SGI Realty One Real Estate Blog

Discount points are fees paid to a lender at closing in order to lower your mortgage interest rate. While buying points is sometimes a good decision, many times the purchase costs you more than it saves.

How Much Do Points Cost?

The cost of each point is equal to one percent of the loan amount. For instance, for a $100,000 loan one discount point equals $1,000.

How Much Does Buying a Point Lower Interest?

Each discount point paid on a 30-year loan typically lowers the interest rate by 0.125 percent. That means a 7.5 percent rate would be lowered to 7.375 percent if you purchase one point.

Paying for points lowers your interest rate, because the lender receives the income in a lump sum at closing rather than collecting the interest as you make payments on your loan.

Should I Buy Points?
Whether or not paying points makes sense for you depends in part on how long you plan to keep the loan. Use a mortgage calculator to help you decide.

1. Calculate the amount of your monthly payment at the interest rate you will be charged if you do not pay points.
2. Calculate the amount of your monthly payment at the lower rate if you do pay points.
3. Deduct the lower payment from the higher payment to find the amount saved each month.
4. Divide the amount charged for points at closing by the monthly amount saved. The result is the number of months you must keep the loan to break-even on paying points.

Break Even Example:

$100,000 Loan - 30 Year Term

• 7.5% Interest, no points = $699.21 monthly payment
• Buying 1 point for $1,000 = monthly payment $690.68
• Monthly Savings = $8.53
• $1000 / $8.53, = 117 months

Your break-even point is 117 months—or nearly ten years to recover the cost of buying the discount point (considering only the simple calculation of those funds at today's value).

Do you plan to stay in the house that long? If not, buying points might not make sense.

Slightly Lower Principal Balance

If you look at amortization schedules to compare the two loans, you'll see that the lower interest loan does have a slightly lower principal balance at the end of 117 months, $87,024 versus $87,259 for the 7.5 percent loan. So you might want to consider that savings to help you decide whether or not to buy points.

Can the seller pay for my discount points?
Probably. Talk with your lender about what's allowed with your loan. The seller will probably want a higher sales price if paying a portion of your fees, but you can move into the house with less cash at closing.

Are discount points tax deductible?
Yes, points paid for residential real estate are tax deductible in the year they are paid. Buyers may deduct the amount paid even if the seller pays for the points at closing.

Are discount points the same as an origination fee?
An origination fee is a fee charged to process your loan. It typically costs the same as one point, but it is a different type of fee. Ask each loan officer or mortgage broker you talk with if you will be charged an origination fee.

Home Buyers

Mistake #1:
Not knowing how much they can afford before they make an offer.
The easiest way to avoid this mistake is to get pre-approved for a mortgage by a lender so you can know in advance exactly how much you can afford.

Mistake #2:
Not realizing in advance who the real estate agent represents.
Most people think that the agent they are working with is working for them. But unless they are working as your buyer representative, they represent the seller.

Mistake #3:
Not realizing that the wrong mortgage can cost thousands of dollars in needless interest and taxes.
Check with your accountant before you make your final decision on which mortgage you are going to choose. Your CPA will be able to tell you what the long term effects will be on your income.

Mistake #4:
Not discovering hidden defects before they buy a home.
One of the most expensive mistakes is also one of the easiest to avoid, by having a professional pre-purchase home inspection.

Mistake #5:
Not knowing how much their credit can affect their ability to buy or refinance a home.
Before you buy a home, many of the clouds on your credit history can be cleared up or even eliminated. Your mortgage professional can help you review and prepare your credit file in advance.


Home Sellers

Mistake #6:
Basing their asking price on needs or emotion rather than market value.
Many times, people make their pricing decisions based on how much they paid for or invested into their home. This can be an expensive mistake. Overpriced homes take longer to sell and eventually net the seller less money. Consult with a professional real estate agent. They can assist you in pricing your home correctly from the beginning.

Mistake #7:
Failing to "Show-Case" their home.
First impressions are the most important. Experience shows that for every $100 in repairs that you home needs, a buyer will deduct $300-$500 from their offer. Thoroughly clean and prepare your home before you put it on the market if you want top dollar.

