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25511 Budde Rd #1603, The Woodlands, TX 77380
Phone: (281) 936-0005 Fax: (281) 936-0450
Welcome to the Michelle Cannon Team blog, we specialize in the Northwest area of Houston including Spring, The Woodlands, and Cypress. Our team is ranked in the top 200 RE/MAX teams in the state of Texas!
For many home buyers, pre-qualification is the first step to buying a house.
But you shouldn’t put your feet up after the first step and expect everything to just fall into place: There’s plenty more to be done.
Here’s a straightforward guide for going from pre-qualified buyer to homeowner the smart way.
Step 1: Pre-Qualification
The pre-qualification process is quick and free. It should take less than an hour. During the process, you speak with a loan officer and answer questions about your financial situation.
Pre-qualification will give you a rough estimate of how much house you can afford. It’s not a binding agreement—it’s simply something you can use to gauge your buying capability.
Pre-qualification can be especially useful if you’re not sure you can afford a mortgage.
Step 2: Pre-Approval
After you’re pre-qualified, your next step is to get pre-approved. This is an in-depth process. You’ll need to submit paperwork about your income, assets, employment history and residency status to a lender.
Getting pre-approved is almost like applying for a real loan, but it happens before you select a home.
Step 3: Shop
Now it’s time for the fun part: home shopping. Using your pre-approval amount as a guide, shop for homes within your budget.
Since sellers and REALTORS® view pre-approved buyers more favorably, shop with confidence. You’ll come across as a much more serious buyer than any non pre-approved competitors.
Step 4: Put in an Offer
Once you find a home you want to buy, the next step will be to put in an offer. If your offer is accepted, you’ll need to apply for a loan. The mortgage process can take some time, but since you’ve been pre-approved, the process may be faster because the lender will have all or almost all of your needed documents.
However, if too much time has passed since you were pre-approved, you’ll need to provide fresh bank statements and document updates.
Just when you thought the days of zero down-payment loans were gone forever, a nonprofit is testing a new concept to offer low-to-moderate-income home buyers the chance to secure a 15-year mortgage with little to no money down.
The Wealth Building Home Loan (WBHL) creates a path to homeownership for first-time buyers, low-income buyers and those burdened by student debt but earning a solid income.
The WBHL has a generous credit requirement, as income is weighed more heavily than FICO scores. It also offers a chance to build equity at a faster clip than a traditional 30-year mortgage, according to one of its creators, Edward Pinto of the American Enterprise Institute International Center for Housing Risk.
“In the first three years of a WBHL, 77% of monthly mortgage payments pay off principal, creating huge amounts of equity,” Pinto said.
The 30-year fixed-rate mortgage—which has become the industry standard—attributes 68% of each mortgage payment to interest in the same period, according to Pinto.
“This will be a game-changer,” said Bruce Marks, CEO of the nonprofit Neighborhood Assistance Corporation of America (NACA), in a statement. “The majority of the mortgage payment will now go to the equity in the home effectively providing debt-free homeownership.”
Home buyers can convert their down payment to buy down the interest rate. If they don’t have money to put down, they can use a 3% seller concession to buy down the interest rate to near zero. For every 1% paid upfront, buyers can get a half percentage point discount in their interest rate, twice the industry standard for rate buydowns. Bank of America will hold the 15-year mortgage loans and subsidize the interest rate buydown.
Monthly payments are a bit higher with the Wealth Building Home Loan, but because the term is truncated, the buyer will own the property free and clear in a shorter time.
NACA is tasked with providing the loan, while Bank of America and Citigroup are funding the loans. The WBHL is only available through NACA. The nonprofit has 37 locations nationwide and is using Charlotte, NC, as the initial test market.
Once you’ve found the home of your dreams and joined the seller in a hearty handshake, there’s still one more step to complete.
That final step is the escrow process, also referred to as closing.
While your real estate agent, lender, title agent and closing agent will guide you through the process, that doesn’t mean you should be unaware of what’s taking place.
Here’s what you need to know to understand escrow and get the best deal.
1. What Title Companies Do
Title companies make sure a title is clear of any and all encumbrances. This includesliens, judgments, forgeries, fraud and anything else that must be cleared before the deal goes through.
After the title company deems the title clear, it issues an insurance policy (title insurance) to protect the buyer and lender from claims and disputes over the property that may occur in the future.
2. What Escrow Agents Do
Escrow services provide a neutral third-party agent or officer who handles title and escrow work, financing, transaction instructions and other paperwork related to the home purchase, mortgage refinance or other title transfer.
