As you move through the home buying process, there are many things you should keep in mind. Here are the Top Ten financial pitfalls you should avoid when purchasing a house.
#1) Do not change jobs.
Change in your job status will cause your file to be re-underwritten and reconsidered. This may cause a delay with your loan process or possible denial of your loan application.
#2) Do not co-sign a loan for anyone.
During the loan process, changes to your credit report or status could negatively affect your ability to close your loan on time or at all.
#3) Do not buy a vehicle.
Applying for credit to purchase a vehicle will be recorded as an inquiry into your credit. This may decrease your credit score or decrease the amount of money that you may qualify for when purchasing a home.
#4) Do not use charge cards excessively or make late payments on ANY of your accounts.
Excessive use of credit cards can have negative effects on your credit rating. Inquiries are recorded by credit bureaus and balances on credit cards exceeding 35% both affect your debt to income ratio and decrease your credit score. Also, late payments of any type can decrease your credit score, increase your home loan interest rate, delay loan closing, or cause loan denial.
#5) Do not spend money you have set aside for closing.
Most conventional loans require 2 months of reserve money to be verified in your available financial accounts. Once it has been verified for use at closing, spending these reserve funds may result in loan closing delays or loan denial.
#6) Do not omit debts or liabilities from your loan application.
Please be honest and clear about ALL of your debts or liabilities early in the loan application process. Having the right information will allow your Loan Originator to provide you the best qualifying loan value. Unrecorded debts or liabilities that are found later in the process may affect the amount of money you qualify for in addition to causing delays or denials of your home loan.
#7) Do not buy furniture, appliances, or household items before closing.
Large purchases causing deductions in your banking accounts or additional debt on credit cards can negatively affect your loan process resulting in delays or denials.
#8) Do not originate any inquiries into your credit.
Multiple inquiries into your credit may decrease your credit score and any credit checks could negatively affect your ability to qualify for a home loan.
#9) Do not make large deposits without first checking with your loan originator.
Abnormal deposits or large deposits into checking, savings, or any financial account beyond normal payroll deposits must have money sources verified by Underwriting. Making these deposits could result in loan processing delays or denials.
#10) Do not change bank accounts.
Because the loan process requires a 2-month history of reserve funds, opening new financial accounts near a closing date may void this history. New bank accounts will not have the 2-month history available and cannot be used. This may result in loan closing delays or denials.
They’re not exciting, and they’re certainly not the first thing people see when they enter your home, since they are often obscured with drapery, shutters, or blinds. Your windows. When do you really need to replace them and what are the telltale signs it’s time to save up for this sizable investment? Homeowners with older varieties of windows might think about how newer, more energy-saving windows can reduce energy costs as well as enhance the beauty of their homes. Newer windows (which now have high tech UV protection — like having sunglasses for your home) can save your expensive furniture, cabinetry and carpeting from fading, crunching, and deteriorating. They also have noise abatement qualities people rarely consider. But windows aren’t inexpensive. And there are other, less expensive solutions than replacement. Nothing in a home is built to last forever, and windows are no exception. Daily exposure to weather and sunlight affect any window’s efficiency toll; the gas-filled seal on dual pane glass can leak, clouding up windows on the inside, but you may be able to get the seal fixed without replacing the window. If the seal fails repeatedly, however, it could be that the frames are warped and continuing to fix it repeatedly could present a case of diminishing returns.
Another reason to not replace a window is breakage. If your home backs up to a golf course, baseball diamond or some spunky Little Leaguer’s backyard and you find a hole in a window when you get home from work, don’t panic. Usually you can simply replace the glass, which is known as reglazing, saving some serious money. Weather-stripping and storm windows may also help hold off the expense of replacing your windows. Replacing windows may sometimes be your only option, however. What if they no longer open? That can happen due to your home’s foundation shifting, the frames deteriorating or the windows being painted shut by some former homeowner (never you, of course). On the other hand, you may have tried to close your windows as tight as possible to prevent a cold winter draft or dust cloud from seeping in, only to become frustrated that it doesn’t seal completely anymore. This can affect your monthly energy bill as well as eliminate an emergency escape route in case of a fire or break-in. Replacing them with new windows that are custom-built to fit the opening has the potential for saving you money every month.
A good test to see if your windows are transferring heat or cold is to hold your hand against them during both winter and summer. If you find the window slightly warm is direct sunlight, no big deal. Hot? Chances are good that you are overworking your air conditioner on a daily basis. Also check for drafty air leaks and water condensation around not only the window itself, but around the frames and surrounding drywall. A ton of mold problems begin with leaky windows and that can affect your family’s health. Cold air infiltrates and heat pours out through the same weak seals, finding you pouring money into overly-high utility bills. Older (single-pane) windows are especially prone to leaking and do little to block incoming light, heat and cold. If you don’t want to trust yourself to determine what’s going on with your windows, it’s easy to find someone for an evaluation. Look online for local energy auditors, independent contractors, or window manufacturers, all of whom can inspect your home and make recommendations to improve your home’s energy efficiency. It has been determined that windows are the source of up to 25 percent of energy loss. An auditor's report should tell you how well your windows maintain proper energy and moisture control.
