Month: January 2015

What Buyers Need to Know About VA Appraisals

VA appraisals are a critical part of the 70-year-old VA loans benefit program. It’s also one of the most misunderstood.

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VA appraisals help ensure veterans purchase homes that are safe, structurally sound and salable. There are two elements: a valuation of the property and an assessment of property conditions.

We’ll take a closer look at each part of this mandatory stage in the VA buying process.

Valuation

Once you’re under contract on a home, your lender will order an appraisal. The VA utilizes a network of independent appraisers. This professional will look at recent comparable home sales, or comps, to help come up with a fair market value for the property.

Lenders will typically need at least one good comp in order to move forward. Unique homes and properties with a lot of acreage or income-producing attributes can all prove problematic—although much depends on the lender’s requirements.

The appraiser submits the comps, supporting documents and valuation. A lender’s staff appraisal reviewer combs over the appraisal and issues a formal Notice of Value for the property.

Buyers need the appraisal to come in at or above what they’ve offered to pay. A lender is going to lend whichever is less between the purchase price and the appraised value. If you get under contract for $300,000 and the home is only worth $250,000, you’ll need to renegotiate with the seller, make up the difference in cash or walk away from the deal.

The VA has a formal appeal process for appraisal values. Lenders can help you and your real estate agent navigate the process. Good recent comparable sales that weren’t used by the appraiser will be key.

Minimum Property Requirements

The appraiser will also see how the home matches up with VA’s broad property conditions. This isn’t the same thing as a home inspection, which is more granular (and not mandatory). But a home inspection is always a good idea.

The VA’s Minimum Property Requirements (MPRs) are mostly high-level concerns, like ensuring there’s suitable heating, safe water and a suitable roof. Requirements can vary based on geography and other factors.

Some states will always require a termite inspection, for example, while others won’t unless the appraiser notes a potential problem.

There’s a widespread misconception that sellers have to pay for repairs if problems arise. In fact, VA buyers can foot the bill in order to get a home on the right side of the MPRs.

It’s often more a question of whether that’s a smart financial investment.

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Resolve to Buy a Home With These 10 Must-Do Steps

If you think the new year is going to be the year to put your rental days in your rear-view mirror and move into a home of your own, it’s time to start preparing.

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Even if you won’t be ready to buy for six more months or even a year, here are 10 straightforward steps to take right now. Crossing these items off your list will make it easier for you to find and finance the home of your dreams.

1. Check your credit

Go to annualcreditreport.com and request free credit reports from all three credit reporting bureaus: TransUnion, Equifax and Experian. For a small fee, you can also get your credit score.

First up, check the reports thoroughly for any errors that need correcting and any negative information.

These reports should also indicate what you can do to improve your credit. A higher credit score makes it easier to qualify for the lowest interest rates, which in turn make your purchase more affordable.

2. Start saving

One trick is to save the difference between your rent and what you estimate your mortgage payment will be—or more. You’ll need cash reserves to buy a home, and you’ll need to prove to a lender that you can afford housing payments that may be higher than what you’re currently paying in rent.

3. Earn extra cash

If you’re low on cash, as most first-time buyers are, consider taking drastic steps to cut spending. Or try out some ways to increase your income, such as selling some of your stuff or taking a part-time job.

4. Start looking at neighborhoods

Unless you already know where you want to live, take the time to visit a variety of potential neighborhoods. You’ll want to scout out ‘hoods that meet your needs in terms of transportation options and other amenities. Exploring different locations will help you narrow your priorities.

5. Consult a lender

The sooner you visit a lender, the quicker you’ll know what you can afford and the steps you need to take to improve your credit or generate more income.

6. Investigate down payment assistance programs

Visit Down Payment Resource to learn about programs in your area that may help you find down payment money or a low-interest loan.

7. Attend a seminar or take classes on buying a home

Lenders and agents often offer free seminars that explain the home-buying process.

Many local government and nonprofit agencies also offer classes that can help you prepare for the financial responsibility of owning a home.

8. Decide how much you want to spend

A lender can give you an idea of how much you can borrow, but you have to create a personal budget to decide how much you will be comfortable spending on your mortgage payment.

9. Visit open houses

Try to avoid walking through homes you simply can’t afford—you don’t want to fall in love with something and then be dissatisfied with all other options.

Going to open houses early in your search will let you see what’s available in your area that might fit your budget. You can then begin to see what matters most in your decision: the location, room to entertain or outdoor space.

10. Interview REALTORS®

At each open house you’ll meet a REALTOR® who represents the seller of the home. As long as you don’t plan to make an offer on that particular home, there’s nothing wrong with striking up a conversation with the REALTOR® regarding your plans for buying a home. It’s a good idea to talk with and interview multiple REALTORS® to find one you can trust to have your best interests in mind.

Should You Become a Landlord as a First-Time Home Buyer?

For most people, the goal of being a first-time home buyer is enough. For others, it isn’t—they want to be first-time landlords, too. And while it may be challenging to get your first rental property as a first-time home buyer, it’s possible. You just need to consider some important factors.

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The investment property option

For first-time home buyers looking simply for an investment property, it’s possible—but it can be expensive.

If you’re not going to live in the property, you will need to take out a mortgage for an investment property. These mortgages typically have higher rates and higher credit score requirements than traditional, owner-occupied mortgages. Down payments can also be higher.

“Investment properties usually have 10% to 30% down [payments], depending on the type of program,” said Linda Rheinberger, a regional vice president of the National Association of Realtors.

These costs for an investment property are often a deterrent to many first-time home buyers, Rheinberger says. But if you live on the property, you can get better rates.

The owner-occupied, FHA option

For example, Federal Housing Administration (FHA) loans are available for a property with up to four units if it is owner-occupied. That means an eligible borrower can get FHA’s low 3.5% down payment on a property with up to four units.

Keep in mind that if you want a property with more than two units—meaning a three- to four-unit property—you will also need three months’ worth of mortgage payments as a cash reserve to qualify.

Conventional FHA loan limits for standard (not high-cost) areas are as follows:

-Two units: $533,850
-Three units: $645,300
-Four units: $801,950
Landlordin’ ain’t easy

Being a landlord can get complicated, especially for buyers who have never owned a property before.

Rheinberger says people need to consider the many facets of being a landlord, like providing unforeseen upgrades and dealing with tenants who destroy property or have too many pets.

There’s also the legal side of things. Buyers have to understand local laws, especially when it comes to evicting tenants or collecting rent.

“What if someone fails to pay rent? Or if you have to use the legal process in a situation where the person hasn’t made a payment in three months but they live in an area where it takes 90 days to get them out,” Rheinberger said.

It can be especially difficult if a buyer doesn’t live in the area or if there are problems with multiple units.

Keeping it simple

That’s why the owner-occupied option may be the better route to go for would-be landlords, especially for properties with just one additional unit, such as a duplex. The learning curve for being a landlord might not be as steep as managing a cluster of apartments.

Buying a duplex can be “a good way for people to get started on investment properties,” said Sheryl Grider Whitehurst, also a regional vice president at NAR as well as a managing broker at Traders Realty in Peoria, IL.

Whitehurst said her first property was a duplex and she rented out the other unit. “The other unit totally paid for the mortgage payment,” she said.

When it was time to move on to another home, she kept the duplex as a straight rental property.

Of course, the application isn’t simple. Whitehurst said buyers should ask themselves, “What are my risks? What type of loan is it? Is it a balloon? If some [units] are vacant, can I still pay the mortgage?” Buyers should also keep up cash reserves that they’re comfortable with, she added.

“It’s not get-rich quick,” Whitehurst said. “It’s long-term.”