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House Plans -- How to Read Blueprints
Whether you are building your own house, buying a new property, gathering funds to do a renovation project, or Refinancing your current Mortgage at a much Lower Rate, you’ll be looking for Funding. Here are some commonly asked questions regarding funding for a Mortgage or a Home Improvement Loan. Find a Mortgage
This is a great time to Refinance Your Home or Buy a New Home -- the Mortgage Rates are so low, these days! It's always worth a shot to find out what the costs of switching over to a new mortgage would be, to see if that's the right move for you.
Quick Note: If you are wondering about the new Low Interest Arm Options , they are fine if you are willing and able to move from the purchased property in 1 - 5 years, and are definitely not planning to stay put for 30 years. Too risky for the long term home-owner, but if you're like me and like to move every few years, and you know the home will hold or increase it's value, I say, go ahead with care. Just remember to make sure you can make payments against the Principle without a penalty, and make at least one extra payment a year, preferably two extra payments. Or add a little against the Principle every month, whichever works better for you.
You
can go to the Loans Department of your regular bank, or you can go directly
to a Mortgage Broker. (Have a look
at the Mortgage Company Info on my Site to see if that's the easiest way for
you to get the money you need... At the very least, it'll tell you how much
you're qualified for, and the on-line Lenders have Rates the Banks have a
hard time competing with. It's all about Saving Money, so check into it all,
first -- it's a big financial decision! You can always take your information
you've gotten On-line to the Bank -- if they can't or won't match it, there's
your decision right there! ha,ha!). Keep in mind that it is generally
easier to work with a Broker, since they have the ability to be a lot more
flexible than a conventional bank. Also, their rates will often be considerably
lower than what the banks are offering, too, so shop around – this could save
you a fair bit of money. Brokers can
often get a mortgage for clients that a bank won’t even touch, and they’ll
do it at your convenience, for the most part, so you can have a more relaxed
meeting with them.
What questions will a Broker ask somebody who’s looking for a Mortgage?
There are three main things you will be required to provide:
i. Verification of Income
ii.
How much and where the Down Payment is coming from
iii.
Personal information for Credit Checks (Birthday, Social
Security Number, Address, Job Letters, Pay Stubs, 3 years worth of Tax Returns,
3 months worth of Bank Statements, any current Retirement Savings Funds…)
Your Banker or Broker will want to confirm your ability to qualify by doing a GDS Ratio (Gross Debt Ratio) and a TDS Ratio (Total Debt Ratio).
A Gross Debt Ratio is determined by taking the Mortgage Payment, the Property Taxes, and a Heat Component (really hot areas will be exempt from this, I’m guessing!), which is usually around $50.00. These numbers are added together. That number is multiplied by 12, then divided by your Gross Income Amount. This number can’t exceed 32% of your Gross Income. Some banks &/or brokers may have different criteria, but this is a commonly used method to see if a client can qualify for a mortgage.
N.B. Don’t get too hung up on the math – that’s the job of the banker or broker. This is just info to give you a good understanding of how they get their numbers.
Is there an easy way to calculate
a Mortgage?
On a 25 year Term, you would take the Percentage Rate (say, 5%) and multiply that out by the number of thousand (say, $100,000.), which would give you a mortgage payment of about $500./month (5 X 100 = $500.), plus Taxes. So if you’ve found a house for $165,000.00, and the rate is 5%, (based on a 25 yr. Term), the payment would be around $825.00, plus taxes, per month. (5 X 165 = 825)
We use this formula all the time – it’s functional to see if you can even come close to being able to afford a particular property. If you always find yourself looking at the properties worth $300,000., when you can actually afford a $75,000. property, do the math, figure out what you can really buy, and get that. It’s better to buy something already in your range, save your money, wait until your place has gained in equity, then make the move up. Have your Broker or Banker let you know how much you can spend, and have that up-dated every year, or so, depending on how long it takes you to find a place to purchase, especially when the rates are fluctuating so much. Also, your Broker will tell you the exact payment.
Different Lending Institutions will have different rules, but you will generally have to qualify under their 3 Year Rate, which will be higher than the lowest rates available. Some institutions will use the 5 Year Rate (primarily regular banks).
What’s the difference between an Open and a Variable Rate Mortgage?
An Open Mortgage is one that can be paid out at any time, but you will pay a higher Rate for this privilege. This is a good choice if you’re not sure how long you’ll be staying in the home. You’ll save on the possible Penalty Payments you would have to pay if you had a Fixed Rate Mortgage, and had to move before the pre-chosen Time Period had elapsed.
