What to Do Before You Start Your Home Search

The process of buying a home can be nerve-wracking for some who have not been through it before, but with a little bit of preparation, you can help minimize some surprises along the way.

One important thing you can do as soon as you start thinking about buying a home is checking your credit report. Ideally, this should be done at least six months before purchasing a home in order to give yourself time to dispute information, if needed. It is important to know how your payment history is being reported by your creditors. And if you see any unfamiliar information, it’s important to know how to take action.

Consumers are entitled to a free copy of their credit report, from each of the nationwide consumer reporting agencies, once a year by visiting annualcreditreport.com.

What should you look for? Any information that might be inaccurate or incomplete. In the personal information section of your credit report, is your name (and any former names, such as a maiden name) listed accurately? Is your address up to date? Are there any addresses you don’t recognize? In the account information portion of your credit report, are all of the accounts listed complete and accurate? Are there any accounts that you don’t recognize? Do the balances appear accurate?

If you find information that appears inaccurate or incomplete, contact the lender or creditor associated with the account. You can also contact the nationwide consumer reporting agency that issued the credit report. If necessary, take steps to change some of your credit-based behaviors.

Here are some other items to include on your checklist as you prepare to buy a home:

— Gather any required documents you may need to apply for a mortgage. Tax returns, pay stubs and bank statements are among the ones you’ll need.

— Figure out how much home you can afford. There are a number of online mortgage calculators that can help. Remember a home’s purchase price is only part of the picture; you may also be responsible for a down payment, closing costs, taxes, insurance and other expenses. Learn your debt-to-income ratio and familiarize yourself with the requirements for loan qualification.

Buying a home is one of the most important – and largest – financial decisions you may make, and you owe it to yourself to prepare for it thoroughly and thoughtfully and hopefully smooth out any bumps in the road to home ownership.

10 States Suffering the Most From Foreclosures

Foreclosures declined for the 20th consecutive month year-over-year, but were still high in these 10 states.

Foreclosures in May were down 19% from the previous year, the 20th straight month of year-over-year declines, according to data released by ATTOM Data Solutions.

A total of 81,495 U.S. properties had a foreclosure filing in May, or one in every 1,636 units. Despite the declines, some states continue to struggle with foreclosures, particularly New Jersey, where foreclosure rates are high in communities like Atlantic City and Trenton.

A foreclosure can wreak havoc on a homeowner’s credit. You can see how your mortgage or foreclosure is affecting your credit score by checking your free credit report summary on Credit.com.

Here are the ten states with the highest foreclosure rates.

10. South Carolina

May 2017 Foreclosure Rate: 1 in every 1,186 housing units

Change from April 2017: Up 1.89% (was No. 8)

Change from May 2016: Down 20.41% (was No. 7)

9. Ohio

May 2017 Foreclosure Rate: 1 in every 1,176 housing units

Change from April 2017: Up 8.25% (was No. 9)

Change from May 2016: Down 16.84% (was No. 9)

8. New Mexico

May 2017 Foreclosure Rate: 1 in every 1,168 housing units

Change from April 2017: Up 73.50% (was No. 20)

Change from May 2016: Down 11.38% (was No. 10)

7. Florida

May 2017 Foreclosure Rate: 1 in every 1,140 housing units

Change from April 2017: Up 5.38% (was No. 7)

Change from May 2016: Down 35.00% (was No. 4)

6. Nevada

May 2017 Foreclosure Rate: 1 in every 1,108 housing units

Change from April 2017: Up 2.87% (was No. 6)

Change from May 2016: Down 22.76% (was No. 5)

5. Oklahoma

May 2017 Foreclosure Rate: 1 in every 1,081 housing units

Change from April 2017: Up 81.53% (was No. 19)

Change from May 2016: Up 63.84% (was No. 26)

4. Illinois

May 2017 Foreclosure Rate: 1 in every 1,057 housing units

Change from April 2017: Up 2.47% (was No. 5)

Change from May 2016: Down 16.90% (was No. 6)

3. Maryland

May 2017 Foreclosure Rate: 1 in every 1,006 housing units

Change from April 2017: Down 22.94% (was No. 3)

Change from May 2016: Down 30.80% (was No. 2)

2. Delaware

May 2017 Foreclosure Rate: 1 in every 753 housing units

Change from April 2017: Down 6.30% (was No. 2)

Change from May 2016: Down 4.18% (was No. 3)

1. New Jersey

May 2017 Foreclosure Rate: 1 in every 515 housing units

Change from April 2017: Up 9.29% (was No. 1)

Change from May 2016: Up 8.81% (was No. 1)

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Millennial Homebuyers Still Value a Personal Touch

Many millennials surprisingly opt for local, face-to-face interaction over online tools when buying homes.

