Kristin Abouelata - Home Loans asked:


We encourage our kids to plan for their future, but we seldom include buying a first home sooner than average as a path to building that future. Let them know buying a home is easier than they think.

Most of the people who read this column are not first time homebuyers. The fact of the matter is many of you that are first time homebuyers and reading this article are relatively mature individuals who are fighting off your commitment fears of being tied to a mortgage. But there is a huge segment of the population that could buy their first home, yet it doesn’t occur to them to do so. Who are these people? Well, it’s your 24 year old son or daughter, new to the work force, and is throwing away money on rent somewhere. Encouraging your children to buy a home when they are young is some of the soundest financial advice you can give them. Equity in a home is an easy way to grow one’s portfolio with very little investment. But the fact of the matter is it doesn’t occur to most of us to encourage the younger generation to buy early in their lives. And trust me, it rarely occurs to our kids themselves to consider buying a home in the early twenties. They are more concerned with buying a new Halo 3 for their Xbox.

Why do so many people miss the boat on this opportunity? It could be they plan to be in the area for only a short time because they will job hop to advance their career, thus viewing a mortgage as “too permanent.” I counter to simply sell the house when you move. Or maybe they expect their income to double or triple over the next three years. I say buy a home now, then upgrade to a new home; sell or rent the old house. Investing in real estate is a proven, safe and solid return on investment. And with the right combination of credit history (or a history of paying utilities, cable and your cell phone on time) and no money down, you or someone you care about can start investing in the future.

When Junior starts his new job at the company and 401(K) is available, he’s been informed by his folks, boss or peers to enroll and contribute at least a little something to it with every paycheck. Yet, he is rarely counseled quit renting that apartment for $750 a month and buy a $75,000 house. Where will he come up with the money to do it? There are multiple options for first time buyers that allow for 100% financing. Get the seller to kick in closing costs (up to 6% of sales price with some products), and one can close on a loan and bring no funds to the table. If your home value appreciates 4% in the next year, that’s a nice return on a no cash investment.

For some time, I’ve considered writing this series for first time buyers to let them know buying a home is easier than they think. But, the more I thought about it, the more I realized the advice I would offer would most likely not reach my target audience. So parents, it is up to you to supply your kids with this last little bit of advice and help to set them free to further establish their independence in this world. Clip this article out and tape it to their iPOD or the steering wheel of their car - someplace it will get noticed.

I think for most of us who have been through the experience, our first home buy was a very daunting experience. There are so many choices and unknowns - it can be overwhelming. In this series, I will try to break it down the process into small logical steps and make it easier understand the steps involved in financing your first home. Where do you start? That is perhaps the easiest part. Our newly established worker should first make a list of all his or her debt obligations such as student loans (unless deferred), car payments, credit card debt, etc. Hopefully at this age, this will be a small list. Then add what you think amount you could afford for a mortgage. Take that amount and divide it by your gross monthly income. If you come in at 43% or less, you’re in business. If you have something in your savings or checking - great. If not, don’t let it deter you. You have options.

Contact a mortgage specialist to drill out the details and find a good realtor who knows your market for housing you can afford. What next? Get ready to tell your landlord “Adios!.”



CARLOS

Kristin Abouelata - Home Loans asked:


Did you ever wonder what a great credit score really gets you in the mortgage market? Many people think it means they get better pricing. Unfortunately, that’s not really the case. It mostly just means your lender won’t have to hassle you for as much documentation to do your loan. In fact, no documentation may be required from you at all if it’s a purchase and you put enough money down. I’ve heard many clients say, “I’ve got great credit, so quote me your best rate.” Good credit can’t directly influence the rate. But it can influence your mortgage loan officer to give you better pricing. If your lender can be assured your loan process is streamlined and smooth, and that they won’t have excessive hours to devote to the process, they may be able to quote you a more competitive rate. Much about a quoted rate depends upon the man hours it will take to make your loan, the loan amount itself and how quickly you can close.

Lenders usually have a minimum percentage of income they are supposed to make on a loan. That percentage is flexible, but only to a certain extent. For instance, the loan amount size is a huge contributing factor. If you’ve got a really large loan amount, your lender doesn’t need to have a feeding frenzy on your loan. The percentages lower because the payback is higher.

However, if you’ve got a really, difficult loan and a modest loan amount, you can expect higher rates or discount points. Or fees. Some lenders may raise your fees to make you think you’re NOT paying as much. But you are. You have to in order for the lender to cover the cost of doing business.

Here’s the secret. Closing a loan is actually a very involved process. Lenders can’t do the loans for free or break even profit because it’s a business and their in it for profit. Plus, there are many people involved in the loan process that you aren’t even aware exist. Processors, closers, post closers, insurers… a staff of thousands! Ok, so maybe not thousands, but your file is probably touched by 5+ different divisions (at minimum) within a mortgage company. Since it is a business, the lenders must make enough money on the loan to cover their costs and actually make money, too. The lender also pays outside parties for services too, like the appraisal, flood cert and automated underwriting system. Paying your originator is just the beginning of the mouths (and families) being fed by your business. It ain’t cheap to close and sell a mortgage.

When you examine all the fees and charges on a good faith estimate, your lender should be able to tell you exactly where that money is going and how it is to be spent. Your lender should have no qualms in telling you what costs are associated with your loan, or which funds cover third party expenses that your lender incurs by doing your loan. And some of that money will be profit. Much of it may be. But remember, you’re not just paying the salary of only one person. However, you shouldn’t pay too much for your loan. After all, the lender will make additional profit on the loan when it is sold on the secondary market.

A good lender will validate any fees and charges for you and should make you feel ok with the fees. If they don’t seem reasonable or fair, always ask questions. If you don’t like the answer, say so. And if you still don’t like the answer, than look for a new lender. Buying a home is such an important purchase and you should feel good about it.



MARCEL