One thing about this type of Mortgage that might seem off-putting, initially, is the fact that the interest rates actually fluctuate within the mortgage. This is not necessarily a bad thing, especially if the rates go down after you’ve established the mortgage. The important thing to remember is that the amount you pay per month will always be the same – the only thing that changes is the amount that will come off the Principle. If interest rates start to rise, make an extra effort to set aside some money to pay directly to the Principle.
Keep in mind that only a tiny amount of your regular monthly mortgage payment goes toward the Principle in a new mortgage – have a good look at your Statement, the next time it comes in. Even if you were to put half that amount on the Principle, you would still be making a major dint in it. And your financial life won’t be so stressful, which will make the rest of your life much nicer, too, since financial stress is one of the leading causes of divorce, but that’s a whole other story…
A Fixed Rate Mortgage is a mortgage that will have the same rate for the amount of years you have chosen to lock in at. Typically, there are 1 Year, 2 Year, 3 Year, 5 Year, 10 Year, 15 Year, and 25 Year time periods. If you choose to move before the time period is up, you will be required to pay a Pay Out Penalty, so keep that in mind if you’re not completely sure how long you’ll be there.
Check first with the Financial Institution that’s carrying your Regular Mortgage. They may be able to provide the money you need to renovate. You could borrow on your Equity (the spread between how much you owe for the property and its current appraisal rate) in the form of a Home Improvement Loan or a Home Equity Loan. Keep in mind that you can use a Home Equity Loan for other stuff, as well. Your bank should be able to offer you a Blended Rate, and should waive the Pay Out Penalties. If they won’t offer that, or give you any loan, call a Broker, and see what they can do. They’re not miracle workers, but they can often help when the regular route won’t come through for you.
Yes. (You’ll need this for the Home Equity Loan, too.) The financial institution needs to know the current value of your home to make sure that their backs are covered. Makes sense. You will probably have to get a ‘Before and After Appraisal’, quotes from the respective contractors to show proof of renovation, and a description of the type of renovations you’re planning. It’s much easier to borrow against the Equity, so try this route, first. Talk to your Lender before you get too involved to see what you can actually get, and when. If you have to pay for the whole job out of your own pocket first (as is often the case, which is craaaazy, since if you had the cash just sitting there, you wouldn’t be at the bank, anyway….ah, the joy of financing!), make sure that you find a source for material that will provide a payment plan (many home improvement stores will do this), and a contractor who doesn’t mind being paid at the end of the job when you’re money comes in.
The money is separated into 3 or 4 sections, or ‘Draws’. Generally, you will get the funding in Three Stages:
i. Sub-floor
ii. Lock Up
iii. Completion
Can we get money to get to the Sub-floor Stage?
This is where careful and creative financing comes in… hopefully, you’ll have that swack of cash in the bank (at least twenty thousand), and a fair bit of equity in your home. You’ll probably need to sell your current property before you start building your new house, so you can use the equity spread from that sale to get the new house started. If your land is already paid for, you’ll find this stage easier. Some Developers will allow a new builder to put 5% down on the land, then they can pay the balance when the mortgage money comes in. This is relatively rare, so if you find this deal and like the location, go for it.
Talk to your Excavator, Foundation Contractor and Framer to see if you can make partial payments until the First Draw comes through. They’re in the business, so they’ll understand your situation. A lot will depend on how busy they are and the relationship you establish with them. Some Suppliers (lumber, ICF Blocks, etc.) may have a payment schedule, too, so it doesn’t hurt to ask if you need to.
First, the Appraiser will inspect the Land, the House Plans, and your Proposed Budget. The amount of money provided for the Builder’s Loan will be based on the Cost to Complete the house, not including the value of the land. The Land will be included with the final appraisal for the Completion Mortgage (Take Out Mortgage).
Put Your Event Logo on a Buff! They Make Great Souvenirs!
It’s an involved process, but it does work, so stick with it and figure it out! Remember that if one institution can’t get you the money, try a Broker or two…eventually, it’ll all work out!
One more thing -- What is Escrow??? I know, you hear that all the time! It's that seemingly very long period that your Lawyer holds onto your money while all the conditions are met on the House Deal. Make sure you ask your Lawyer for a good idea of the time-frame you might expect, and be sure not to leave yourself too tight (moneywise!) during this annoyink period!
Just so you know, a Real Estate Lawyer will be very pleasant to deal with ... they don't seem to deal with a lot of animosity, like many other types of Lawyers, and that probably accounts for their serene expressions! ha,ha,ha! They're there to help you get into or out of your home, so don't worry -- it won't hurt a bit!
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The checklist to a successful home buying experience
Buying a home is probably the single largest investment most people make in a lifetime. By preparing yourself and your finances before a home purchase, you can ensure a smooth finance process and can potentially save thousands on your loan.
Start by checking your credit
Figure out how much you can afford
Pick a mortgage to fit your finances
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