Mortgage or Marriage Certificate

No, this in not one of those chicken or the egg conversations.  I want to touch on the practical side for those Edmond, Oklahoma friends and neighbors deciding whether or not to purchase a home with their partner before getting married.  Here are three factors to consider when contemplating taking out a mortgage before turning your significant other into your wife or husband.

  1. Mortgage approval.  Banks prefer to see two supporting incomes during the mortgage approval process, even if the couple applying together are not (yet) married; more income equals better ability to repay.  However, if one of the two applicants has a poor credit score their inclusion on the mortgage application can actually hurt your chances for securing financing.  In that case you might consider having the applicant with the superior credit rating apply alone.  Of course that leaves you with only one qualifying income to support your application, translating to an approval for a smaller loan amount.  Hmm…Much to consider.
  2. Down payment.  Are you both able to equally contribute to the down payment on the home purchase?  If not, why not take the practical step of including how much each of you do contribute in the mortgage paperwork just on the chance that the relationship dissolves before anyone ever walks down the aisle.  This way everyone protects their equity, and you both can move forward confidently purchasing a home before signing a marriage certificate.
  3. Title.  How will you, as an unmarried couple take title to the property?  Divorce, and the subsequent division of property can become a very messy ordeal.  Breaking up, for unwed couples who own property together can be just as trying because the individuals are not afforded the same legal protections as married couples.  If you’re considering buying a home before marriage write up a legal contract spelling out who is responsible in the event of a break for ongoing issues like the mortgage, taxes, maintenance costs, capital gains, and more.

Seller’s Closing Costs

Thinking about selling your Edmond, Oklahoma home this coming year?  Part of the successful transfer of Real Estate from the seller of a home to the buyer is avoiding surprises.  Surprises in Real Estate, especially on the day of closing generally translate to money coming out of someone’s pocket.  The best way to ensure you’re walking away from the closing table with what you expected to see on the bottom line of your settlement statement is to work with a quality Realtor who can help you accurately estimate the true costs of selling your home.  Here are some of the expenses involved for the seller to successfully get to the closing table:

  1. Loan payoff costs.  This is the fee involved in paying off, and closing your existing mortgage with your current lender and can include pre-payment penalty fees
  2. Real Estate commissions.  Generally the home seller pays commissions to both the listing Realtor (your Realtor) and the selling Realtor (buyer’s agent’s Realtor)
  3. Transfer taxes
  4. Title Insurance
  5. Notary
  6. Attorney fees if attorneys are used in the transaction

Buyer’s Closing Costs

The price of a new Edmond, Oklahoma home is more than just the sum of the size of your down payment and the mortgage you obtain for the purchase.  There are many other costs involved you should be aware of ahead of making an offer on a home.  Some can be paid with the mortgage proceeds at the closing table.  These generally are related to the paperwork end of the purchase, like loan application fees, etc.  Some costs relate more to the actual home, like inspections.  All of these costs affect your bottom line and need to be budgeted for so you’re not left scraping for extra funds at the last minute.  Here we go:

  1. Fees associated with obtaining the mortgage
  2. Home inspection costs
  3. Homeowner’s insurance
  4. Title insurance
  5. Title settlement fee
  6. Property taxes
  7. Transfer taxes (which may be shared with the sellers)

Closing costs generally range between 2 – 7% of the sales price of the home, and lenders are required to give you a good faith estimate shortly after you make application for the mortgage.

Budgeting for Unexpected Home Repairs

Not all home improvements are as exciting as taking a dreary Edmond, Oklahoma basement and finishing it to include a fifth bedroom, home theater, game room, and personal pottery studio.  Some improvements can be categorized more under unplanned repairs (and unplanned expenses) necessary to bring a home back to normal, everyday working condition.  We’re talking replacing a dead furnace, re-roofing cracked and warped shingles, or replacing a dishwasher.

How do you plan for the unexpected repair expense?  One way is the 1% rule, that is to say, plan on 1% of the value of your home in repair costs annually.  This way, whether you set aside some money every month, or every paycheck you’ll have the funds available when costly maintenance issues arise.

An alternate method for budgeting for the unexpected is using the $1 per square foot rule.  With this method you simply take the total number of square feet in your home and put a dollar sign in front of it to estimate how much your annual maintenance expenses may be.

It’s important to keep in mind most household appliances last 10 – 15 years before needing to be replaced.  So if you bought your home with all brand new appliances, and you’re nearing your 10 year anniversary, you may want to start budgeting for a new dishwasher, stove, water heater, fridge…

5 From Buffet

Billionaire investor Warren Buffet, chairman of Berkshire Hathaway, has made his fortune investing in the stock market.  Needless to say, the man who is the best in the business at putting money to work has shed some light over the years on Real Estate as an investment, and it’s useful advice for all our Edmond and Greater Oklahoma City area friends and neighbors.  Here are a few points gleaned from an article on Mr. Buffet featured on DailyFinance.com by Tara-Nicholle Nelson.