All the hullabaloo about millennials coveting their social media accounts over face-to-face interactions holds untrue — at least when it comes to real estate, according to a recent survey conducted by the financial wellness community, CentSai. (Full Disclosure: I am the co-founder and president of CentSai.)

In fact, the 2,050 millennials surveyed are more traditional than previously believed when faced with buying a home. Three-quarters of respondents – age 18 to 34 – prefer to use a local real estate agent instead of an online one.

And 71% said they would choose a local lender instead of applying online.

This is in stark contrast to a 2015 Fannie Mae survey, which found 70% of homebuyers would like to obtain a mortgage online and 69% would like to complete a mortgage application online. (Your credit plays a key role in the terms and conditions of your mortgage. You can view two of your credit scores free on Credit.com to see where yours currently stands.)

Millennials Want Someone They Can Trust

Online mortgage lending and brokerage services are expected to transform home buying, but millennials surveyed said that – contrary to popular belief – they prefer local providers due to existing relationships and local knowledge.

“While sites like Zillow are perfect for looking online to size up the market, when it came to using a lender or actually buying a home, personal touch was essential,” said Keenan Spiegel, who bought his first home with his fiancée in Norwalk, Connecticut, last year.

Spiegel, a wealth management associate at Morgan Stanley and director of data visualization for CentSai, said he used a local real estate agent recommended by his family because he wanted to be sure he worked with someone he trusted.

And while getting approved for a mortgage online could have taken minutes, the couple preferred the experience of using a local, brick-and-mortar who was more hands-on and available when they called with an “endless” list of questions.

“We felt local lenders also know much more about the area they service and can provide a lot of information about the community where you’re about to buy a home,” Spiegel said. “We wanted to know about the quality of schools and the crime rates.”

Online Isn’t Everything Yet

Despite the purported savings and the ease of use, online providers may not yet be as big of a disruptor in the sector as one would expect.

That said, the vast majority of millennials surveyed (91%) said they would use an online site or mobile app to research neighborhoods and home prices and help identify the home that they may buy. But they cited various reasons for “going local” when it came to choosing their agent or lender – including personal touch and handholding, longstanding relationships and local knowledge.

A little more than half (56%) of the millennials surveyed plan to buy a home in the next two years, and for this group, online lenders likely need to provide an even more personalized experience to garner business.

The fear of missing out on valuable information that comes out of an in-person conversation still weighs on the millennial mind.

After all, buying a home is a major purchase, and despite all the bots and burgeoning artificial intelligence, the internet still has a way to go before it can mimic sitting across the table from a real estate agent.

Image: Steve Debenport

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What You Should Know About Mortgage Paperwork

Yes, mortgages come with a lot of paperwork. Here's how to make it easier on yourself.

Getting a mortgage is every bit as arduous as you might think. While lax mortgage lending standards helped pave the path to the financial crisis a few years ago the pendulum has swung so far the other way in 2017 that getting as simple as a 30-year fixed rate loan is incredibly complex given the amount of paperwork and disclosures required.

Here is what you should expect if you plan to buy a home in 2017 or beyond.

Communication

What this means to you, as a homebuyer, is to trust your lender and expect the mortgage process, in terms of the paperwork, to be thorough. The mortgage process could be compared to an airplane ride. No ride, destination, flight attendant, captain or any aspect of each individual flight is the same. Every flight is different.

Every loan is different as well. If you have ever been on a flight and experienced turbulence, that turbulence is the equivalent of a lender coming back and asking you for documentation, even though you already provided it at the beginning. Asking you for documentation a handful of times is normal.

Remember, a good lender can do a thorough job examining your financials before you go house hunting. This will ensure you can get a loan at a good rate while intercepting future issues that may arise. Before you go to a lender for pre-approval, you’ll want to check your credit scores to see if there are any issues or errors weighing down your scores that you can quickly fix. You can get your two free credit scores on Credit.com.

