home, it is important to determine the type of representation you want to pursue. There are basically three options:

•       No Representation
•       Dual Agency
•       Buyer’s Agency

NO REPRESENTATION:

When individuals chose to contact listing agents to inquire about prospective purchases, rather using a buyers agent, they are often unaware that in many instances, the real estate agent showing them property is not necessarily representing their best interests.

DUAL AGENCY:

• If you choose to write an offer with the listing agent, you will be asked to enter into an agreement called “dual agency” representation.
• Dual agency means that the agent you are working with is “committed” to being neutral, and represents both sides equally.
• This arrangement is legal, but there are some things to consider.
• When you are negotiating a contract, you cannot be sure that the agent is working solely on your behalf.
• The Bob Toews Team has a Buyer’s Agent, who only represents buyers, and a Listing Agent who only represents Sellers.
• This effectively keeps your interests priority in the negotiation process.

BUYERS AGENCY

Buyers agents are full time professional Real Estate Agents.

• They are educated in the legal aspects of Real Estate Practice and licensed by the Real Estate Council of Ontario to provide Real Estate Services.
• They earn their living by serving the needs of homebuyers and sellers with integrity.
• Buyer’s agent’s are not paid a traditional salary.
• They work entirely on commission, which they receive only if they initiate and complete a transaction for you.
• Our Buyer’s agent’s are compensated only when all of your needs have been satisfied and you take ownership of your new home.
• All of the services provided on your behalf are uncompensated unless you purchase a home through us.
• Real Estate commissions traditionally are paid from the seller’s proceeds, not out of your pocket.
• Essentially Buyer Representation is a service FREE to you which protects your interests.

Your Agent should represent you professionally and competently.

• Our Buyer’s Agents will not only help you find a home, but will provide you with information on comparable homes recently sold in the neighborhood so you know whether the home you are purchasing is a good value or not.
• Our Buyer’s Agents can also help you obtain valuable information regarding schools, test scores, tax rates, churches, temples, shopping, and recreation opportunities.
• Best of all, these services are FREE of charge to you, as the commission is paid by the seller’s Agent regardless of who he or she is representing

What are the advantages of buying over renting?

• Purchasing a home is one of the most important decisions of your lifetime.
• It is easy to become overwhelmed at the idea of finding, purchasing and finally owning your own home.
• You may feel that you are comfortable renting.
• Following are some good reasons why owning your home can be one of the best investments in your future you will ever make!
• Instead of paying someone else’s mortgage you can build equity in your own future!

When you are thinking about becoming a home buyer, it’s always good to run the numbers. A long-term renter can easily justify buying a home when he considers the total amount that he spends in rent over many years. Buying a home is a wise financial decision when you can afford it:

LIFESTYLE:

• Homeowners are different from renters.
• When you live in a neighborhood or complex that is primarily owner-occupied, your neighbors, like you, have invested in and care about their property.
• Naturally, they are willing to invest time, money and effort to improve their property and community, which in turn, improves the value of your property.

SECURITY FOR RETIREMENT:

• Unlike rent which goes on forever, the mortgage on your home will be paid someday, providing you with rent-free living for your retirement.

LEVERAGING:

• When you purchase your home you are leveraging your money. With as little as 5% down you can acquire 100% ownership, a great return on your investment!

PAY BACK ON IMPROVEMENTS:

• A renter typically gets no financial benefit from any of the improvements they make on the property, either to the home or yard.
• However, as a homeowner, you can realize some or even all of the costs (and maybe even a profit) from improvements when you sell your home.

TRADE-UP VALUE:

• Even if your first home isn’t your dream home, you will be working your way up to it.
• With appreciation and the possibility of a return on improvements, it may provide you with enough equity to make a down payment on your dream home later.

INVESTMENT PROPERTY:

For some, second single-family homes or condominiums are proving to be good income investments and tax shelters. You will be realizing profits and tax benefits from renters who may not know the benefits of owning a home.

MORE SPACE:

• Both indoors and outdoors, you will probably have more space if you own your own home.
• Even moving to a condominium from an apartment, you are likely to find you have much more room available – your own laundry and storage area, and bigger rooms.
• Apartment complexes are more interested in creating the maximum number of income-producing units than they are in creating space for each of the tenants.

The best way to know which homes you can afford is to make an appointment with a lender at your bank, or a mortgage broker, and get pre-approved for a mortgage.

WHAT DOES IT MEAN TO GET PRE-QUALIFIED?
Pre-approval means simply that a qualified lender will look at your credit history and income, compare it with your current monthly obligations, and see what you can realistically afford. It does NOT mean you have already been approved for a loan, rather it is a predictor of the likelihood you will get a loan.

SHOULDN’T I FIND A HOUSE I LIKE FIRST??
NO! SPEAKING WITH A LENDER BEFORE YOU HIT THE STREETS WITH A REALTOR WILL BENEFIT YOU IN THE FOLLOWING WAYS:

YOU’LL AVOID DISAPPOINTMENT: Pre-approval helps you know which houses you can realistically afford. Learning about credit report errors, high debt balances, and an insufficient down payment early will give you time to correct the problem before you apply for a loan, and before you fall in love with a house you are unable to purchase.

