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Mortgage Blog

Should we wait and save 20% Down to Buy a Home in Pa


Down payments are commonly cited as one of the most misunderstood parts of the home-buying process, as potential homebuyers hold off shopping until they can put 20% down on a home.

HousingWire has covered the misconceptions in-depth, such as this article on 5 common down payment misconceptions.

But if reading about down payment myths isn’t enough, mortgage insurer MGIC created a calculator for home shoppers to see if they should buy now or wait.

MGIC designed the calculator to help mathematically show that waiting to save for a 20% down payment will likely cost prospective homebuyers.

“As mortgage professionals, we must help counter this misinformed idea. Let consumers know – especially those looking to buy their first home – that waiting to save up 20% is not the only option, and they may be better off buying a home today with a smaller down payment rather than waiting,” MGIC stated in a blog on the new calculator.

This example from MGIC helps break down the math:

Let’s assume someone is saving for a 20% down payment on a $200,000 home. She has saved $10,000 of the $40,000 she needs for a 20% down payment and can add $500 to savings each month – $6,000 a year.

Our calculator will help her see she could buy a home with as little as 3% down, and the cost if she were to purchase today with 5% down (the amount she has available today).

It also shows that if home prices appreciate at 3% annually (the user can adjust that value), her future 20% down payment will need to be $48,552 and take her more than 6 years to save.

During that time, she will have paid more than $80,000 in rent while her home equity position would be more than $72,000 had she bought 6 years ago.

The blog did caution that it is not trying to encourage prospective borrowers to buy homes before they are ready.

However, even these low down payment mortgages have misconceptions around them. For added research, check out these 6 myths about Freddie Mac's 3% down mortgage. 

Source: MGIC

Want to learn how to buy a home with 1% downpayment?


Posted by Jill Kohler on April 7th, 2017 7:17 PM

TopTips for Pa first time home buyers

 

Hire a Pa licensed buyer’s agent to save you time and money

If you are considering buying a home, hire a buyer’s agent.  A licensed agent will save you time in finding the perfect home that meets your needs.  They can send you listings to view the details and photos before actually setting foot out the door.  Also, agents often know of new listings that aren’t on the market yet.  Besides, the seller is the one that will end up paying the commission, so take advantage of having professional representation on your side, it doesn’t cost you anything.

 

Set up the mortgage financing for your new Pa home purchase first

Think about getting the Pa mortgage loan approved before buying a home.  It is smarter to go house shopping with a mortgage preapproval letter in your hand.  When that day comes along that you want to make an offer, it will make your offer a lot stronger when the seller doesn’t have to worry so much as to you having to get mortgage financing.

 

Negotiate a successful deal that benefits both parties

Make sure your Pa buyer’s agent gives you a list of comparable sales in the area.  This will help you determine how much to bid on the home.  The last 3 months sales are a good gauge for you to determine what to bid.  Remember there are always more details to the offer than just the price. Examples are:  how soon you want to move, having a pre-approval, seller’s assist, and the items you want them to leave in the house. There are many details so be sure so sit back and think of the things that are important to you. This is also where your buyers agent can be invaluable as they’ve structured many deals.

 

Make home inspections part of the plan

You may want to make your offer contingent on the home inspection.  If you find out the home has foundation issues, you may decide against buying it.  Having a home inspection will let you know exactly what you are getting into.  Some people hate to spend another $300-$500 on the inspection, but it does give you the opportunity to address with the seller the problems of the home.  Also, it lets you negotiate the items you would like them to address. 

 

Remember buying a home is a step by step journey. There is no easy way there.  There are many hurdles to jump over to end up living in your dream home, but if you take them one step at a time, you’ll be well on your way to home ownership.

 

Source:  Http://www.PaRealEstateForSale.com

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Posted by Michael and Jill Kohler on July 28th, 2015 8:09 AM

More Pa parents helping kids buy homes than ever

Although Pa mortgage rates remain at low levels, many would be Pa first time home buyers just out of college lack the substantial down payment needed to purchase their first home. Think about it.  In order to put down the standard 20% on their first time home purchase of a $200,000 home.  That's $40,000! A substantial sum by anyone's standards. Add some closing costs, title insurance, an appraisal and a few standard home inspections and now we're talking about close to $50,000!

So who are they turning to?  Bank of Mom and Dad, of course! 