Time

Time is not on your side when purchasing a home for two reasons: You might have a fee for every day you don’t close on time, which could be as much as $100 per day. If you close three days late, that’s $300 in the seller’s pocket. The other reason is your interest rate lock. If you don’t close on time, it might cost you as little as $500 or as much as a few thousand to extend your rate lock commitment to the investor.

Time is also not on your side because there is an expectation your lender and Realtor have that you to provide documentation to them within 24 hours. This means your answer to the request made Monday asking you for a paystub is expected by Tuesday, no later than Wednesday. Delays in the process can be costly and stressful, especially if everyone is counting on the transaction to close by a certain day and it doesn’t due to failure to receive documentation in a timely manner.

The best two things you can do for yourself when purchasing a home are one, get the needed documentation to your professional in a timely manner, and two, expect to be on call for each day of your 30-day purchase contract. Going into the transaction with those expectations up front will help ensure your transaction closes on time.

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The 13 Least Affordable Places to Buy a Home

If you're buying a house in these 13 counties, don't expect your paycheck to go very far.

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The Fastest Way to Save for a House

There are a few ways to expedite that down payment.

Once you’ve decided it’s time to buy your own home, saving for that 20% down payment is step one toward doing it. Instead of waiting years, here are six ways to help you save up for that down payment in a matter of months.

1. Explore the Market

If you are saving money to buy your dream home, consider taking a detour through a lower-priced neighborhood first. Buying a lower-cost home means you won’t have to save as long for the down payment. As the home’s value goes up, you can use the equity you’ve built to help you get into a higher-priced home later on, particularly if you find a fixer-upper and you’re good at repairs.

2. Keep Your Priorities in Focus

While it may be tempting to put off other priorities when trying to save for an important goal, Kevin Gallegos, vice president of Phoenix operations at Freedom Financial Network, says paying the rent should always be your first priority. Next, Gallegos says, pay down credit card debt.

“Few, if any, investments will return as much,” he explains. Additionally, having more available credit on your card will improve your debt-to-income ratio and creates a financial cushion that you may need for unexpected costs after moving in to your new home.

3. Automate Your Savings

You can create a budget based on your current expenses to determine how much you can save each month. Once you have determined how much you can afford to save, automatically transfer that amount from your checking account to a savings account.

“Save before you ever have the money in your hand,” Gallegos says. “Record this expense like a bill every month.”

4. Generate More Income

To raise money quickly, Gallegos says it pays off to turn your spare time into money-making opportunities. Look around your apartment for unneeded items to sell online or have a yard sale.

“Even small proceeds can accumulate surprisingly quickly,” he says. “Maybe you have skills where you can turn a hobby into a part-time, money-making enterprise. Babysit, tutor, do yard work or other part-time work.”

5. Track Your Daily Expenses

Before pulling out your wallet, ask yourself how badly you need to buy something. For example, if there is free coffee at work, do you really need to go to the coffee shop every morning? Gallegos admits it sounds cliché to ask such questions, “yet this is just the type of disciplined act that will get someone on track to saving as much as possible as quickly as possible,” he says.

To further reduce daily spending, Gallegos recommends paying with cash instead of using a debit or credit card. “Many studies report that people spend up to 15 to 20% less when paying with cash,” he says.

6. Reduce Household Expenses

There are many ways to reduce monthly expenses at home that can help build your savings for a down payment more quickly. Washing clothes in cold water saves up to 90% of the energy expended in the washing cycle, notes Gallegos. Switching to cold water will directly reduce next month’s utility bill. Plus, speaking of laundry, skip the dryer. That’ll eliminate carbon emissions and help you bank away extra dollars, he adds.

You should also eliminate drafts in your home and turn the hot water temperature down to 120 degrees, which will save you money. Per EnergyStar.gov, a house’s water heater “can waste anywhere from $36 to $61 annually in standby heat losses and more than $400 in demand losses.”

Implementing only one of these ideas may not increase your savings significantly, but if you try a few of them, it can make a real difference to your savings account after a few months and get you on the right track to having enough for your new home.

[Editor’s Note: A good credit score can make buying a new home more affordable, too, since it’ll help you qualify for a low interest rate. You can see where your credit stands by viewing two of your scores for free on Credit.com.]