Mistake #8:
Signing a listing contract with no way out.
Most traditional real estate agents want you to sign a listing contract with no way out.

Mistake #9:
Choosing the wrong agent or choosing them for the wrong reason.
Many homeowners list their home with the agent who tells them the higher price. Or they list with the agent who works for the biggest company. You need to choose the agent with the best marketing plan and track record to sell your home.

Mistake #10:
Not knowing all of their legal rights and obligations.
Real estate law is complex. The contract that you will sign when selling your home is legally binding. Small items that are neglected in a contact can wind up costing you thousands of dollars. You need to consult a knowledgeable, professional who understands the in's and out's of a real estate transaction.

The structure of the house is not the only thing that you buy when purchasing a home. Part of what you are paying for is its location. It may not be mentioned explicitly that you are being charged for it, but definitely you are paying for it.

The location of the property pretty much sets the value of the house. Houses in premium neighborhood usually have the best value. Having a home in this location would be advantageous on your part. This is because when you decide to sell the house in the future, you can get the most return for it. It is also the value of the house that will give you better chances of refinancing (in case there is a need for it in the future).

So you see how important location or the neighborhood is?

Research Before you buy

The next time you buy a house do not lock your eyes on the physical attributes of the property alone. There is also a need to look at its surroundings and anything that goes beyond the fence. Before you buy, research the neighborhood well.

It is important to analyze the whole place for the following things:

1. Availability of schools- If you have kids, you would definitely want to make sure that they will be able to go to a quality school that isn't too far away from home.
2. Transportation - Are there available cabs, school buses and other public vehicles that you can ride, should you decide to commute? Are there bus or train stations nearby that could take you to work conveniently? You should ask about this especially if you do not own a car.
3. Roads- Accessibility to the place is also important. You also have to know if the place is prone to traffic jam and if there are alternative roads that can take you downtown and back home.
4. Crime Statistics- Knowing this basically tells you how safe the neighborhood you are living in is.
5. Access to amenities
6. Homeowners Association

To be able to know more about the neighborhood, you can research them first by using the Internet. You cannot just imagine how plenty the information about communities that you can get when you use search engines. Just type in the keyword in the search box found in website like Google, Yahoo and MSN. After pressing enter, you will have thousands of returns directing you to websites that could provide relative information.

The next best thing to do is to immerse yourself in the area. Visit the place and go to your neighborhood's business area. You can also visit the Chamber of Commerce to get more specific data about the place. You can also drive by the place to get more sites in a day. Look for the schools, amenities and roads.

If you do not find it embarrassing, you can also go door to door. Ask around the locales and befriend them. You can get off the record information about the place. Not to make it sound to sneaky but you have to be a good detective to get valuable information. Only then will you be able to make a sound decision whether or not you will go through living in the area.

Buying a house for whatever reason should be a fun and exciting time. Open houses are an enjoyable event. You may even visit three or four different homes in one day. There are special things to look for when going to see these houses. An open house is used to check the market and let potential buyers window-shop. There are certain criteria you have in mind when searching for the perfect home. Jot those ideas down and compare them to the homes you view.

Take a notepad with you to each house and make a note of the address of the homes you visit. Jot down things you like and dislike about each house. This will help you keep track of which house is which. Make note of nearby schools, the general neighborhood, how close is freeway access, where are the shopping malls, and any other information that will help you decide on your choice of home. The commute to work is a vital piece of information. Many forget to consider how far away the job is. The last thing a person wants to do is spend too much time on the road instead of with the family. When attending an open house, remember that the neighborhood surroundings are an important aspect to purchasing a house.

Check the condition of the house, the road and the yard. Is it suitable of children or pets? Who will take care of the yard or can you hire a gardener? Whatever you desire, be sure to think of everything and take plenty of notes. A poloroid camera is well worth taking. Clip instant snapshots to your notebook to help you remember specific houses. Buying a house is an important step, so make sure you know what to look for. Check everything. Notice cabinets, appliances, doors and even views out of the windows. Listen to noises that could be bothersome, such as a train that passes near by or a freeway. Make sure there is plenty of living space or room to add more if you desire. Most people forget to ensure there is enough closet and storage room. Write down vital pieces of information which should include anything that will help you with your decision.