The average 23 year old student coming out of a 4 year college (if they are lucky enough to finish in 4 years)  just spent approximately $15,000 or more to go to a state school per year. That's $60,000 over 4 years.  Most of it likely financed through Stafford Loans or other Fafsa options. So you're coming out of college with a degree (which is great)  but maybe in debt for maybe $40,000 or more of loan payments which might kick in within the next couple of years. 

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If the student gets a $50,000 job within 6-12 months of graduating from college, their cash flow is $4000 a month or so. Quickly they move out of their parents house and begin renting (anywhere monthly from $500 on the dirt cheap side) up to $1200 a month or more for a small single family home or quite a bit more for an upscale condo.  Of course, living expenses now kick in. Heat, electric,oil, gas, food, hot water, cable, cell phone bill, new car payment, insurance, gas, taxes etc for starters, and that's not counting those school loan payments which are now due! Start adding and you can easily see how difficult it can be for a young adult to save up a substantial down payment to buy their first home. 

Enter Mom and Dad. Late 40's to mid 50's. Bought their home years ago. Maybe were lucky enough to pay it off by now, but not most people. They may have some retirement savings in a 401k and/or some equity in their home, and maybe some savings in the bank.  One way or another, many parents are in a position to help their children.

One way is through a limited 3.5% down payment FHA loan.  Mom and Dad may not have $50,000 to part with, but they may have $10,000 and that may be enough. If junior has a few thousand or more saved to buy some furnishings, etc. Mom and Dad can gift their child the down payment money and it most likely will qualify as an acceptable source of downpayment.  Sure, they'll be paying some FHA mortgage insurance on the loan, and no, it's not cheap!  But they get the house...

....and this is how we are seeing more and more young adults accomplish the dream of becoming a First Time Home Buyer today. 

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Posted by Michael and Jill Kohler on July 22nd, 2015 7:24 AM
Pa First Time Home Buyers Mortgage

Shopping for your first home can be a daunting process. One of the first things you'll want to tackle is getting prequalified for a mortgage before beginning the house hunting process. A Net Equity Financial Mortgage professional can quickly help you determine what you can afford, how much of a downpayment you'll need and many other suggestions to make your mortgage process go smoothly. For more information, click this link at http://www.NetEquityLoans.com or call us at 215-741-3131 for a Free no obligation consultation.

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Posted by Michael and Jill Kohler on May 1st, 2015 7:55 AM

MortgageNewsWire

After the downturn in the housing market several years ago, a lot of homeowners struggled to make their mortgage payments. Many eventually lost their home to foreclosure, walked away or were forced short sell their house for a loss.  None of these occurrences left their finances or credit in a position to purchase another home so they became renters.  Fast forward 4 or 5 years later to today. The economy is in a better place. The real estate market is in a rebound and many of those people have become gainfully employed again. Despite those past setbacks, the majority of them are hoping to again one day buy another home of their own. Is this just wishful thinking?  Perhaps not….

Mike and Jill Kohler, owners of Net Equity Financial, a mortgage and real estate services company in Middletown think it’s not only possible, but likely for many.  “There is a good segment of the population that are a lot closer than they think to owning a home again.  The first step is overcoming the financing challenge” says Mike Kohler. “If you have been renting and are able to document your rent terms with your landlord for the last 12 months, that will go a long way toward your goal. There is always a supply of nice homes on the market, but the overall goal is to help you find a home that you like, can comfortably afford, and get the financing you need to own instead of rent.”  One of the biggest benefits that Net Equity offers their clients is the ability to shop mortgage loans at a lot of wholesale lenders with only one application. “We deal with 40 to 50 different banks, FHA, Freddie Mac, credit unions, and wholesale lenders at any given time. Although a lot of lending today is computerized and straightforward, the value is in knowing where to go with what type of loan. I may be working with a marginally qualified client that I know can afford the house who will get turned down by 35 of those lenders, but it’s having the right funding source to match the type of borrower that matters.” says Jill,  And when that happens, It results in a great deal of happiness for our clients as they become homeowners again.

