Distinct Advantage Real Estate

Connie Medeiros
Owner/Broker

office:
415-883-8370

cell:
415-513-7300
707-812-0343

email: connie@dareweb.biz

RESOURCES :: Buyers

Should You Rent or Buy?
How Much House Can you Afford
Four Most Common Mistakes a First Time Buyer Makes
What is a Point?
Basic Mortgages
What is FICO?
First Time Home Buyer

Should You Rent or Buy?
Rents will continue to increase whereas a fixed mortgage won't. A fixed mortgage with a $3,000 payment today will be cheaper in ten years even though the payment never changes due to inflation.

Real estate helps people become wealthy due to leverage. If you put 20% ($100,000) down on a $500,000 purchase and the house appreciates 10% over one year, you've made $50,000 on your $100,000 investment or a 50% return.

Homeowners receive tax breaks on their housing, renters don't.

How Much House Can you Afford
First time home buyers can have a hard time knowing how much of a mortgage payment they can afford and how much money they will need for the down payment and the closing costs. There are other costs such as taxes and insurance that must be considered. A lender can help by pre qualifying or pre approving a home buyer before they begin looking for a house.

Pre qualifying is based on an informal review of your finances. There is no written verification. This is just an estimate of what the lender thinks you will qualify for based on what you have told them. It is quick and informal. This is a good approach if you will not be making an offer on a house for several months but just want an idea of what price range you should look in. Pre qualifying allows you the flexibility to choose your lender at the time you are ready to make a purchase. It would be a good idea to check your credit report at his point if you have not done so recently. Refer to my “What is Fico” article. Once you are ready to make a purchase and before an offer will be received most real estate brokers require you to be pre approved.

Pre approving is a formal review of your finances with a commitment to lend you a certain amount of money with set terms subject to you finding a house. Your credit history will be checked.

To make both processes quicker providing the lender with the following will help:

One months pay stubs and w-2's for two years or if self employed
two years of 1040's.
Two-three months of bank statements including any retirement accounts.
If currently renting the landlord's name, address and phone number.

Four Most Common Mistakes a First Time Buyer Makes

Looking at houses above what you can afford. Get pre qualified before you start looking for a home to avoid disappointment.
Impulse buying. Look at a lot of houses before you make a decision. While you're viewing a house make notes to the positive and negative aspects. Return to your favorite house for another interior inspection before deciding to buy,
Plan ahead. Where do you plan to be in the next year, five years and ten years. This planning will be very important to help determine what type of loans you should consider..
Location, location. The neighborhood is very important. View the house and the surrounding area at different times of the day. Is there an empty lot close by, find out what the zoning is and what the future plans are for development.

Find a real estate agent that is willing to spend the time with you and willing to answer your questions.

What is a Point?
One point equals one percent of your loan amount.

Example: $300,000 loan, one point is $3,000

Points are a prepayment of interest. They are tax deductible when paid to acquire a home. No point loans have points built in the loan in terms of a slightly higher interest rate.

Basic Mortgages

30 Year Fixed
The interest rate is locked or fixed. Payments are the same each month. If you plan on being in your home over seven years and rates are low this may be beneficial.
15 Year Fixed
The interest rate is usually lower than a 30 year fixed but payments are higher. The advantage is you pay your house off in 15 years. If you plan to live in your house more than seven years and rates are low this may be beneficial.
ARMS
Arms are adjustable rate mortgages usually for 30 years with the rate fixed for a period of time. 5/1 arm – The rate is fixed for the first 5 years. The interest rates are usually lower than a fixed interest rate. If interest rates fall or rise after the fixed term so will your payments. This may be a beneficial loans if you think rates will go down eventually or if you are not planning to stay in the house for a long period.
Short Term ARMS
A short term Arm is less than 3 years. The interest rate is usually low resulting in a lower payment. If rates increase payments can increase quickly. This is a beneficial loan if you are not planning to live in your house for long and do not think interest rates will be going up.
Interest Only
This type of loan keeps the payments lower. Equity is only built in the house if it appreciates.

DISCLAIMER: This information is for information purposes only and not intended to provide legal and/or tax advice. All clients must seek the counsel of their attorney and/or accountant to obtain professional legal and tax advice that pertains to their specific financial situation.

What is FICO?
A Fico score is a mathematical calculation based on credit data about you. The highest Fico score is 850 and the lowest is 350. The higher the score the better interest rate you can obtain. With a 720 plus score you should receive the best interest rates available. A score below 500 will make it difficult to get any type of loan.

You may receive a free copy of your credit report once a year by contacting one of the credit bureaus directly. The three credit bureaus that report the scores are

Equifax - www.equifax.com, 800-685-1111
Experian - www.experian.com, 888-397-3742
TransUnion Corp. - www.transunion.com, 800-888-4213

When you receive your credit report you should look for errors. There may be accounts that are not yours, late payments that were paid on time or old debts that should no longer be reported. After seven years negative credit should be deleted from your report except for bankruptcies which can stay on your credit report for ten years.

Consult with a professional before closing unused credit cards. Closing an account without paying down your debt changes your total debt to total available credit ratio and may cause you to lose Fico points. If you do close cards, leave the oldest one open. The length of your credit history is another factor in your score. Another strategy to bring up your score is to transfer a balance from a card that is almost maxed out to other cards so no one card is close to it’s credit limit.

Even if you’ve paid your accounts late in the past, you can improve your credit score by paying every bill on time now. If you want to have a good record, pay your debt when it is due and keep your balances low.

Carrying too many credit cards is held against you as is having no credit cards. Just asking for a new credit card can lose you points. Fico has learned that those expecting to be in financial trouble try to increase their lines of credit.

If you are planning on buying a house within a year it is a good idea to review your credit report to make sure it is accurate and to take action to improve your score.

First Time Home Buyer
It can be overwhelming to buy your first house. One tip is to stay organized during your search.

Make two lists, one list what you need and one list what you want. The need list should include the number of bedrooms you must have, the approximate minimum living area size, the number of baths, etc. The want or wish list should include things you would like to have (fireplace, pool, spa) but are not essential.

Keep the items listed below in one place tp help with your search.

A map of the neighborhood you are interested in. View the neighborhood at different times of the day.
Blank paper and pens to make notes about houses you see.
Write down all the positive and negative features of a property that your agent has shown you while it is still fresh in your mind.

When you are ready to make an offer, try to be objective. Think with your head. Does the house meet your needs list requirements. Take your time and make sure you see enough houses to make an informed decision.