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Time for Your Final Walk-Through? Make Sure You Have This Checklist

You're almost ready to close on your new home. Make sure you don't miss anything on your final walk-through with this handy checklist.

A few days before you sign the documents to finalize your purchase of a home, you’ll have the chance to take one last look through the property. The final walk-through is your last opportunity to confirm that the house is in similar or better condition than it was when it went under contract, and it’s also your chance to make sure no new issues have cropped up since the inspection.

What Should I Look for During My Final Walk-Through?

It has probably been weeks since you’ve seen the home and it’s exciting to walk through it again. You may be tempted to start mentally arranging furniture and picking out new paint colors while you’re there, but it’s in your best interest to put those feelings aside for now. This is your last chance to look for issues and work with the seller to address them before the home is officially yours. You should plan to spend 30 minutes to an hour walking through the home, paying careful attention to its condition.

In today’s competitive housing market, many buyers are waiving their home inspection to make a stronger offer. If that’s the case, it is especially important to focus on bigger red-flag items during your walk-through.

Before you head off to see your new home, it’s important you make sure you have your contract, inspection summary, a notepad, a camera, any photos you took of damage that needed repair, a cell phone and charger (to easily check that all electrical outlets are working) and, of course, your real estate agent. Make sure to coordinate with the sellers before deciding on a date. If you go too early they may not have finished moving out, and if you go too late, you may not have enough time to remedy any large issues that you spot.

Here are the big things to look for when making your final walk-through.

  • Are all agreed-upon repair items completed? (Ask to see receipts.)
  • Has the previous owner removed all debris, garbage and unwanted items? (Keep in mind, the house will likely not be professionally cleaned and will need a once-over when you move in.)
  • Has the yard been maintained?
  • Are all agreed-upon appliances still in the house and are they working properly?
  • Does the home still contain all furniture included with the purchase?
  • Are there any major holes or damages as a result of the previous owner moving out? (Normal wear and tear like nail holes can be expected.)

Here are some other things to look for once you have checked the above.

  • Do all lights and switches still work? (Keep in mind the home has likely been vacant for 30 or more days. If light switches don’t work, it could be due to burnt-out bulbs, which you’ll likely need to replace yourself.)
  • Do all power outlets work? (Use your cell phone and charger to quickly test whether outlets work).
  • Are appliances in working order?
  • Do toilets flush?
  • Do sinks, showers and tub spouts run? Can you spot any leaks?
  • Is there hot water?
  • Do sink and tub drain stoppers function?
  • Do all windows and doors open and close smoothly? And are all screens present and attached properly? Be sure to check that window latches and door locks are working properly.
  • Do the heat and air conditioning work?

And remember, your lender might run a final credit check before you close. You should keep an eye on your credit during this critical time. You can view a free credit report snapshot, which is updated every 14 days, on Credit.com.

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How to Write an Undeniable Offer Letter for Your Dream Home

Want to make sure you get the home you love? Open up with a heartfelt letter to the seller.

Buying a home in a competitive market means you need to have all your ducks in a row. You can be successful by putting your best foot forward before the starting gate. One way to spruce up your offer is to write a love letter to the seller.

All sellers have different reasons and motivations for selling their home. A major life event may have caused them to rethink their life and selling the house makes the most sense. They may have found their dream home or a better rental and need to sell the one you are looking at.

No matter what has happened, the dollar amount you are offering to purchase their home is going to carry the most significance to the majority of sellers. Making a strong offer with the guidance of your real estate agent and having a solid mortgage pre-approval in place is critical for success. Those are the key components required to make sure your chances increase for getting an accepted offer. Still, a stellar offer letter can break a tie between two identical offers — or even sway the owner your way if someone slightly bests your bid. With that in mind, here’s how to craft a killer offer letter for your dream home.

1. Write the Letter Yourself

This letter should come from you, not your real estate agent. The agent cannot convey the emotional attachment you feel toward the home the way you can. If your agent wants to write a companion letter or character profile, that’s fine, but a love letter that comes directly from the prospective buyer will be most meaningful. This letter should be impactful and compel the seller to choose you.

2. Explain Why You Want the Home

The reality is that you do not know the reason why they are selling their home (though your real estate agent may be able to supply some clues) so a good strategy is to give them the reason you want it. Write a letter to the seller appealing to their emotional side along with their financial interest in your offer. Write a genuine letter about why you are interested in buying their home specifically. What about it calls to you? Do you see your family living there for a long time?