Escrow officers are there to safeguard documents, follow instructions and make sure everything is filed timely. They’re not there to provide advice to buyers. But if closing is taking too long, you may want to reach out to the escrow officer to see if there is anything you can do to expedite the process.
3. How to Find Good Agents
Your real estate agent may suggest a closing agent, but you can also seek referrals from family members, friends, co-workers and other professionals you trust. You want a referral to the title or escrow officer—not the company.
The officer should be familiar with the type of home you are buying, especially if it’s a condo, multiplex or historic home. You also want to find an office conveniently located near you to save time.
4. How to Find the Best Deal
Many home buyers aren’t aware they can shop for title and escrow services. While lenders will suggest companies, you don’t have to go with their recommendation.
Ask for a list of title and escrow costs. Check on everything from escrow service fees to title search and insurance premiums.
Determine whether the buyer or the seller pays the fees.
Be aware of title and escrow discounts available for refinance-related transactions or sales that include the same lender and title and escrow services.
If the initial quote seems low, watch out for incidental fees likes wire transfer, copying, courier and fax fees. Those smaller items can add up.
Keep in mind, title and escrow services don’t dictate fees related to the home loan. While all fees—title, escrow, lender and more—show up on the final settlement sheet (known as the HUD-1 document), lender fees will be generated by the lender.
Updated from an earlier version by Broderick Perkins.
Pre-approval may be the first step towards getting a mortgage, but you’ll need to get some things in order first.
When you’re ready to start the home-buying process, begin by following this pre-pre-approval checklist—and you’ll be in a great position to secure the mortgage you need to buy the home you want.
1. Review your credit report (get one for free at annualcreditreport.com).
2. Dispute any blemishes on your credit report if they don’t look right.
3. Gather your (and anyone else applying for the the mortgage) last two years of tax returns and proof of income (W2s or pay stubs)—or your year-to-date profit and loss statement if self-employed.
4. Have your down payment money and closing money ready in the bank.
5. If the down payment and closing money were gifted to you, be ready to explain it.
6. If you’ve been renting with a private landlord, put together the last 12 months of proof (such as check copies and money order receipts) showing that you’ve been on time each month with your rent payments. Also ask your landlord for a written referral.
7. Gather personal documents, like two forms of government identification. Also haveother personal paperwork, like copies of divorce papers, if applicable.
8. Provide proof of regular income from all forms including Social Security, child support or government assistance.
9. Provide proof of account balances for IRAs and retirement accounts.
10. Disclose money held in the stock market.
11. Bring proof of other property currently owned.
12. Be ready to disclose past financial issues like bankruptcy. Provide a written explanation of what happened and what steps you have taken to correct your situation.
13. Keep your credit score healthy. So do not do the following:
Apply for new credit.
Take on new debts or make large purchases.
Cancel any current credit accounts.
Ask a creditor to lower your limit.
Remember, if you apply for a mortgage loan with an excellent credit score and the score goes down during the pre-approval or mortgage process, you may not qualify for the loan.
When you’re all done and the pre-approval is successful, your lender will give you a Good Faith Estimate, or GFE. This is a line estimate of what your general mortgage costs will be if you go with that lender. Now that you have it, there’s one final step to take.
14. Go to another lender and get pre-approved all over again.
You’re not done yet. Mortgages are too expensive to take the first offer. Get out there and do some comparison shopping, using those GFEs as your guide.
When selling your home, it’s easy to get caught up in second-guessing your decisions.
You don’t want to overprice or undersell. You need to showcase your home but you don’t want to make things look forced or pressure potential buyers with a “hard sell.” You want a good listing agent who understands the market and knows what works where you live.
You’ll want to make sure that all the ups and downs, the almost-sells and the strangers’ critiques don’t become an emotional rollercoaster that dictates your life.
Work to avoid these four mistakes, and you’ll find yourself doing the right thing at each stage of the process.
1. Price Points
Your home must be priced competitively to sell. Overpricing can leave your home lingering on the market. Buyers compare your sale price with comparable homes in the area—looking at places similar in square footage, construction, numbers of bedrooms and bathrooms, age and condition.
Your real estate agent can provide you with a Comparative Market analysis, often referred to as comps, on your home to assist in establishing a competitive price. Comps can include homes recently sold or currently on the market.
While everyone hopes to maximize the sale of their home, pricing yourself out of the market could leave your home unsold for a long time. Competitive pricing will spark considerably more interest and can generate multiple offers—and ultimately a better sales price and quicker sale.
As for appraisals, they’re easy to misunderstand. An appraisal isn’t the market value of your home: It is an opinion on value that means one thing to a mortgage lender and another to your local appraiser, who collects real property taxes based on that assessment.
