One of the major hurdles a first-time homebuyer must successfully navigate is obtaining a home loan. Those who have some type of credit blip or no real credit history at all often face real challenges in qualifying for a mortgage with acceptable repayment terms. Although not limited to this type of buying situation, the FHA home loan can often be a great choice for first-time home buyers who would otherwise struggle to obtain a conventional mortgage.
For informational purposes only. Always consult with a licensed mortgage professional before proceeding with any real estate transaction.
Where can first-time borrowers go to apply for an FHA home loan?
Applying for an FHA home loan is relatively simple. Because these home loans are guaranteed through the Federal Housing Administration (FHA), they are readily available through most banks, credit unions, and mortgage lenders. Buyers can usually obtain a list of FHA home loan providers in their immediate area through their real estate professional.
What documentation is required during the application process?
Like most home loan application processes, prospective FHA borrowers will be required to provide several documents. These include:
- proof of employment and income, including the two most recent pay stubs
- bank statements for the two months immediately preceding the application
- proof of identity and residency, including driver’s licenses, Social Security cards, copies of divorce papers, green cards, and work permits
- credit reports, or copies of receipts to prove an adequate credit history, if insufficient credit reporting is available
Prospective buyers may also be asked for additional documentation during the initial application or later during the loan process in order to meet underwriting requirements or address any issue that may arise.
Will a credit issue prevent a borrower from qualifying for an FHA home loan?
FHA home loans are a good choice for first-time home buyers because it is possible for buyers to qualify for them under less stringent guidelines than those used for many other home loans, including most conventional loans. In fact, buyers who have some late pays, collection activity, or other blemishes on their credit report can be accepted in many cases. However, more serious issues, such as defaults on student loans or federal tax liens are not acceptable under the FHA home loan program.
Current FHA regulations require a credit score of just 620, with a small down payment of three percent of the home’s purchase price, as opposed to stricter conventional loans that require scores of 720 or higher for approval. In some cases, an FHA home loan may be approved for lower credit scores, if a larger down payment is made.
Will it be possible to use financial gifts for the down payment or closing costs?
Under FHA home loan guidelines, monetary gifts are acceptable for use toward the down payment and closing costs of the loan, as long as the gift meets certain requirements. For instance, it must be a true gift with no repayment agreement from a close relative or other approved source. In addition, the money must be correctly sourced and seasoned, in order to be accepted for this purpose.
First-time homebuyers who want to learn more about the FHA home loan process and what it can mean for their situation should start by discussing it with a trusted real estate professional, well before opting to start their home search. Their agent can provide them with helpful information about home types and conditions that are accepted under FHA home loan guidelines, as well as helping them locate a local lender who can walk them through the application and qualification process for the loan.
For informational purposes only. Always consult with a licensed mortgage professional before proceeding with any real estate transaction.
Getting a mortgage can seem complicated, once borrowers realize that there are several different types. With this information, potential home buyers will be able to distinguish the most common kinds of mortgages.
1. Fixed-Rate Loans
The standard mortgage loan that most people are at least vaguely familiar with is a fixed-rate loan with a specific term. The phrase “fixed-rate” means that the interest rate and the monthly mortgage payment are fixed for the duration of the loan. The term for a fixed-rate loan could be as low as 5-10 years but is typically either 15 or 30 years long. Although the borrower will pay down increasingly more principal on the loan over the years, the total payment for the principal and interest stays the same. Payments for private mortgage insurance, homeowners insurance, or property taxes may change, but the amount due for the loan itself does not. Fixed-rate loans are often preferred because they give buyers the benefit of predictability.
2. Adjustable-Rate Mortgages
Many people treat the fixed-rate mortgage as if it is the best mortgage available, but there are reasons people might consider an adjustable-rate mortgage (ARM). With an ARM, borrowers are often granted a lower introductory interest rate, which may generate a lower initial monthly payment. After a set period (usually at least a few years long), the interest rate and the monthly payment adjusts. This cycle is repeated at a defined interval, which may be every six months or a year. Although mortgage interest rates do not tend to fluctuate greatly from one month to the next, interest rates could rise significantly over a period of several years. As such, many people who start with an ARM eventually refinance their mortgages to a fixed-rate loan.