At the open house, an owner or broker is likely to be present. If there is one in attendance, ask questions. Find out all the little secrets about the house. Granted they will not always be straightforward. Have a memo of each inquiry. Put in writing all the answers. When you make the choice on a house you can add these questions into the sales contact and re-ask the query. If these replies differ in the writing stage you may not want to do business with these people after all. All homes have concealed facts. Some are not real terrible but others can be horrendous. Interrogating the owner or broker is an ideal way to find out things that are not visible. Do not be shy about wanting to know how your dream home is really shaped.

Many times, several brokers, lenders or agents frequent open houses. They want your business as soon as you step foot onto the property. Do not sign anything. Even if this were the house you would like to purchase. On sight people have one agenda, to sell you something. Usually the brokers who visit many different open houses will try and get you to view other properties. Which is fine, however they do not know anything about your wishes of the home you want. The mortgage lenders may try to sell you a different house at a better rate. However, in the end it is more likely you will end up paying more. At the stage of an open house it is most probable you are playing the field.

Going to an open house is a time-honored tradition. Open houses are for looking and sometimes even buying. With an important and expensive decision to make, it is better to research and look at all of your options. When venturing upon an open house, understand all the choices offered. Try not to be persuaded in making rash decisions. You have the option of looking, taking those important notes, returning to look some more, and even moving on if this house is not for you.

Good news for First Time home buyers in 2010. The Economic Stimulus Package of Obama had offered a great incentive to qualified First Time Home Buyers by way of a refundable tax credit of $8000. This incentive has been extended to 2010 for all U.S. Citizens and in certain cases even in 2011! All qualified home purchases made on or before April 30, 2010 are eligible for $8k housing stimulus. In order to qualify you only need to sign a binding contract by April 30 2010, and you may complete your home purchase by June 30, 2010. Moreover, certain government employees - Military, Foreign service and intelligence community have one more additional year, that is until April 30 2011 to take advantage of Home buyer tax credit.

In order to understand the 8k housing tax credit details you need to understand the following seven important points.

1. What is the definition of First time home buyer? -The law defines as a home buyer who has not owned a principal residence for the last three years. For married tax payers, you and your spouse must be 'first time home buyers' in order to qualify for the housing tax credit. For unmarried joint purchases, either of the qualifying partner may be a 'first time home buyer'. In this case the $8k housing tax credit can be allocated to any of the partners. Both rental property and vacation homes do not count as principal residence. If the new home you are purchasing is a mobile home or condo, and it is going to be your principal residence, you still qualify for the home buyer tax credit. Even building a home on a land qualifies for the $8k housing tax credit. Even non resident aliens who are not US citizens may qualify for this tax credit.

2. Dates of home purchase and deadlines - In order to qualify for the home buyer tax credit, the first time home buyer must purchase the house after January 1 2009 and on or before April 30, 2010. However, here is one thing you should remember about the deadline for the housing tax credit - it is enough to enter a binding contract on or before April 30 2010, you then have June 30, 2010 to complete the purchase.

3. How much tax credit will home buyers get? - Although this tax credit is referred to as $8k housing tax credit, remember that the total amount of tax credit a home buyer gets is equal to 10% of the purchase price of the new house up to maximum of $8k. Thus in order to get a full tax credit of $8k your purchased property must be above $80k in value.

4. Income Limits for $8k home buyer tax credit: First time home buyers with modified gross annual income of $75k get full benefit of this housing tax credit. The tax credit is gradually reduced for those with income between $75kto $95k and finally a home buyer gets no tax credit if his/her modified gross annual income is more than $95k. For married taxpayers, the home buyer tax credit is gradually reduced to zero for modified gross annual income between $150kto $170k.

5. This is a Refundable Tax Credit - This $8k housing tax credit is a tax credit and not a tax deduction. That is qualified first time home buyers deduct $8000 from their total tax owed to the IRS and NOT the total taxable income.