2. Showcasing Your Home
You want potential buyers to imagine themselves in your home. You don’t want any hiccups. Take the time to fix any visible issues such as broken windows and chipped or peeling paint, as well.
Removing clutter and doing simple upgrades to window coverings and counter surfaces can also make good impressions. Ditch ugly furniture and clutter that detracts from the cleanliness of each room. Consider staging each room: There’s an art to filling a space with some personality without making it too personal.
Also consider the photos, videos, and other marketing materials your real estate agent might suggest. Many potential buyers scour online listings, so photos that show off the best of your house can make the difference between full or sparse open houses. Some homeowners even start house blogs.
Your real estate agent will know professionals to consult and may offer photos and video as part of their home-selling package.
3. Customer Mindset
Don’t make the mistake of thinking each prospective buyer will be “the one”: Patience will allow you to survive the home-selling process.
Your real estate agent may suggest leaving the house when it’s time to show the home. The last thing buyers want is an owner following them, anticipating questions and pointing out each improvement and amenity. Let them discover things on their own.
Not everyone visiting your home will bid: You’ll likely have at least some lookers who just want to window shop, especially during an open house. You may also have people who want to get a sense of the area, perhaps because they’re interested in a nearby home. Or maybe they want perfection and will look at 50 homes—and not buy anything.
By keeping your expectations in check, you’ll protect yourself from disappointment.
4. The Right REALTOR®
Interview several agents before selecting one and signing a listing agreement. The more REALTORS® you interview, the easier you can evaluate their qualifications versus your needs. It’s important you choose someone who makes you feel comfortable and confident about the decisions you will make.
The listing agreement will govern your rights and the REALTOR®’s duties and responsibilities. Be sure you understand the language of the agreement and that it contains a guarantee of performance—and a right to cancel. Don’t be afraid to ask all the questions you want before you sign.
Professional real estate agents understand seller anxiety and are more than happy to provide you with all the information you seek.
Updated from an earlier version by Frank Alan Herch.
A denied home loan application can mean more than just having bad credit.
Remember, you don’t have to take “no” for an answer. If your loan application is rejected, don’t let your disappointment prevent you fromshopping around.It’s disappointing to learn that your application for a home loan has been rejected. But you have a right to know why: Sometimes the reasons given for rejecting loans are logical, and other times they may seem unfair.
Lending is a competitive business, and some companies are more flexible than others. Credit unions and community banks may take more time to analyze your particular situation.
Here are some common reasons for loan rejections and possible solutions.
1. You have a low credit score
Lenders look closely at your FICO score. Reports maintained by the major credit bureaus are used to determine your creditworthiness. Get copies of these reports to learn what you can do to repair any problems. It’s possible that the reports contain errors that can be corrected.
Each of the three major credit bureaus—Equifax, Experian and TransUnion—will give you one free credit report each year. If the reports show genuine problems, take responsibility for your past actions. Spend a year or two building a solid credit record. Become the type of borrower that lenders are eager to work with.
2. You’ve lost your job
If your employment status changes before your loan closes, it can short-circuit your home-buying plans. Lenders prefer applicants to have held their jobs for at least two years.
You can try another lender, but you may need to delay your purchase until you’ve been employed longer.
3. Your income is insufficient
Your lender may reject your application if it appears that you lack sufficient income for the size of the loan you are seeking. In such cases, you may inquire about making a larger down payment or bringing in a co-signer, such as a relative, with solid credit.
Consider whether you truly can afford the loan you are seeking. Perhaps you should consider buying a home that won’t strain your budget.
4. You haven’t provided consistent information
The lender may have found inconsistencies between the income listed on your application and the information obtained from your employer. Such issues will need to be resolved before you can win loan approval.
If the appraiser says the home you wish to buy isn’t worth the amount you are seeking to borrow, the loan will fall through. It may be best to accept the verdict and be grateful that you didn’t overpay.
An alternative is to use that low appraisal to negotiate a lower sales price.
6. You’re taking on too much debt
The lender may decide that your current debt obligations are too great to add the burden of the loan you are seeking. If you have adequate savings, consider paying off some or all of your existing debt before reapplying for the loan.
You’ve invested time and effort in your search for a new home. You’ve researched neighborhoods, and you’ve thought about the features in a house that are important to you.
Finally, you’ve found the perfect home. You’ve even negotiated a purchase price with the seller.
You’re waiting for your mortgage approval to conclude the sale. To your chagrin, the appraisal undervalues your prospective house. Your lender will not approve the mortgage loan since the appraisal does not support your purchase price.
