Today's banking convenience with electronic processing and debit cards is great but they can lead to one problem in your real estate transaction. It's important to have a "Paper Trail" that shows everything that goes in and out of your accounts related to the transaction and the amounts have to be an EXACT match. Here's some simple rules to follow that will make things go smoother as you work with the lender and title company to get things moved from offer to closing:
- Be sure you have PAPER CHECKS for your account so you can pay earnest money and option fees with them. If you don't have paper checks for your account, your local branch MAY be able to help by printing some temporary checks, but most banks will let you order a small quantity on their website. But it can take a couple of weeks to process your order. Plan ahead.
- For any funds you receive for the transaction like option fees, gifts to help with down payment or closing costs, be sure to deposit the ENTRE amount into your account. Don't make a deposit that gives you cash back in the same transaction. If you need cash out, deposit the entire check and then withdraw funds from your account on a separate transaction.
- Keep in mind that for large amount of cash or checks from other branches or banks, your bank may not make funds available immediately. There may be a "hold period" to make sure it clears.
- Take a picture of any check you receive before you deposit it. That way, you have a backup image if something happens.
New laws like the Patriot Act, regulations designed to reduce mortgage fraud and conservative lender underwriting requirements may seem like they give you hoops to jump through, but keep in mind tha you're asking the lender to trust you with a large amount. They don't loan their own money, but the funds deposited by investors and have an obligation to make sure that investor has the best possible chance to get a return on their investment. Help them help you by staying organized and doing things in a way that not only gets it done but show independent verification it was done right. You'll save time and reduce stress for everyone!
If you have a question about any aspect of the process, remember, your agent is there to help and answer questions.
Five years from now, a renter will have paid out tens of thousands of dollars and actually owns no more than they do today. A homeowner will own an asset that is like worth much more than they paid AND enjoy the benefits of a higher credit score through on time mortgage payments that were LESS than renting.
Millionaire to Millennials: Buy Now!
Self-made millionaire David Bach was quoted in a CNBC article explaining that "the single biggest mistake millennials are making" is not purchasing a home because buying real estate is "an escalator to wealth.”
Bach went on to explain:
"If millennials don't buy a home, their chances of actually having any wealth in this country are little to none. The average homeowner to this day is 38 times wealthier than a renter."
In his bestselling book, “The Automatic Millionaire,” Bach does the math:
"As a renter, you can easily spend half a million dollars or more on rent over the years ($1,500 a month for 30 years comes to $540,000), and in the end wind up just where you started — owning nothing. Or you can buy a house and spend the same amount paying down a mortgage, and in the end wind up owning your own home free and clear!"
Who is David Bach?
Bach is a self-made millionaire who has written nine consecutive New York Times bestsellers. His book, “The Automatic Millionaire,” spent 31 weeks on the New York Times bestseller list. He is one of the only business authors in history to have four books simultaneously on the New York Times, Wall Street Journal, BusinessWeek and USA Today bestseller lists.
He has been a contributor to NBC’s Today Show appearing more than 100 times, has been a regular on ABC, CBS, Fox, CNBC, CNN, Yahoo, The View, and PBS, and has been profiled in many major publications, including The New York Times, BusinessWeek, USA Today, People, Reader’s Digest, Time, Financial Times, The Washington Post, The Wall Street Journal, Working Woman, Glamour, Family Circle, Redbook, Huffington Post, Business Insider, Investors’ Business Daily, and Forbes.
Whenever a well-respected millionaire gives investment advice, people usually clamor to hear it. This millionaire gave simple advice – if you don’t yet live in your own home, go buy one.
So you are considering buying!
Congratulations. The decision to buy a home is the first step in building lont-term wealth. Even if you are renting, you are already paying the costs of home ownership. You are paying taxes. You are paying for insurance. You are paying the costs of a loan. It's all built into your rent or lease amount. On top of that, you are paying a "margin" that yields the profit for your landlord's investment. But you are not receiving any long term benefit in terms of individual wealth.
The myths about homebuying
I've heard it countless times: "I want to buy a house, but I don't have the 20% down I need to buy a home!" Needing 20% down is the myth. The most common form of financing for most first-time homebuyers is an FHA loan. These loans require as little as 3.5% down. It makes a BIG difference. If you are shopping for a home that costs $ 200,000 dollars an FHA loan will require a down payment of $7,000. It's true that the traditional, conventional mortgage that was used for centuries in the United States required a 20% down payment. That's $40,000 for the same house, and those loans are still a good deal for someone with the means to afford that down payment. But FHA loans mean you can own a home much sooner and pay LESS each month than you would pay for a similar house for lease.
