The Four C’s of Home Buying

Underwriting is when your lender analyzes the final mortgage application to make the decision to give you a loan or not. If the decision is made to go forward with the loan, conditions need to be made. This is a process that you have to go through even if you have been pre-approved for a mortgage. Lenders will consider four criteria, aka “the four c’s of home buying”: Credit, Capacity, Capital, and Collateral. All four of these areas must be satisfied for your application to be approved.

Credit: Possibly the most important factor of the 4 C’s. Your credit score taken from the credit report is the simplest measure of your credit strength. In determining an applicant’s credit score lenders will simply use the middle of the three credit scores reported by the three credit repositories (Transunion, Equifax, & Experian).

Credit scores are heavily influenced by your payment history over the preceding 24 months. Other factors may include the proportion of revolving debt relative to the high credit limits, the number of accounts, lack of credit depth, and many more.

Another factor that becomes part of your credit profile is your housing payment history over the preceding 12 months. This may be reflected in a previous mortgage on the credit report or by verifying rent payments if you don’t currently own a home.

Finally, bankruptcies, judgments, and foreclosures can all negatively impact your credit analysis. Just because you may have any negative marks on your credit report doesn’t mean you won’t get approved for a mortgage. It simply means that you will have to show other compensating factors and/ or may have to accept higher rates and terms.

Capacity: In addition to reviewing your credit, lenders want to analyze your ability to repay the mortgage over time. Capacity is the analysis of comparing a borrower’s income to their debt. The primary tool used for this analysis is a debt-to-income ratio. Simply put, the debt-to-income ratio is the sum of all monthly payment obligations you have (including the potential upcoming housing payment) divided by your gross monthly income.

Capital: Do you have a financial cushion to fall back on if your income is unexpectedly interrupted? Have you shown a pattern and habit of saving money over time? These are important questions to a lender and can be answered by reviewing your capital accounts.

Capital accounts are any account with liquid assets that a borrower could access if need be. The most common forms of capital accounts on a loan application are checking, savings, money market, brokerage, IRA, and 401K accounts.

Usually, the bank will want to verify that you have an amount equal to 2 months’ worth of your total housing payment (including real estate taxes and homeowner’s insurance) saved up in a capital account after they subtract any cash required for down payment & settlement charges. If the mortgage is going to be secured by an investment property or second home the bank may want to see more capital for the applicant.

Collateral: This refers to the property itself. Underwriters consider a home’s appraised value when deciding whether to approve a mortgage application. Property size, location, condition, and the value of nearby homes are just some of the things considered when a house is appraised. If you have passed the first three C’s with flying colors, unfortunately, if a home doesn’t appraise well the final loan may not be approved. This is because collateral ensures that the lender won’t lose their money if you default on the loan.

The Bottom Line: Private lenders may have different practices than traditional banks or other financial institutions. They could be more flexible and willing to consider other factors. You, as the borrower, should be prepared to demonstrate that you meet the criteria of the four C’s to increase your chances of getting loan approval. You should also talk openly and freely to the loan officer as they will be supporting you and want to build your file as favorably as possible.

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Short Sale, Foreclosure & Title

The most basic part of buying a new home is dealing with potential problems that may have been created by its previous owners. Short sales, foreclosures, bankruptcies, and financial situations have added another element to the entire closing process that makes title insurance essential.  The title to a house is the document that proves that a person owns it.  Without that proof, the house can’t be sold or bought.

Title First Agency experts oversee and perform thousands of closings each year nationwide and ensure that all of the details of the title transfer and closing are in proper order. Unfortunately, at this time there are plenty of situations that could cause problems with a title and complicate the process of buying the affected houses.  No matter why the house is being sold, its title problems must be cleaned up so they are not inherited by the buyer.

Short Sale: A short sale is when the lender agrees to let you sell your home for less than the outstanding mortgage debt. The proceeds from the sale pay off a portion of the mortgage balance and the lender releases the lien on the property. A title from a short sale is not always free and clear. A good Realtor will make sure to get a preliminary title search performed to determine the extent of outstanding legal obligations. If a home is bought without a clear title, the buyer could be responsible for the mechanic’s lien, which is a legal claim placed on a home to settle unpaid or partially paid contractor work,  any unsettled contractor liens, property-tax liens, IRS liens, homeowners’ association special assessment liens or even a second mortgage loan.