How can you appeal the mortgage appraisal?
Contact your lender
The first step in appealing the appraisal is to contact your lender and find out the steps of their appeals process. Find out if your appraisal was done by an appraiser or by an automated valuation model.
The automated, electronic appraisal method speeds up the appraisal process and reduces costs—but can produce faulty results. If there was an electronic appraisal, the lender should allow another appraisal by a certified appraiser. The lender may require you to pay for this appraisal.
Study your appraisal carefully
If the appraisal was done by an appraiser, you must provide proof of the appraiser’s error.
Study the report carefully. There may be simple factual errors that reduce the value of the house. The appraiser may have mistakenly marked three bedrooms instead of four.
A simple error could be the basis of the low mortgage appraisal. Politely point out the error to the appraiser, who should then be willing to change the oversight.
Research the comps listed in the appraisal
Note the comparables (comps) listed by the appraiser. These comps are similar houses in the same neighborhood that were sold within the last six months. The appraiser uses the sale price of these homes to help determine the market price of your prospective home.
Note any advantages that your house has over the comps. Perhaps your house is on a larger lot, has a bigger kitchen or was recently renovated. These advantages should prove that your prospective house has a higher market value than the comps. Take pictures of the larger lot and the comps’ smaller grounds to further document your point.
Research other home sales that took place within the last six months, in your prospective neighborhood. You may discover other homes that were sold at prices above the comps listed by the appraiser. These new comps will help support your claim that your house is worth more than the appraiser’s value.
Present your information to your lender who will forward it to the appraiser. Your detective work and careful documentation will help the appraiser reassess his valuation.
The APR includes not just the interest rate, but also points, broker fees and certain other credit charges. The GFE covers these charges as well as everything else you’ll be asked to pay at settlement.
You should use these documents to loan shop.
5. Promises One Thing, Delivers Another
If you are presented one set of terms when you apply for the loan and a different set at closing, you should demand an explanation.
It could be a bait-and-switch scam, where the lender is trying to pressure you into signing these new documents with worse rates or unfavorable terms.
Be prepared to walk away and take your business elsewhere.
6. Says It’s Okay to Leave or Sign Blank Forms
It is never okay to sign a blank form, period. If you leave blanks, a scamming lender could fill in extra terms and conditions that could alter your loan—and not for the better.
Worst-case scenarios could have lenders who write in clauses surrendering the title of your home.
Don’t let anyone fill in the blanks later. If there is a blank, cross it out and initial your mark.
7. Doesn’t Provide Copies
Lenders may not give you the actual filled-in papers in advance, but they should give you blank documents so you can take them home to review or show them to a trusted advisor.
If they won’t, maybe they have something to hide.
If the lender won’t give you copies of what you’ve signed at closing, cancel the deal right then and there.
These papers contain important information about your rights and obligations, and you need them.
Always Ask Questions or You Could Get a Bad Loan
When there’s something you don’t understand while shopping for a mortgage, consult with someone you trust for an explanation.
That could be an attorney, financial advisor or your local credit counseling agency.
Your ability to buy a home with a mortgage depends on how much net income you have after all monthly debts. If your debt payments absorb your income—particularly credit card payments—you may have to put the brakes on the mortgage application.
Most home buyers realize in order to purchase a home, they need at least good credit—and a better credit score means a better chance of qualifying.
One of the ways to build and maintain a healthy credit score is the ability to use and manage credit over a period of time. Using three to five credit cards actively and paying them off in full each month is a fantastic way to support a good credit score, a benchmark factor in qualifying for the prize.
However, credit cards are not something to be taken lightly, and you should exercise caution with them—especially if they are not paid off in full every month.
When it comes to qualifying for a mortgage, it’s not what you owe in total that counts—it’s what you pay each month. Most lenders allow a maximum debt-to-income ratio of approximately 45%, meaning they allow up to 45% of your monthly pretax income for a proposed new mortgage payment and any other debts.
Let’s take a look at the various credit card scenarios and what you can do to help your chances of qualifying for a mortgage.
1. Spreading Out Your Debt
When it comes to getting a mortgage, the key with carrying a balance on any one credit card is the monthly payment. In most circumstances, the larger the balance on any one credit card, the larger the monthly payment. The higher the monthly payment on any individual card, the more likely you will not be able to purchase as much house.
Let’s say you owe $10,000 on a credit card, and the monthly payment associated with the obligation is $200 per month. To maintain your ability to qualify, a lender would require $400 per month of additional income to offset that debt.
However, if this balance could be spread out over two or three credit cards with lower interest rates that would result in lower payments totaling less than $200 per month, you come out ahead.