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Many first time home buyers also fall into a similar challenging category that Net Equity Financial also service. It’s the classic which came first, the chicken or the egg.  “Ok, I’ve graduated from college, finally found a decent job with some long term prospects at a company I’ve been at a little while. and I’ve been able to bank a few bucks.  I know I want to buy a house rather than keep paying rent but am I really going to qualify for a mortgage??  Net Equity’s answer. “You just might. But more importantly, the goal is to make sure you can truly afford the home so you don’t become part of a future statistic.”  The Kohlers mention they’ve had clients who from their initial contact have been approved, found a house they love and settled within 30-40 days. 

 

Net Equity Financial is a mortgage company located 2267 Langhorne-Yardley Rd in Middletown, Pa.  They are also affiliated with Century 21 Chapman Agency Real Estate also of Middletown. Their websites are www.NetEquityLoans.com and www.PaRealEstateForSale.com. Office number is 215-741-3131.  They are licensed by the Pa Dept of Banking NMLS #144477 and licensed Realtors by the Pa Real Estate Commission.

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Posted by Michael and Jill Kohler on February 17th, 2014 11:32 AM

1. Easier to get a purchase mortgage in 2014

FHA mortgages with low money down will be a key driver for the first time home buyer.  They will be easier to obtain to offset a decline in refinancing.

Higher mortgage rates and higher prices in 2014

Buying will remain cheaper than renting. (til rates hit above 5.25%)

2.  Real Estate Market less frenzy

More listings equals inventory in 2014 which is great for buyers. Also fewer investors since prices have risen higher.

A fed cut on bond buying will make rates rise. (when economy strengthens)

3.  Repeat buyers take center stage

Three types of buyers

  1. Investors
  2. First Time Home Buyer’s (saving for downpayment)
  3. Repeat buyers (many who are selling then buying)

To prequalify for a mortgage loan, 

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source: Trulia

Posted by Michael and Jill Kohler on February 13th, 2014 3:00 PM

Today January 1st, 2014 we usher in a brand new year along with some new predictions for the 2014 housing market.

1) Higher mortgage rates when the fed curtails bond buying and slightly higher real estate prices in 2014 means that Affordability may get worse.

2) Market less frenzy. More inventory in 2014 will mean more listings for buyers to choose from. Fewer investors since prices higher. It may become slightly easier to get a purchase mortgage due to the anticipated decline in refi’s at higher rates. "Qualified" mortgages are good news for buyers, add’l inventory, easier mortgage, but affordability issues.

3) Repeat buyers will begin to drive the market.  With prices now higher. That makes a great time for older homeowners to sell and cash out of their current home, and either upsize to the bigger one for their now expanded family, OR downsize to a smaller, more manageable home to retire in.

4) Single family rental homes will stay affordable until 30 year interest rates reach the mid 5's, which may still be a ways off yet.

5) Price growth will slow from the pace of the last couple of years.

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Posted by Michael and Jill Kohler on January 1st, 2014 6:29 AM
WASHINGTON (MarketWatch) - Americans looking to buy newly built homes evidently brushed off concerns about the government shutdown in October, pushing up sales to their highest level in fourth months on the lure of lower prices. New U.S. homes sold at an annual rate of 444,000 in October, up 25.4% from 354,000 in September, the government said Wednesday. Economists polled by MarketWatch forecast sales to total a seasonally adjusted 419,000 in October. The collection of sales data for both months was delayed by the federal shutdown, prompting the government to release the information on the same day. Demand in October was strong across the country, with double-digit percent gains in all four major regions. Part of what drove sales was a decline in prices and more demand for lower-prices homes, a trend that typically emerges in the colder months. The median price of new homes fell 4.5% on a monthly basis, and dropped 0.6% year-on-year, to $245,800 in October. That's the lowest level since November 2012. The supply of new homes on the U.S. market, meanwhile, sank to 4.9 months in October at the current sales pace from 6.4 months in September. New home sales are 21.6% higher compared to one year ago.

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Posted by Michael and Jill Kohler on December 16th, 2013 11:41 AM
May all the good things in life be yours in abundance throughout the coming year. We hope you and your family have a Happy Thanksgiving!

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Posted by Michael and Jill Kohler on November 26th, 2013 12:15 PM

The interest rate for an ARM is a fixed percentage for an initial period of time, usually 5 to 7 years. Then it adjusts depending on an economic index such as the Prime Rate or Treasury securities. Usually the initial interest rate on an ARM is lower than a comparable fixed rate mortgage.