· Homes costing over $800k are not eligible for $8k first time home buyer tax credit.

· The tax credit cannot be claimed if the property or purchased house was received as a gift or inheritance or if it was acquired from a relative.

· You have to continue residing in the new home for three consecutive years after you purchase it.

· A person below 18 years or a dependent is not eligible for the credit.

RESPA -- Real Estate Settlement Procedures Act; a law protecting consumers from abuses during the residential real estate purchase and loan process by requiring lenders to disclose all settlement costs, practices, and relationships

HUD, (Housing and Urban Development), in an effort to improve disclosure of key loan terms and closing costs paid by the consumer when they buy or refinance a property, HUD has reformed the RESPA Rules.

Here is a summary of the final rule:

Good Faith Estimate – now it will be a three page document, including disclosure of yield spread premiums and the tolerance restriction. Effective date January 1, 2010.

Settlement Statement (HUD-1) will now also be a three page document. It will be redesigned to look like the Good Faith Estimate with cross references and a chart comparing charges in the Good Faith Estimate with the final charges appearing on the HUD-1. Effective date January 1, 2010.

30 Day Cure Period – loan originators may reimburse the borrower for tolerance violations within 30 days of settlement. Effective date January 1, 2010.

Tolerance limitations on settlement charges – 10% price tolerances for certain services packaged by lenders. Effective date January 1, 2010.

No Volume-Based Discounts- this eliminates explicit volume based discount language and reiterates HUD’s contention that all settlement service providers may negotiate discounts as long as they go to the consumer.

Use Of Average Charges – this is available to all settlement service providers with added flexibility for calculations. Effective date January 16, 2009.

*Revised Definition of Required Use – this is extended to both sellers and borrowers and allows legitimate consumer discounts. Requires that discounts or incentives be given by the referred provider and not as an inducement by the referrer. Effective date April 16, 2009.

Application Process – a one stage application process with greater flexibility on selecting underwriting criteria. Effective date January 1, 2010.

Misc. – miscellaneous modifications regarding escrow accounts, servicing transfer notifications and the applicability of E-Sign. Effective date January 16, 2009.

HUD has agreed to exercise restraint in enforcing these provisions for the first 120 days of 2010.

The easiest way to explain real estate bubbles is the market swells and prices rise like a bubble does when you blow into it. This is a great achievement when something like this occurs, especially for homeowners. However the bubble can burst and seemingly disappear.

We understand the market isn’t going to completely disappear when it comes to real estate, because everyone needs a place to live. Unfortunately owning a home is a dream and some people never get the chance. The good news is even those who never thought it was possible can take advantage of the recent economic chaos that left the housing market in shambles.

Real estate bubbles simply refer to a natural economic cycle where prices pick up and soar to unbelievable highs and then crash back down. While the crashing part can bring widespread panic and alarm, there are some people who make it their business to predict when this type of exploding bubble is going to occur so they can profit from it.

We would even go as far to say that investors get excited when the bubble bursts since they can get crazy deals on homes. If families are trying to do the same they will have to save up money and be careful about which home they purchase. Investors on the other hand already know which ones they will be able to sell when the bubble swells again.

In order to do this you have to be financially stable. When you purchase a home and have to wait then you will spend money maintaining the property until a sale can take place. This can become a huge expense and those who are not familiar with the system could end up losing more than they imagined.

If you haven’t noticed we are in the beginning stages of a very slow pick up. Anyone who purchased a home back before the housing market burst was likely devastated by how far their land decreased in value. Some have taken it to the extremes and given their homes back to the bank instead of waiting it out.

If you have been trying to sell a property in the past few years then you have probably been forced to hang onto your home or sell it for way less than it is actually worth. You may be hanging onto your property through this slow recovery just as investors are doing with property they bought after this latest bubble popped.

The good thing about real estate bubbles is they always correct themselves. When prices simply become too high the bursting of the bubble is a way to bring things back down to realistic prices. Yes, prices may go unbelievably low before they get back to “normal” again, but for many people the super high prices are just as bad as the super low ones.