YOU’LL SAVE TIME: Knowing ahead of time what you can afford helps narrow the choices, which means you’ll find what you want faster and with less run around.

YOU CAN PLAN WISELY AND ESTABLISH PRIORITIES. No home is going to be perfect, no matter how much you pay. Going through the pre-qualification process helps you focus on which of the features in a home are most important to you, and helps you plan your search based on your pre-determined criteria.

YOUR OFFER WILL BE MORE ATTRACTIVE TO THE SELLER:  They’ll know you can afford it, and, if they have more than one offer, they’ll be more likely to accept yours if they know your financing is in place.

What do I need to know?
GARAGE: Garages add to the resale value and you should always make sure to get at least a two-car garage. Lately, three-car garages have become desirable in some areas of the country.

The laundry facilities should be located somewhere convenient on the main floor of the house, but not in a place it will create an eyesore. Think about whether you want to walk up and down stairs when carrying loads of laundry.

THE KITCHEN. Family activity centers around the kitchen, so this is the most important room of the house. Larger kitchens are better, and they should be provided with modern appliances. Obviously, the dining room and breakfast nook should be located adjacent to the kitchen. In newer houses, the family room should also be extremely close to the kitchen. 

There should be easy access to the back yard, as there will be occasions for barbecues and outdoor entertaining. In addition, it should be a short trek between the garage to the kitchen so hauling groceries in from the car does not become a horrendous chore.

FIREPLACES. The only room where you absolutely have to have a fireplace is the family room. A fireplace in the living room may be nice, but you pay extra for it and will probably rarely use it. At best, it serves as a focal point of the living room, but does not add much in real value.

SWIMMING POOLS. Swimming pools do not provide as much added value as they once did. Safety issues about families with younger children have become more publicized than in the past, so families with small children tend to avoid homes with pools. As a result, having a pool may actually reduce the number of potential homebuyers when you try to resell the home.

CLOSETS, GARAGES AND LAUNDRY. Walk-in closets are extremely desirable for the master bedroom. For the rest of the house, just be sure there is plenty of closet space. Don’t forget space for linens and towels.

How To Receive ALL New Listings That Match Your Home Buying Criteria Sent to You FREE of Charge Without Obligation?       

YOUR CLOSING WILL GO SMOOTHER: Lenders can detect any potential problems that might make obtaining a loan difficult. If there is something in your credit which could keep you from qualifying for the home you’ve chosen, it should have been identified and dealt with during the pre-approval process. By the time you get to closing there is less likely to be any surprises, which would hamper your ability to purchase.

(Keep in mind, a lender will most likely pre-approve you at the top of your ability to buy, which means that homes that you consider must be in that range or lower. If you try to go significantly over your approval rate by more than five or ten percent, you will risk losing the home, and possibly the opportunity to buy a home that would have been more suitable).

Step-by-step guide to buying a house

   I am buying a house!

1. Decide you want to take the leap from renting to owning
2. Visit a Financial Advisor to find out what you can borrow and understand the mortgages available. Agree a mortgage in principle    
3. Register with estate agents in the area where you want to buy
4. Visit as many houses as possible – ask all of the right questions when you are visiting the houses/ take a check list with you
5. Once you have found a house you want to buy you need to make an offer
6. Offer is accepted
7. Go back to financial advisor,file mortgage application and wait for this to be accepted
8. At the same time find and instruct a solicitor. This is very important Estate Agents normally give you 1 week to give them details of your solicitor.
9. This also indicates how serious you are in the purchase.
10. Once your mortgage has been instructed, they will send some one to survey the house to check it is worth what you are paying. You should also get a private survey to ensure that the house is structurally sound.
11. You should also arrange for the gas and electrics in the house to be checked out because if any work needs to be done, the cost of this should come off of the price of the house.
12. If the survey shows any problems e.g. damp, you will need to get a quote for the work of repairing this. The cost of this should also come off of the price of the house.
13. Your solicitor will carry out searches and various other legal bits and pieces and check that everything is in order, If your are a first time buyer the process should be smoother than if you are in a long chain
14. Once the legal work is in place , it is time to exchange housing contracts, this means that the purchase is now legally binding and that you can’t back out! You also pay your deposit over to your solicitor at this point.
15. Now you need to set a completion date
16. This is a good time to arrange all of your life assurance and insurances so that they are ready to start on completion date
17. Arrange removal van or rope in your friends to help you move all of your stuff
18. On the date of completion, your solicitor will arrange for the transfer of money from your mortgage company to the vendor’s solicitor. On this day you will also pay the stamp duty and will a receive a large solicitors bill for all of the searches and legal fees
19. Get your keys – see rough price guide for all of the essential items you will need in a new home!
20. Now you are a home owner you should also consider writing a will. After all you now have a rather large asset!
    Is a Home Inspection Necessary? Buying a home is the single largest purchase most people make. And most of us are not contractors or engineers.
21. It’s good business to have a professional inspect the home you’re considering purchasing before you make the deal. Often, the results of a home inspection will enable you to renegotiate some details of the purchase contract, or have the seller make some repairs before you buy.