Despite many advantages of ARMS, they are fairly unpopular today. Only 2.3 percent of mortgages closed in February were adjustable rate mortgages. Fixed rates are simply less risky. Borrowers pay an interest rate set by the lender for the life of the loan. Borrowers today want to lock in those low interest rates for many years to come, which is another reason for the very low percentage of ARM loans and high percentage of fixed rate loans.


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Posted by Michael and Jill Kohler on April 22nd, 2013 9:31 PM

Saving for a down payment might be tougher than it has ever been. After the housing crash a few years back, many conventional lenders increased their down payment requirements to 20%. Today the average down payment if 9%, as compared to 2004 when the average down payment was only 3% of the purchase and 42% of all buyers financed the entire purchase price putting no money down.

There are 3 reasons that it might be worth your while to save a little more for your down payment.

1) A lower rate of interest. With a lower dti, you’ll get a lower interest rate.

2) You’ll be protected if your appraisal is low.

3) You will pay less in the long run, having a lower principal balance, means you’ll pay back less interest over the years.


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Posted by Michael and Jill Kohler on April 4th, 2013 6:21 PM

It’s been about 8 years since inventories oh home sales have been so low. A six month supply of homes for sale is considered normal, however we are at a 4.2 month supply right now.

For the past 6 years home buyers have enjoyed a wide selection in most markets with competitive prices and exceptional interest rates. Perhaps the most surprising is the inventory drought. Now that the environment has changed, here are a few strategies to employ:

1) Get preapproved, sellers are impressed when you qualify for a more than the list price even though you don’t want to go that high

2) Don’t compromised, be flexible but figure out what you can and can’t live without

3) Keep looking, there are properties listed all year round, give yourself more time to shop

4) Expand your hunting ground, the wider your search, the more opportunities you will have

5) Go to open houses, they are networking opportunities, sometimes you can get a lead on a home before it’s listed

6) Look beyond the online listing, photos and copy may not to the listing justice

7) Place a winning bid, more than just money are the other options sellers are looking for, a rent back, quick closing, etc.

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Posted by Michael and Jill Kohler on March 28th, 2013 12:10 PM

Some of the pros in purchasing a condo are the maintenance issues. If you hate mowing the lawn or fixing things, you’ll find that if you purchase a condo a lot of the maintenance is done for you.

There are also features such as swimming pools, tennis courts, gyms, etc. that also have valued added to purchasing a condo.

Typically the cost of a new condo may be a fraction of the cost of a new single-family home.

There are also many rules and regulations for condos, that some would see as benefits, gated communities, identification required upon arrival. These are all safety issues that may be a huge benefit to you.

Some of the cons are limited ownership. If you wanted to have a lot of land or a swing set in the backyard, a condo may not be for you. You don’t have the freedom to put up your own outdoor decorations in your yard as if you owned a house. Noise can also be a real negative. Sine your unit is more than likely connected to another unit you may hear noise like music from then neighbors.

Homeowners association fees can be listed as a pro or con, depending on which way you see them. They pay for those maintenance items above that were defined as a “pro.” Of course you will not like paying them monthly. Many mortgage companies will allow you to escrow them which means they will be combine with your monthly mortgage payment.

As far as rules, each condo community has their own. Some are stricter than others. There could be rules such as no bikes in the garage. You’ll have to ask to read them so you don’t have any surprises later.

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Posted by Michael and Jill Kohler on March 12th, 2013 11:55 AM

The FHA has announced some significant changes to its programs and policies making it more costly for borrowers.

Some of the changes are:

Higher mortgage insurance premiums. The MIP for most new loans will increase by .10 percent. That would mean about $15 per month for a $150,000 loan. Premiums for larger loans will go up .05%.

MIP for the life of the loan. You used to be able to cancel your MIP after the loan balance dropped to 78% of the original amount.

Manual underwriting for low credit score. If the borrower’s credit score is lower than 620 or their debt-to-income if more than 43% the documentation of compensating factors will required by the lenders.

Higher down payments. The FHA also intends to increase its down payment requirement for mortgages larger than $625,000. The down payment would increase from 3.5 to 5%.

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Posted by Michael and Jill Kohler on March 8th, 2013 10:26 AM

Many people are not sure if they should sell their current home first, or if they should start shopping for a new one. It’s basically the chicken or the egg. The best way to do it is buy your next home first and then sell your current home, according to many analysts. But the only way to qualify is if you can afford to carry both mortgage payments. Buyers who cannot afford to pay both loans will need to sell their home first. If you can’t find a home to buy before the closing, there are 2 options, either rent their current home for their buyers, or rent another property temporarily. And an option many people don’t want to consider, it moving in with relatives until you find the home you want.