The winners in a real estate bursting bubble are those that are able to purchase a nice home at the low end of the market and benefit from increased value down the line.

Hire an Agent

Because I am an agent, I believe in hiring a buyer's agent first. But you don't have to if you prefer to go to open houses and look through a mumbo jumbo of homes online. Mostly, an agent will save you time.

• An agent can send you listings directly from MLS that fit your parameters, and you won't waste time looking at active short contingent listings that are under contract.
• Agents often know of new listings coming up that are not yet on the market.
• You can waste the agent's gas and not your own when you tour homes.
• Some agents will preview homes for you.
• An agent can generally spot overpriced listings and advise you accordingly.

Find a Home to Buy

Buying a home can be an overwhelming process and emotionally draining. Finding the right home is not always an easy task. I advise buyers to look at a maximum of 7 homes at a time because any more than that will make a buyer's head spin.

Most buyers conduct a lot of research online before ever stepping foot in a home. Buyers spend an average of 6 to 8 weeks, according to the National Association of REALTORS, trying to figure out where they want to live. But once the neighborhood is selected, most buyers end up buying a home after 2 or 3 home tours.

Get a Loan

It's not always necessary to have a mortgage broker or bank in your back pocket before buying a home, but it's smarter to get loan preapproval in advance. This way you know for certain how much home to buy.

I once bought a home without financing in place when I made the offer. I was just lucky. Many sellers won't look at an offer if the seller doesn't have assurance that the buyer can get a loan.

Popular first-time buyer loans are FHA loans because the minimum down payment requirement is much less than a conventional loan. However, if you are thinking about buying foreclosures, for example, conventional buyers tend to get priority with REO banks.

You can ask your agent for a referral to a mortgage broker or check with your own bank / credit union. Compare the types of mortgages available to you and your GFE.

Negotiate the Offer

Buyers sometimes make the mistake of comparing the sales price of a home to other homes they have seen. It's a mistake to compare sales prices among homes for sale. That's because sellers can ask any price they want. It doesn't mean the home will sell at that price.

An agent can provide comparable sales and examine the pending sales. Comparable sales are similar type homes in the same condition and location that have sold within the past 3 months. Pending sales will become the comparable sales by the time your home closes.

You may need to pay over list price in a seller's market, especially if many buyers are vying for the same inventory. Your agent can give you a reasonable price range and help to manage your expectations. An good buyer's agent knows there is always more to an offer than its price, but price is paramount.

Do a Home Inspection

In some states, a home inspection is conducted before buyers make a purchase offer. In other states, a home inspection is a contract contingency. A contract contingency means a buyer has the right to cancel the contract. You might not want to be locked in to buying a home that has a faulty foundation, for example.

Sellers are generally not required to make repairs if problems are discovered during a home inspection. A home inspection is for the buyer's edification. However, sometimes when a buyer gives a Request for Repair to the seller, rather than blow the deal, the seller will often agree to make a repair.

Benefits for a First-Time Home Buyer

You should buy a home. That's what you've been hearing from friends and family, right? So, by now you have likely already weighed the benefits and decided that home ownership was the best decision for you. That's a major hurdle now passed. You are focused and certain. Good.

Defining Search Parameters for a First-Time Home Buyer

Almost 80% of all home searches today begin on the Internet. With just a few clicks of the mouse, home buyers can search through hundreds of online listings, view virtual tours, and sort through dozens of photographs and aerial shots of neighborhoods and homes. You've probably defined your goals and have a pretty good idea of the type of home and neighborhood you want. By the time you reach your real estate agent's office, you are halfway to home ownership.

How Long Should It Take to Buy Your First Home?

In seller's markets, often I show only one home. After all, how many homes does one family need? A few buyers will look for years, but buyers who do that aren't motivated. A motivated buyer will find a home within two weeks. Most of my buyers find a home within two days.

Good real estate agents will listen to your wants and needs and arrange to show only those homes that fit your particular parameters. Your agent should preview homes before showing them to you as well.

How Many Homes Will a Home Buyer See?