2. Credit Card Payoff
If you’re looking to attack your credit card debt and pay it down (you can use the credit card payoff calculator to see how long it will take you) in preparation for qualifying for a mortgage, you might wonder which of your cards you should target.
If you’re trying to buy a home, paying off the higher-rate credit cards first might be a good move if the monthly payment is higher than the cards you have that are 0%. In other words, for buying a house, you’ll want to pay down the cards that have the highest monthly payment regardless of the interest rate—because those are the ones that will affect your qualifying ability the most.
So which card should you focus on paying down? Let’s say you have a 0% interest credit card with a $2,000 balance and a $150 monthly payment. You also have a 6% interest credit card with a $5,000 balance and a $50 monthly payment. You’ll get a bigger bang for your buck paying off the credit card with the higher payment despite the fact that it’s 0%.
The idea here is that you’ll want to cherry-pick the cards with the higher monthly payment in order of priority to maximize your buying potential. A good mortgage lender can assist you tremendously with this task.
*As a good rule of thumb for financial planning, it does make sense to tackle the higher interest rate credit cards first because of the additional interest expense you’ll pay over time, but that is not necessarily the case when it comes time to qualify for a mortgage.
3. Consolidating Your Cards
Let’s face it, people carry credit card debt because they don’t have the cash to make the purchase outright. Consolidating any 0% interest credit cards or even other credit cards into one credit account containing a total new lower payment can help you qualify to buy a home.
Why? It has to do specifically with the minimum monthly payment. Even if you choose to make a pre-payment each month in an effort to accelerate the debt payoff, it’s about the minimum obligation per credit card the lender will use in determining whether or not you’ll be able to buy that house—so consolidating may help.
If you have the cash, or are trying to decide whether to use the cash for the down payment or paying off debt, talk to a lender. If you do plan to pay off the credit cards to qualify, this can be accomplished as a special lender exception (not all lenders allow paying off debt to qualify).
For example, if you’re in contract to buy a home and your loan gets rejected by the underwriter because your debt-to-income ratio is too high, one way to reduce the ratio to get your loan approved is to pay off your credit card balances in full. This route entails one additional step in order to remove the obligation: You would have to pay off the credit card in full and close the credit account.
In most cases, closing credit card accounts can adversely affect your credit score. However, a new mortgage loan in your name—paid on time every month—can also be instrumental in building a good credit rating. You can find out how your debts affect your credit scores by checking them for free on Credit.com.
If you’re first-time homeowner, you’ll probably experience some trial and error before you know how to properly care for your new place. But you can avoid some costly mistakes by doing routine home maintenance that protects your investment. Here’s a basic home-maintenance checklist to help you get started.
Check gutters regularly to make sure they’re properly attached and clear of sticks and leaves. Also confirm the flow of water from your gutters is away from your home to avoid damage to your foundation.
Test your smoke and carbon monoxide detectors monthly. Experts also recommend changing the batteries in these items as part of your routine when you change the clocks in the fall and spring.
Change filters in your home at intervals recommended by your HVAC manufacturer, especially if you have allergies or pets. A dirty filter means an inefficient system. Also arrange for seasonal checks on your heating and cooling system to avoid emergency repairs.
Hire a tree-service company to inspect trees on your property. They can give you advice on how to care for your trees and identify weak limbs that should be cut before a storm.
Is your toilet running? Or your faucets? No, this isn’t a joke. Toilets that run and faucets that leak when not in use are wasting your water. Sometimes you can fix these problems yourself, but hire an expert if you’re in doubt.
Frequently check the water supply hose to your washing machine, which can leak and cause expensive damage.
Clean your dryer vent regularly. Note the dryer vent is not the lint trap (which should be cleaned often, too). Dryer vents push air outside the property through a duct, but can get filled with lint. Clogged dryer vents can be a fire hazard.
Clean around the vents and coils underneath and behind your refrigerator to support its efficiency. Also check for gaps when it’s closed to make sure your cool air isn’t being wasted.
Check your doors, garage door, windows, and any places where pipes and wires enter the structure for gaps and cracks. Replace weather-stripping that’s missing or in disrepair and add caulk where needed. This will help you keep the house insulated for all seasons and keep bugs and small creatures out.
Have a pest-control expert inspect your home, even if you don’t suspect signs of infestation, since attic and crawlspace critters are usually unwanted guests on your property.
As you can see, a lot of effort goes into maintaining your home, and these tips just scratch the surface. Ask your Texas REALTOR® about other resources that can help you keep your home safe, efficient, and well-maintained.