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Posted by Michael and Jill Kohler on February 28th, 2013 1:24 PM

Hud has announced that cancellations of FHA mortgage insurances is over. Previously you were able to cancel the mortgage insurance when your principal balance reaches 78% of the original principal balance. Effective 2013 FHA once will collect the premium for the entire period during which they are insured. With FHA running out of funds they are taking precautions to protect this program. Also you will expect to see mortgage insurance premiums (annual as well as upfront) to increase.

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Posted by Michael and Jill Kohler on January 31st, 2013 3:37 PM

Before you decide to buy a house and get a mortgage, think of these tips. Make sure you make your payments on time in the months preceding your initial mortgage application. Make sure you keep saving towards your down payment. Save as often and as much as possible. Those tips will help you in the right direction of maintaining your credit score. As far as the “don’t tips,” make sure you don’t make any big purchases while you are in the process of obtaining a mortgage. Make sure you don’t just get pre-qualified but get pre-approved. Lenders will be able to pull credit reports, check ratios for your debt-to-income and perform some underwriting steps.

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Posted by Michael and Jill Kohler on January 24th, 2013 2:16 PM

Getting a pre-approval before you begin the home buying process is almost a prerequisite. First it helps you know you much you are able to offer. Your real estate agent won’t be concerned that they are wasting their time showing you houses you can’t afford. The sellers won’t be concerned that you won’t qualify for the loan. Plus the approval offers you an advantage when you place your bid, it basically adds strength to the deal. Obtaining the pre-approval letter is usually quite simple when you deal with a mortgage broker. It can usually be completed within a day.

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Posted by Michael and Jill Kohler on January 22nd, 2013 8:25 PM

Fiscal Cliff

The fate of the mortgage-forgiveness tax break is bound up in the negotiations over the so-called fiscal cliff in 2001 and 2002. The President and Republican lawmakers are trading proposals on ways to avoid the more than $600 billion in U.S. spending cuts and tax-rate increases that will automatically take effect in January if Congress doesn’t act.

The mortgage debt forgiveness measure may be tacked onto the back of a broader bill that addresses the fiscal cliff, said Holtz-Eakin.

“There’s bipartisan support for extending the mortgage-forgiveness bill,” Holtz-Eakin said. “Not doing it is a recipe for bad politics.”

The Senate Finance Committee approved a one-year extension in August. The Joint Committee on Taxation estimated at the time that the cost to taxpayers would be $1.3 billion. The matter hasn’t come up for a vote of the full Senate, nor has it come to a vote in the House of Representatives.

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Posted by Michael and Jill Kohler on December 17th, 2012 9:08 AM
Mortgage applications rose from last week according to a report from the MBA (Mortgage Bankers Association.  Refinances accounted for slightly less .07 market share than the previous week while purchase mortgages increased 2.9%. However overall refinances dominate the market with a 72%  market share.  Hopefully these numbers are indicative that both national lenders and Pennsylvania mortgages will continue to benefit homeowners who take advantage of low mortgage rates

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Posted by Michael and Jill Kohler on May 2nd, 2012 4:38 PM

Here’s how I picture getting a mortgage at Costco. Employee: Hi, can I help you? Yes, I’m looking for a 5/1 adjustable rate loan and I have a couple of questions? Employee: Duh, ok. Consumer, can I get a 60 days lock today’s rate since I’m closing on my new house in 2 months, but with a float down feature in case it drops? Can I do that?  Employee:  Huh?     Customer: Can you tell me what will my debt to income ratio need to be to qualify for FHA, and what is my PMI based on?  And do they gross up my investment income? How does that all work? Um, let me check my computer, I think those are in aisle 5 down near the frozen food. I think they were in the ad last week. Consumer: No, no, it’s not a physical product. Employee: Uh, hold on, let me get my manager.   Hey boss.....

If you need the services of a qualified mortgage professional that won't treat you like a number, check out http://www.NetEquityLoans.com for low rates AND personal service.

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Posted by Michael and Jill Kohler on April 27th, 2012 8:16 AM

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