FHA doesn't' make loans. Lenders (banks and mortgage companies) make the loan following guidelines set forth by FHA. FHA then backs the loan, insuring the lender against possible losses if the borrower defaults on the mortgage. The borrower pays a Morgage Insurance Premium. This is a fee that lets FHA pay the lenders if they have to foreclose and FHA then markets the foreclosed property. The amount of the premium you pay depends on the amount borrowed.
Special First Time Buyers Assistance
There are also programs that will help with closing costs and down payments, if you qualify. Many of the programs have income limits, or restrict where the house is located. Most areas of the state of Texas qualify under the My First Texas Home program. There is also infomation on a tax credit program that will save you money on taxes each year, provided you apply before you clost on a home. Check out the information at https://www.tdhca.state.tx.us/homeownership/fthb/index.htm
Look For Community Based Programs, Too!
One excellent program for first-time buyers of homes with addresses in Fort Wort is the Fort Worth Homeowner's Assitance Program. This program can provide up to $14,999 for down payment and closing costs, if you qualify. You can get information at their website: http://fortworthtexas.gov/neighborhoods/hap/ This program has a feature that can even ELIMINATE any need to pay back the funds, if you reside in the home for just five years!
I've Owned A Home In The Past So I'm Not a First-Time Buyer
If you have not owned a home in the last three years, you may be considered a first-time buyer for many programs! That's right! First-Time buyers MAY have owned a home in the past, but if there is a three-year gap in ownership, you may still qualify as a first-time buyer.
I'll Have Expenses for Taxes and Insurance I've Never Had Before
It's true that you will have these expenses in you name for the first time as a homeowner; but you have been paying them all along. The property owner leasing you the house has built them into your rent. After you purchase the home, you will probably have a mortgage. The mortage company will most likely require you set up an escrow account. This is nothing more than a savings account that accumulates money with each payment you make and pays these items when they are due. You will have to pay your first year's homeowner's insurance at closing. But as long as you make your mortgage payments, the future amounts needed will be included, since you will pay principal, interest and the escrow amount to cover these obligations.
My Friend Tells Me...
Nothing I can think of has cost more people more money than the advice of well meaning friends or relatives. There have been such DRASTIC changes in the home buying landscape in recent years that the information from even the most experienced homeowner may be out of date. The key to a successful buying experience is to put together a team of reliable professionals. You will need people you trust like your REALTOR®, loan office, and title company escrow officer. Your real estate agent can be invaluable in putting together that team and making sure the flow of information gets to the right people on time. I'm not suggesting you ignore the advice of others, but ask the professional in the area involved, if you have a question. But keep one thing in mind. YOU ARE THE BOSS. I work with other pros that have this concept firmly in mind. Our job is to serve the needs of you, the client. It's not just the right way to do business, it's the law.
I Should Put Down As Much As I Possibly Can
It's true that the more money you put down, the lower your future payments will be, but how much to put down is based on much more than that! You have other expenses and obligation. Finding right balance between the outlay now and keeping a reserve that allows you to meet your ongoing and unexpected expenses is important. Talk openly with your lender and REALTOR®.
The cost of borrowing (primarily interest rate) is relative. If you have 50,000, you may be better off only using 15,000 for your total costs down payment and closing and investing the remainin 35,000, If you are paying 4% interest for a mortgage but earning 8% on your 401k, it makes sense to keep your investment growing. You will maintain a cushion, help build future weath both from your retirement acount and your equity in your home at the same time.
Buying a home doesn't have to be stressful, time consuming or frustrating. It's simply a matter of preparing for the purchase and getting the help of professionals who can help make it happen. Did you know that as a Buyer's Agent you REALTOR® is paid from the commission already built into the listing price of the home, if it is listed with an agent? That's right. You are paying for the service of an agent, even if you don't have one. This link describes the role of Brokers and Agents. Texas Real Estate Commission Information About Brokerage Services. I encourage you to take advantage of having an agent that represents YOU in the transaction.
Good luck with your decision to buy a home. If you have any questions, please contact me. I'll be glad to answer them and guide you down the road to home ownership. After all, there's no place like home.