Studies show that your memory dramatically improves after consumption of carbs and slows upon consuming sugar. So, lay off the soft drinks and have a hearty meal of carbs before venturing out to tour homes. The average number of homes that I show to a buyer in one day is seven. Any more than that, and the brain is on overload. Therefore, don't expect to see 20 or 30 homes; although it's physically possible to do so, you probably will not remember specific details about any of them.

The "Red Shoes" Experience for a Home Buyer

Women will relate to this. Say, you need a new pair of red shoes. You go to the mall. At the first shoe store, you find a fabulous pair of red shoes. You try them on. They fit perfectly. They are glamorous. Priced right, too. Do you buy them? Of course not! You go to every other store in the mall trying on red shoes until you are ready to drop from exhaustion. Then you return to the first store and buy those red shoes. Do not shop for a home this way. When you find the perfect home, buy it.

How a First-Time Home Buyer Can Rate Inventory

• Bring a digital camera and begin each series of photos with a close-up of the house number to identify where each group of home photos start and end.
• Take copious notes of unusual features, colors and design elements.
• Pay attention to the home's surroundings. What is next door? Do 2-story homes tower over your single story?
• Do you like the location? Is it near a park or a power plant?
• Immediately after leaving, rate each home on a scale of 1 to 10, with 10 being the highest.

View Top Choices a Second Time Before Buying That First Home

After touring homes for a few days, you will probably instinctively know which one or two homes you would like to buy. Ask to see them again. You will see them with different eyes and notice elements that were overlooked the first go-around.

At this point, your agent should call the listing agents to find out more about the sellers' motivation and to double-check that an offer hasn't come in, making sure these homes are still available to purchase.

Making the Selection To Buy a Home

I'll let you in on a little secret. I generally know which home a buyer is going to choose, and I suspect most other agents operate the same way. It's an intuition. But I make it a practice not to steer buyers, and I insist that buyers choose the home without interference from me. It's not my choice to make.

Real estate agents are required, however, to point out defects and should help buyers feel confident that the home selected meets the buyer's search parameters.

It can be an exhausting and time consuming task to locate the right insurance plan, in particular if you’re a new home owner without any past experience.  In many cases, there are so many options and packages out there that it is not easy to tell which insurer is right for you.

One powerful tool can make this job much easier and faster, the Internet.  Via the web you have the ability to shop for home insurance any time, any day so need to worry about rushing around to agents.  In fact, many sites will consolidate your quotes in to one easy to read list rather than going to each individual site and requesting a quote one at a time.

Through the web you’re also able to access an unlimited amount of information to familiarize yourself with this process as well as others first time buyer’s experiences.  Read other first time buyer experiences and see what they ran into and try to avoid common mistakes.

The bottom line is it is imperative that you search intelligently, and by this, I mean get several quotes (at least) this way you have a broad list of options to choose from and the ball is in your court not the insurers.  In addition, be patient and review what each insurer covers before taking the plunge.  Your quotes are a few clicks away, best of luck in your search!

There are several things that should be avoided before purchasing a home. If you aren’t careful to avoid these common mistakes, it is possible that your closing will be delayed or even canceled. Your adherence to the following rules will put the keys to the house in your hands quickly.

I

First, don’t damage your debt to income ratio by making a major purchase before closing. If you decide you can’t live without that brand new BMW, you might have to wait on owning a home. The bank could easily determine that your sky high car payment would hinder your ability to pay your mortgage. Wait until after you get the house to do some spending. No one expects a brand new house full of furniture and a sports car in the driveway unless you are a famous sports figure or Donald Trump.

II

Secondly, don’t change jobs if you don’t have to. The lenders like to see consistency versus constant job hopping. If you are just miserable with your job, maybe you can switch to a different job within the same field. Or you can tough it out until you have the house and then start putting out resumes.

III

Also, you should never surrender your earnest money to a For Sale by Owner Seller. There isn’t anything stopping the sellers from spending the money before the transaction goes through. If the deal should fall through, the buyers would have to fight tooth and nail to get that deposit back. You should put the deposit into a trust account. You should be able to find an attorney willing to hold the deposit for you until the transaction is finalized. Your contract needs to state what will happen to the deposit in the event that the transaction falls through.