Foreclosure: Homeowners who can’t afford their home may decide to relinquish ownership and give the house to the bank that holds the mortgage. Mortgage foreclosures can cause a lot of issues with the chain of title. Sometimes, even though the owner loses their home, they may not actually lose the title to the property.  The property may have plenty of repair problems since financially distressed owners often let their properties fall into disrepair. From leaky basements, and unpaid taxes,  to bills from homeowners’ associations to quarreling lenders – it can take some time to sort out who is owed what, how they will be paid, and when the title will finally be cleared. All buyers of foreclosed property need to protect themselves by making sure the title search shows that any previous mortgage was satisfied, canceled, or otherwise released to avoid any future title problem.

The Bottom Line: There are dozens of potential barricades to clear the title.  Buying or selling a home has become a complex transaction and you need a trusted title search company to guide you through the process. The experts at Title First oversee and perform thousands of closings each year. When using Title First, you can sign confidently on the dotted line knowing that all details of your title transfer and closing are in proper order. We are here to answer any questions you may have about buying or selling a home, and our team will guide you through the entire process.

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How Old Is The Roof and Other Questions You Should Ask a Seller

Buying a home is about the largest single investment you’ll ever make, and you should spend a lot of time investigating the perfect house for your family. Once you buy the home, you can’t return it like a pair of shoes! Thus, be sure to get answers to questions that will give you peace of mind in your purchase. Your realtor should have the experience to navigate you through the due diligence.

Why is the house for sale: You may not get the real reason why. There are many reasons why people move, including job relocation, desire to get into a smaller/larger house, life events (marriage, the birth of a child, death of a spouse, or other reason), and retirement. But, if you can get an answer it might help in the negotiation of price. It might come in handy to have a local realtor on your team that knows how to find out this information.

How long has the home been on the market? If the house has been on the market for a long time, it might open up the opportunity to negotiate price and terms. Be aware that the home may have been relisted. Buyers tend to favor the newer listing, so some sellers relist to make the home look fresh on the market. Again, your realtor should know these very important details, and if not she will know how to find them.

How old is the roof?  A roof generally lasts between 15 and 50 years, depending on its materials. If you know how old the roof is, and what type is, you will better be able to determine how long it will last and calculate that into your offer price. Have your realtor request documentation regarding when the roof was last repaired or replaced and exactly what was done. If you buy a home with a roof that has been damaged or if an issue was neglected or at the end of its lifespan you could end up with a pretty expensive bill soon after you buy the house.

What was the previous selling price? If you know how much the seller paid for the home you will be able to see the value of the local market that the home is in – has it gone up or down? If they paid a lower price, they may be willing to negotiate. If they bought it close to what they are asking for, they most likely won’t budge. Furthermore, knowing the sales history can inform you of whether the property was transferred to a spouse or relative, if the home had been foreclosed on, and if the home was part of a short sale. Make the most rational decision by learning all that you can about the home.

Is there radon in the home? Radon is a colorless, odorless, radioactive gas that’s found in about 1 in every 15 homes.  Most Realtors will tell buyers to get a test done. If the home is found to have it, it will be safe to live in once the radon remediation occurs.

How is the school system? This really matters even if you don’t have children. The quality and rating of the school system affect the value of your home. The next buyers may have kids and you want to make a profit when the time comes to sell. Families will zero in on homes in the finest and strongest public school districts. Living among one will give you the advantage.

Has there ever been a pipe burst? A good inspector usually can tell if water damage has occurred, and any damage should be disclosed by the previous owner at the time of sale.  The big problem from water damage is moisture problems we are unable to see, behind drywall and trim which leads to mold. A mold remediation professional can tell you if mold is present and how to remove it.

Any signs of pests? Another disclosure should be made by the owners at the time of the sale. Even if they had a past infestation and dealt with it and can offer proof, such as a receipt for pest control it doesn’t mean the pests are gone for good. Whatever conditions made the home ripe for infestation- a slow leak under the house, rotting wood, or even a total neighborhood situation, get the answers with help from your Realtor.

There are many more investigative questions to ask and hopefully, you have the perfect Realtor that will do a search for all the answers to any questions you may have. Nothing is off limits – this is your investment.

  • Are there sex offenders in the neighborhood?
  • What is the slope of the driveway?
  • How old are the appliances?
  • How many offers have been made?
  • What type of foundation?
  • What is included in the sale?
  • Are there any neighborhood nuisances?
  • Any lead paint?

The Bottom Line: The realtor you choose to work with should provide you with any questions you need answered. There are so many decisions to make and it’s hard to know what you should be looking for. Be confident when you make the offer by knowing what exactly you are getting into.

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Don’t Get Stuck With A Bad Realtor

Great Realtors should be held to a higher standard with their daily responsibilities and their fiduciary duty to their clients. Buying and selling a home can be a long and complicated process and it’s important to find a good and loyal realtor. Unfortunately, there are plenty of “bad Realtors​”. What are a couple of signs that you have hired one? 

How Are Their Communication Skills?