3. Be Specific

If you really liked the way the backyard “felt” and you can see your kids playing there or getting married under a well-groomed tree, put it into words. Make the sellers see you in their home. It sounds sappy, but it can appeal to the right people. A letter can evoke pride for a seller in their home and can give them the satisfaction of being able to provide a home for a young family that will create more happy memories there.

4. Get Personal 

Talk about your family. Use this letter as a way to introduce yourself and tell the seller about your long-term goals. Let them know if you’ve been raised in the area and share with them why you think their home is the fit for you and yours.

5. Assure Them You’re a Strong Buyer

A seller will want to know a buyer can make good on their offer, so be sure to let them if you have a steady source of income, what you do for a living and, even, how solid your credit score may be. (You can see how your credit is doing throughout the homebuying process by viewing two of your free credit scores, updated every 14 days, on Credit.com.)

One additional thing you should consider is having your lender call the listing agent in order to confirm your ability to purchase and willingness to perform. This is a bonus that can help push your offer over the top as this confirmation proves to the listing agent and sellers that you are serious and well-qualified. Communication in every real estate transaction is critical and this proactive approach reduces the amount of vetting that the listing agent has to do on their offers.

What’s in a Offer?

Remember all those ducks we mentioned earlier. In addition to your love letter, your offer to purchase someone’s home might include:

  • A cover letter from your agent explaining who you are and why they brought you to their home
  • The terms (total offer price, down payment, etc.) under which you would purchase their home.
  • In addition to that personal and detailed letter explaining why you would be a good fit for their home, you may also want to include a photo of you and your family.
  • A mortgage pre-approval letter from your lender showing you are dedicated to buying their home.

Keep in mind, a stellar offer letter is just one small part of the process. You can find 50 other steps house hunters can take to get ready for homebuying season here.

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10 States Plagued By Foreclosure

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Remember: Keep Your Tax Returns If You’re Looking to Buy a Home

If you were planning to buy a home or refinance one you already own, you can expect to encounter a lot of paperwork. But here’s one thing you probably didn’t know: Tax returns aren’t always required.

If you are a W-2 wage earner, there is a smaller chance you’ll need to provide tax returns than if you’re self-employed. If you’re self-employed, the only way a lender can determine your income is by examining your tax returns. As a self-employed worker, these documents show how much you took home versus your net income. There are some situations where you can get away with using a year’s worth of tax returns, such as when you transition from being full-time employee at a company to being self-employed.

Automated Underwriting Findings

Mortgage lenders will ask for two years of tax returns, plus two years of W-2s and pay stubs from the last 30 days. Every mortgage in America sold on the secondary market is run through automated underwriting, software systems that crunch data and let lenders know your risk in terms of repaying the loan.

If you are a W-2 wage earner and the automated underwriting findings do not require tax returns, you may not need to provide returns at all in order to close on a home.

To be clear, we are discussing the average W-2 wage earner. Any of the following could trigger needing two years of tax returns despite your employee status:

  • Rental income
  • Social Security income
  • Pension income
  • Schedule C income beyond your normal W-2 job
  • Partnership in a business or another entity

Other Things to Keep in Mind

When you apply for a loan, it’s generally a good idea to provide two years of tax returns, two years of W-2s and the 30-day pay stubs all lenders require. However, there is a saying in mortgage lending that applicants should only provide “what is needed.” Providing only what’s asked for can go a long way, as there are fewer documents to scrutinize. That said, automated underwriting dictates what documentation you must provide to obtain financing.

Some banks also have additional requirements, so even if your loan does not require tax returns, their individual banking policies might. Such requirements are due to the bank’s relationship with Fannie Mae and Freddie Mac, or its particular appetite for risk. A good rule of thumb is to provide the bare bones requirements so there are no questions as to whether you qualify.

The key is to work with a mortgage lender who has a common sense approach to financing rather than one who promises ultra-low rates but is so risk-adverse that you are continuously asked to furnish more paperwork and your loan never ends up closing escrow.

Remember, a good credit score can help you secure an affordable mortgage. As such, it’s a good idea to see where you stand before you start applying. You can check your credit scores for free each month on Credit.com.

More on Mortgages & Homebuying:

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