3. Conventional Lending
When home buyers start to look at homes, they may see references to the types of lending that sellers will consider. Conventional loans are frequently cited as preferred, so borrowers should understand the limits of this designation. Conventional loans are also sometimes called “conforming loans,” which means that they conform to the lending guidelines set by Fannie Mae and Freddie Mac. These are government-run organizations that buy up debt generated through conforming loans. Conventional lending usually carries specific requirements for down payments, assets in reserve, maximum debt-to-income ratio, and a limit on the size of the mortgage. Loans that fall outside conventional lending standards but are not in another specific category may be referred to as “nonconforming loans.”
4. Government-Insured Mortgages
In addition to conventional loans, potential home buyers may read about certain mortgages indicated by acronyms like FHA, VA, or USDA. These loans are insured by various departments within the federal government. The Federal Housing Administration guarantees loans for borrowers with limited ability to access conventional lending options. The Department of Veterans Affairs insures loans for current or former members of the military, with low down payment choices as a benefit of a certain amount of military service. The United States Department of Agriculture provides a guarantee for lenders who offer up to 100 percent financing for people who want to buy a home in rural areas. These loans may carry requirements above and beyond that of conventional lending, so they may not always be the ideal choice.
Choosing a mortgage means that borrowers need to know what is available to them. By understanding the difference between these types of mortgages, people can determine which mortgage will be best for their financial plans.
There is a lot of confusion when it comes to capital gains on home sales. Part of this is because there are so many exclusions that some people believe that capital gains don’t even apply to home sales. Well, the truth is that they do apply, but there are a lot of conditions and potential exemptions surrounding them. To use the law to the fullest advantage, real estate sellers should have a better idea of what they’re up against.
The Progressive Scale
Capital gains refer to the amount of appreciation on an asset over time. In this case, assets can refer to anything from stocks to real estate. So if a buyer purchases a home for $150,000 and then sells it for $500,000, their capital gain would be $350,000 minus certain deductible expenses. These gains are taxed based on a seller’s yearly income (for simplicity’s sake, capital gains are added to the seller’s income.) For long-term capital gains, those making $37,950 and under are exempt from taxes. Those making between $37,951 and $418,400 pay 15%, and those making anything over $418,400 will pay 20%.
If a seller has made the home their primary residence for at least two years and sells the home within five years of the original date of purchase, they may be exempt from capital gains. Every owner of the home is allowed to exempt up to $250,000 worth of capital gains, whether the owners are married or not. The years of residence do not have to be consecutive, and the benefits can still be applied to rented homes so long as the criteria are still met. So if three friends are co-owners of a home, they can live in the home for the first six months, rent it for two years, and then move back in for 1.5 years before they sell. Professional home flippers should know that this benefit is not available to sellers more than once in two years.
Most home-related expenses are allowed to be deducted from the total net appreciation. This includes seller’s closing costs, real estate agent fees, and any potential renovations the seller did for the home. Sellers can even add on home sale costs from the original purchase of the home to close the gap even more. So if a buyer purchases a home for $100,000 and sells it for $200,000 10 years later, they’re able to limit the amount of taxes paid based on home renovation projects over ten years as well as real estate costs and fees.
If a seller is purchasing a new property that’s similar in price, they may also be able to forego capital gains. So for the buyer who buys at $100,000 and sells at $200,000 10 years later, they may be able to purchase another property for $200,000 without having to pay capital gains. This option will defer taxes as opposed to eliminating the need to pay them all together, but it may make purchasing a new property a little easier to bear. A 1031 exchange can be a complex transaction, so sellers are highly encouraged to talk to a tax professional for more information.
Capital gains for home sales may have a lot of conditions and exclusions, but they don’t necessarily have to be a disadvantage for home sellers everywhere. Whether the seller has owned the property for six months or 60 years, there are ways to work with the rules to achieve a successful home sale.
Staging is the act of making a property look move-in ready and appealing to home buyers. Staging is one part cleaning, one part decluttering, and one part decorating. Most homeowners stage in phases, beginning with decluttering and moving on to decorating.
Decluttering is usually the first part of staging because it’s so time-consuming. To start, go through every storage area of the house. Sort through boxes of old clothes, holiday decorations and old toys to remove those things you no longer need. Donate items to charity, recycle what can be recycled. and throw away the rest.