Does your real estate agent return your calls, text messages, or e-mails in a timely manner? Time is of the essence in real estate, so if it takes your agent hours or days to get back to you, odds are you might miss that new listing, an important deadline when you’re under contract, or a potential buyer if you are selling your home. Things are moving fast in the real estate world and your realtor must be attentive. Any delayed response can mean the difference between closing or losing a deal on your dream house. 

While it’s true, your realtor can’t be on call 24 hours a day, 7 days a week, you should expect to hear back within an hour or so. Whether it’s by text, call, or email, they need to let you know they received your message and are working on the answer you want. 

Is Real Estate Their Side Hustle?

It’s probably not a good idea to hire a realtor that also has a separate full-time job. There is a lot that goes into finding the buyers a perfect house or getting a seller’s house sold. There simply isn’t enough time to provide the full service that a client deserves if the realtor is unavailable during prime-time hours. It’s safe to believe that if the agent is doing this on the side, it’s not as important to them as it would be to someone who counts on the commission to feed their family.

Good Marketing Ideas?

You want a realtor with a marketing plan to sell your house. One that understands the importance of a web presence, one that will give your home the maximum exposure it needs to sell, and will have an appealing social media presence on all the important platforms. There should be high-definition, professional photos, and videos in the marketing plan. A solid staging strategy should be understood to make the greatest impact in photos as well as when the home is shown in person. In today’s market, it’s critical to have a realtor on your team willing to go the extra mile to sell your home.

Do You Feel Pressured?

Realtors can be the best person on your team, offering you support and keeping you in the know but they can also be pushy and try to pressure you to buy or sell. Your realtor is representing you and needs to be knowledgeable and ready to deal with negotiations. Don’t let him show you homes outside your budget and make sure to get any facts used in negotiating. Never be pressured into making an offer or accepting an offer before you are comfortable doing so. It’s your money.

The Bottom Line: Hiring the wrong realtor can make buying and selling a home more complicated and stressful than it must be. Successful agents are those who are passionate and enjoy what they do for a living. They have a deep passion for serving and helping people by showing them properties within their budget. When it comes to unearthing an unacceptable realtor, there are many ways to dig around before hiring them. Do your research!

Check their online presence (website, social media platforms) and ask for recommendations. Who you choose to work with is essential to the success of your house hunting & selling, so having the right realtor by your side can make a huge difference.

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Should You Buy “As-Is”?

While searching for a home, you might see a home that is listed “as-is” that happens to be in the exact location in which you are looking but with a lower price tag. It can be tempting, should you consider it?

Often sellers will list their home for sale as-is when they don’t want to do any repairs before closing. This means there are no guarantees from the seller that everything’s in working condition. Purchasing a home “as-is” makes you vulnerable and could find major problems down the road that you will be responsible for the repairs.

However, “as-is” does not always mean there are issues broken beyond repair. Often there are simply minor and even no issues. It means you are buying the home in whatever condition it is currently in. You can have an inspection done but the sellers don’t have to repair an issue. Having a professional inspect the home before the purchase is important. While you would have to pay for the inspection yourself, it is a small investment to make that can help you avoid thousands of dollars in repairs down the road.

A home that is being sold “as is” is most likely priced lower than its neighbors does not mean you would be getting the home for a bargain. If there are repairs to be made, there will be a cost. Many buyers like these types of homes because there is a good chance there are just relatively minor repairs to be made – such as a new roof – and the home is worth more than they paid for it. Of course, if the inspection comes back and there is something huge, like a foundation issue, the deal might be better to avoid.

Getting a loan for a home sold “as-is” is much more difficult and complicated than getting a loan for a home that has gone through the traditional processes. Banks use homes as collateral and any home in poor condition can be grounds for a loan being rejected. Buyers would have to come up with the money on their own. If you are a first-time home buyer, purchasing a home “as-is” might not be the best direction.

Hiring the best Realtor to help you navigate the process of buying this type of home will be your best decision. It helps to have someone on your side that can provide good advice and help to know when to back out of a deal if they are sure you will lose a lot of money in the long run. Another bonus of having a Realtor is that they can help with the process of securing a loan as well as figuring out an estimate of the budget you will need for any repairs.

The Bottom Line: There are plenty of homes on the market listed “as-is” that discourage many buyers. Of course, you should be cautious, but “as-is” does not always mean that the house is a money pit. Sometimes the seller can’t vouch for any repair work that has been done – thus an inspection can help and a decision can be made accordingly. Or, the home could have been inherited and the seller is not aware of the issues and does not want the responsibility of fixing any problems. Whatever the reason, it’s in the buyer’s best interest to get all the information about the house before an offer is made.

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