IV

In addition, never let emotions guide you. Stay practical and realistic during the home buying process. Some sellers are willing to fix some of the problems with the home and others may not be as willing. Don’t let that refusal close the door on your dream home. Conversely, you shouldn’t let your loyalty to the home blind you to costly repairs down the road. You certainly don’t want to be in a money pit.

V

Furthermore, don’t forget to have the utilities activated. The utility companies might need a few days to switch the service. Don’t forget to cancel the service at the old residence. That seems simple enough, yet many people forget that step entirely.

VI

Another costly mistake might be forgetting to secure hazard insurance. Talk to your insurance company right away because the lender will want to see proof of coverage for the new home at closing. Failing to line up the insurance will lead to delays in closing.

VII

You should not get too personal with the seller. After all, this is a business transaction, so it should be treated professionally. If you get into too many personal discussions, you might say something that could be taken the wrong way by the seller. You might have been joking about the ugly green carpet in the guest bedroom, but the seller might have taken that as offensive. In the end, it could hurt the dynamics of the transaction. You should be friendly, but professional.

VIII

If the appraisal comes in too low, don’t freak out. There are several solutions to this dilemma. The seller might be willing to come down on the price of the home. The buyer can put more money down if they are committed to that home. The buyer and seller can negotiate the deal or the appraisal can be disputed.

IX

Don’t forget to use your agent. It is the agent’s job to keep up with the daily details of the deal, including the lender, the seller, and the seller’s agent. It is also your agent’s responsibility to set up a final walkthrough prior to closing.

X

Lastly, don’t forget to take care of your end of the deal. You must be on the same page as the lender. Provide them with the paperwork they need and answer their questions in a timely manner. Failure to do so will keep you from opening the front door of your new home.

These are some of the most common mistakes home buyers make. Educating yourself about the process will ensure a smoother transaction and a definite housewarming party.

What you need to know about ARM or Adjustable Rate Mortgages:

An ARM, short for "adjustable rate mortgage", is a mortgage on which the interest rate is not fixed for the entire life of the loan. The rate is fixed for a period at the beginning, called the "initial rate period", but after that it may change based on movements in an interest rate index. ARMs are contrasted with fixed-rate mortgages (FRMs) on which the quoted rate holds for the entire life of the mortgage.

There are several options available for you when you apply for a mortgage loan. It is essential that you know the options to be able to choose the best terms for you. Among the options you should learn about is the adjustable rate mortgage. In order to decide if this is the right type of mortgage term for you, you need to understand it, identify the advantages and disadvantages as well as identifying when to choose such term.

Adjustable rate mortgage or ARM:

ARM is a type of mortgage loan wherein the interest rate can change. The changes are periodic. It also largely depends on several factors. There is an initial period before changes in rate will take place. During this period, the rate will stay the same. It can last for six months to ten years depending on the terms. After the initial period, the rates can go either up or down.

Benefits and pitfalls of ARM:

The major benefit of ARM is that it initially offers low rate. If the initial period is five years, then you will enjoy low interest rates for five years. This means that you will save significant amount over that period. In addition to that, you will also qualify to loan bigger amount. However, ARM also has disadvantages. One is that the interest rate will likely go up after the initial period. You will not be able to predict how much you will pay over the next period as well because often, the ARM is difficult to predict. You may not be able to prepare the amount needed to pay off the monthly due.

Should you choose ARM?

ARM is not normally recommended. However, it is often a wise choice in certain circumstances. For instance, if you do not plan to stay in that house for a long time, then ARM is ideal. May be you intend to sell it after three years. If this is the case, you will surely save a lot during the initial period and sell the property when the mortgage rate rises.

This is also a good option if you are sure that your income will increase in the coming months and in the following years. This is possible if you are eyeing a promotion. However, you have to be certain about this or you will have difficulty balancing your finances in the future. If you want to give ARM a try but you are not sure if it will work, then go for the loan that you can convert into a fixed rate mortgage. But before you do that, make sure that you understand the terms.