Remove stray papers, bills, and stacks of magazines from side tables, coffee tables and shelves. Clear kitchen items from the kitchen counters to showcase how much space your home has for food preparation. To make your home look more tidy, invest in home storage solutions like shelves and baskets where clutter can be stored.
Once the clutter has been removed from the closets, public areas and bedroom spaces in the home, then the house can be cleaned. A deep cleaning can help make the property look lighter, brighter, more cheerful and well-maintained. Clean everything from the curtains to the upholstery. Polish the silver, dust all surfaces, and clean all windows. Make your home shine!
After the cleaning and decluttering, it’s time to make improvements to the home decor. Cover bare walls with artwork, take down heavy drapes and add extra pillows to the couch or bed. Focus on improvements that bring together the decorating scheme in each room, and add things to the space that make it seem more comfortable and inviting.
For the finishing touch, set the table with a few wine glasses, place fresh flowers on the bathroom counter and play soft music in the background. Doing all of these things right before your home is shown to buyers can help make your house seem more luxurious and homey. Show buyers all the potential that your home has to offer.
How to Stage an Empty Home
Staging an empty home is a little different from staging a furnished home. Decluttering and cleaning is usually not a problem in an empty home. These tips will help you get started:
- Remove any stains on the carpet.
- Repaint or touch up the walls if necessary.
- Make any necessary repairs.
Once the basics above have been taken care of, add in a few pieces of attractive furniture to make the house seem more homey and inviting. Put a dining room table and chairs in the kitchen, a love seat and chairs in the living room, and a bed with nightstand in the master bedroom. These small details can help make your home look a comfortable place to settle down.
Contact Your Real Estate Agent
Many homeowners feel a little lost when they first begin staging their home to sell, which is why it helps to work with an experienced real estate agent. Your real estate agent can show you ways to make your home look tidier, more attractive and more appealing to home buyers. If you’re thinking about selling your home, contact a real estate professional in your area to get started.
When it comes time to sell a property, a home inspection is necessary, or is it? This is one additional expense that may be useful but in certain cases is not a mandatory aspect in purchasing a home. In fact, some individuals buying in competitive markets may want to forgo the home inspection process to get ahead of other bidders and close on a desirable property. There is much to learn about home inspections, starting from the basics and getting into a few secrets not often disclosed to potential homebuyers.
Learn more about home inspections and what to be aware of when and if deciding to schedule a home inspection on a property today.
More Common than Before
Compared to twenty years ago, more home sales are contingent on information provided from a home inspection. The inspection is an additional fee and is not generally seen as expensive, costing buyers around $450. However, some inspectors can be considered to be overzealous and create a list of minor problems that may overwhelm owners and buyers. Sellers and buyers want to know which items are most important to address and which issues may reduce home value or impair the structural integrity of a home.
An issue with some inspectors is that they create a list with more important items and those that are generally seen as more cosmetic and those reading the list may not know which concerns to prioritize and how much necessary repairs will cost. A professional inspection should cover the foundation, framing, roof, plumbing, wiring heating systems, water heater and fireplaces. Professional inspectors who include pictures of problems make it easier to understand the extent of a problem.
Home Inspections May Be Required
In certain instances a home inspection may be mandatory. Some banks and mortgage loan products may require borrowers to carry out a home inspection. Home inspections are generally useful as buyers and investors are making a significant purchase and some issues may be addressed by the seller or help to reduce the asking price of a home.
Speak with a bank or lender and be aware of their flexibility when it comes to home inspections. There are those who forgo certain contingencies, including a home inspection, in hot housing markets. Sellers looking to close quickly may choose those buyers who are willing to do without a home inspection.
A lack of national standards may make it possible for different home inspectors to have greatly varying levels of expertise. Approximately two-thirds of states have established laws helping to regulate home inspectors. This inconsistency may make it difficult to know whether or not a home inspector possesses the knowledge base necessary to provide sellers and buyers with relevant advice.
Home inspectors in New York are required to take a 140 hour course for pre-licensing. California home inspectors do not need to take classes or have a license. Find out more about regulations that may apply to home inspections in a specific state and speak with a trusted agents and friends to find out more about their experiences with local home inspectors in the area.
Learn More About Home Inspections
Buyers and sellers need to know more about the home inspection process and when skipping a home inspection may be in their interest. Talk with an experienced real estate agent to learn about general home inspection expectations and potential problems.