  1. “Homes increase in value over time” as a basic premise is sound.  Mr. Buffet says the housing bubble and crash was caused by investors who saw Real Estate as an investment that would only appreciate.  Thus prices became artificially inflated, and banks handed out hollow mortgages based on sketchy qualification practices…then the crash.  Mr. Buffet goes on to say home prices will go up and down like any investment, AND will trend upward over time because the dollar becomes worth less.
  2. Buy low.  We’ve heard this one before, but here’s the kicker—
  3. Don’t wait too long to buy.  At historically low interest rates, and equally low sales prices, Real Estate is still a great investment.  And as the country continues to recover home prices and interest rates are finally inching up.  If you wait you’ll pay more.
  4. The smart way to purchase a home is using a fixed mortgage, with affordable payments, where you hold onto the property for the long hall.  Side note: Mr. Buffet has lived in the same Nebraska home for what we would all consider the long haul.  It has five bedrooms and he bought it 52 years ago for $31,500.
  5. The social goal of America should not be to put everyone in their dream home.  It should be to put everyone in an affordable home.

The Costly Free Credit Report

14.00

Normal
0

false
false
false

EN-US
X-NONE
X-NONE

/* Style Definitions */
table.MsoNormalTable
{mso-style-name:”Table Normal”;
mso-tstyle-rowband-size:0;
mso-tstyle-colband-size:0;
mso-style-noshow:yes;
mso-style-priority:99;
mso-style-parent:”";
mso-padding-alt:0in 5.4pt 0in 5.4pt;
mso-para-margin:0in;
mso-para-margin-bottom:.0001pt;
mso-pagination:widow-orphan;
font-size:12.0pt;
font-family:”Times New Roman”,”serif”;}

All of our Edmond, Oklahoma and Greater Oklahoma City friends, family and neighbors have seen the commercials for freecreditreport.com.  I’m here to tell you it’s not free.  This service offers you a free report with little information and tries to sell you on a trial membership that quickly converts into a monthly payment of about $20 for something you do not need.  To get that report you have to sign up by creating an account, paying a fee, and if you read the fine print you’ll learn you will accrue additional charges (to of all places, your credit card) if you neglect to cancel your membership within a few days of opening the account.

Never fear.  You do have the right to see your credit report at no charge, every year, from each of the three credit reporting agencies without going through one of these bogus services that want you to believe they’re doing you a favor by charging you for something that already rightfully belongs to you.  The problem is if you go directly to the Experian, Transunion, or Equifax websites they will try to sell you a very similar trial membership that operates much like freecreditreport.com’s program.

Here’s how you get your truly free report, no charge, no membership, no gimmicks:  Go to annualcreditreport.com and look for the “Start Here” box.  The rest, as they say, is up to you.

Beyond the Deposit

If you’re a first time home buyer, just because you’re pre-approved for a mortgage and you have enough money saved to meet the down payment the loan officer quoted you, don’t be fooled into thinking that’s all you need to be able to afford that new Edmond, Oklahoma or Greater Oklahoma City dream home.  There are many other costs involved in purchasing a home – some hidden, some obvious – that all need to be accounted for when budgeting for your big move.

Deposit:  Also referred to as earnest money deposit.  Each local market has its own custom.  As the deposit is submitted with your offer to purchase, the larger the deposit the stronger your offer is generally received by the seller.  Consult with your Realtor.

Down payment:  Depending on the loan product you go with you’ll need 3.5% of the purchase price for a down payment with an FHA loan up to as much as 20% with some conventional loans.

Appraisal:  Whether your appraisal is paid for up front or out of closing costs you can expect to pay $400 or more for an expense your mortgage lender will require.

Inspections:  A home inspection goes upwards of $350, and if you are in a location with common pest problems, or are on a well you may have those additional inspections expenses as well.

Fees and title insurance:  These are two of those often overlooked expenses, mostly since people frequently pay less attention to them because they’re perceived more as numbers on closing documents and less like cold hard cash.  The truth is you are still paying for these, albeit over the course of the loan, and that means additional interest paid too.

Cash reserves:  Any new home will have ongoing upkeep and maintenance expenses associated with it, less so for new construction, more so for older existing homes.  Also, as a first time home buyer you may never have had the need to purchase a lawn mower, snow shovels, sprinkler or water hose.  What other items will you need now that you’ve graduated from renter to homeowner?