If you find it’s time to replace your windows, then it’s also time to become the savvy consumer. In all but the most egregious of cases, you may not have to do it all at once. Replacing a few windows at a time may help you with budget concerns. However, it’s important to look up the different types of windows and frames you will use since this may become a long-term investment. All new windows have energy-saving qualities due to stricter building codes these days, but it’s important to get the facts on the different types of frames available to you. Aluminum frames are rarely used these days, but may be the least expensive. If you are not staying in your home for long, however, and the rest of the windows have such frames, there may be no need to go hog-wild on fancier varieties since you would never see a good return on the investment. Fiberglass (vinyl) are the most common and are used on most newer (many tract) homes. Some manufacturers have their own patented materials made to look like wood and can be outrageously attractive and long-lasting. Real wood, however, is the most costly (and some would argue, the most beautiful) varieties of frames. Wood frames are often used in custom home builds. Look up the National Fenestration Ratings Council (NFRC) for more detailed information on windows and be dubious of opinions and promises made by people showing up at your doorstep. Do extensive research on consumer review web sites such as Yelp! and AngiesList, both on the window manufacturers themselves as well as local installers.
The answer is, not at all! The Federal Housing Administration was formed in 1934 to provide financing for low- and moderate-income buyers, and there is no requirement that they are first-time buyers. There is also no maximum income for buyers. FHA has become a useful choice for many buyers whose credit situation might make conventional financing more difficult and more expensive.
FHA loans require a minimum down payment and mortgage insurance for the life of the loan. Although it is not a first-time buyer program, it is very popular with these buyers, partly because many communities offer down payment and closing cost assistance for qualified first-timers whose income falls beneath certain limits. FHA is also an excellent choice for those buyers whose credit scores are at the lower end of the scale. While conventional loans require a minimum FICO score of 620, FHA generally accepts much lower scores.
FHA does have a potential disadvantage, and that is the way mortgage insurance (MI) is handled. Lenders require mortgage insurance to limit their risk any time the loan is for more than 80% of the property's value. With a conventional loan, a borrower can ask the lender to remove the MI once they can demonstrate that the loan is less than 80% of the property's value. With FHA, the mortgage insurance will be in place for the life of the loan. Borrowers pay MI in two ways: an up-front premium that's added to the loan and a monthly premium that is also added to the payment.
If you would like more information about FHA loans or you know someone who is shopping for a home loan, contact your Loan Originator today.
You look into your credit report and see that your score is not as high as you had expected. What could have gone wrong? Although you think you may have done everything right, some seemingly harmless actions could negatively affect your credit.
Paying off credit card debt & closing accounts — Paying off credit card balances is always a good idea, but in some situations closing them after your payment has been made can negatively affect your credit score. Fifteen percent of your credit score is determined by the length of time that accounts have been established so if you must cancel a card, be sure it is one with a short credit history. Also, be sure to keep a good mix of credit (at least 1-2 major credit cards) as that can account for 10% of your score.
Maxing out cards & paying them off after the next statement — Although you paid off your balance, your statement will still reflect the status of your card. Your credit report will show that you have maxed out your card even if you pay the full balance the day after it your statement posts. To avoid this, be sure to pay any high balances off before the next statement date. A best practice for keeping your credit score in tact is to keep balances below 30% of your available credit.
Making payments a day late — Unfortunately, a day late is a day late. Your credit report will not state how many days late your payment was so you will still receive a 30-day late penalty. Many credit card companies may also charge a late payment penalty or increase interest rates for being late on your payments. To avoid penalties, be sure to schedule monthly payments for at least the minimum payment due. This will keep you in good standing until you have the opportunity to make a larger payment or pay off the balance.
Paying off old collections — This may seem to be a good thing to do, but it may actually harm more than help. Credit scoring models lend more weight to recent activity so making this a current activity on your credit report may hurt your score. If you do plan on paying off old accounts, make sure that all agreements have been signed & the creditor will be giving you a letter of deletion.
There are always steps that can be taken to improve low credit scores. If you have any questions about credit scoring and how it will affect you during the mortgage process, contact one of our Loan Originators. They will be happy to help you get on track and on the road to homeownership!
Recent tax code changes could potentially affect the financial aspects of buying and owning a home. Several of the revisions impact areas likemortgage interest deductions and home equity loan deductions. To help clarify the updates, we’ve created a chart that shows the changes.
Exclusion of Gain on the Sale of a Primary Residence
Under the original proposed changes, homeowners would be required to live in a home for a minimum of five out of eight years to claim the capital gains exemption. It was decided however, that the current tax framework would remain the same: a homeowner who had lived in a home for a minimum of two of the previous five years wouldn’t pay anything in capital gain taxes if they sold their home.
How It Could Affect You: There are no major changes. The two of previous five years requirement will stay unchanged.
Mortgage Interest Deduction (MID): Under the initial proposal, the limit on the mortgage interest deduction (MID) would be reduced from $1,000,000 to $750,000.
How It Could Affect You: This proposal reduces the limit on deductible mortgage debt to $750,000 for new loans taken out later than December 14, 2017. Assuming a 20% down payment, reduction in the MID will only impact buyers who are purchasing a home in the price range between $938,000 and $1,250,000. Experts have mixed reactions, with some feeling that it will have little impact on the market and others feeling it could be potentially detrimental having a limit on the MID raising taxes for those who itemize.
State and Local Taxes (SALT)
The original proposal includes the elimination of the state and local tax deduction (including property taxes). Under the new tax code, itemized deductions of up to $10,000 for state and local property taxes and income or sales taxes.
How It Could Affect You: Experts agree that higher taxed regions will be primarily impacted, as those homeowners now have a cap on these deductions. Some people might choose to live in one state over another because of taxation. This could impact demand on housing in some states.
What Does It Mean for Buyers?
Many families consider homeownership an essential part of the American Dream, and don’t necessarily purchase a home simply for the tax advantages. So even with the tax code changes, the main reasons people purchase homes (stability, freedom, building equity) are unlikely to be affected. If you are considering purchasing a home, speak with your McGlone Loan Originator to review how the new code will impact you.