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Buying Your Home

When you are looking at buying a home, think long term. Some national statistics support that people move on average every five to seven years. While this may not be you, it's smart to think ahead and ask yourself what if you need to sell this home in four or five years and how the home will sell in variable market conditions.

Ethics

Proud members of the National Association of REALTORS®, Missouri Association of REALTORS® and the Columbia Board of REALTORS®. As such, we subscribe to the National Association of REALTORS® Code of Ethics and Standards of Practice (PDF). The code includes our duties to customers and clients as well as our duties to the public at large and to other REALTORS®.

What's the Difference Between Being a Buyer Client and a Buyer Customer?

A lot. Missouri law allows for a variety of arrangements and you should have this discussion prior to providing personal and financial information to any agent. Missouri Real Estate Commission Disclosure (PDF) Be sure to take the time to understand agency and who is representing whom in the transaction. Here are some differences between real estate customers and real estate clients We have a more detailed presentation that requires an appointment. You are under no obligation to use our services following the appointment and there is no charge for this initial meeting. Please email us or call us and be sure to give us your name as well as one additional way to reach you in addition to your email (e.g, phone or text).

How Much Do Jim & Lisa Charge to be a Buyer's Agent?

We usually get paid by the seller with your permission. This is how real estate commissions are collected. When a home is listed for sell with any member of the Columbia Board of REALTORS® (we are proud members of the board's Multiple Listing Service (MLS)and it doesn't matter which firm - we can generally show any member's listings) the seller and the listing agent negotiate a percentage of the sales price that will be offered to buyer's agents through the MLS.

It's Not About How Large a Home or How Much of a Mortgage Loan You Can Qualify For - It's About How Much You Can Comfortably Afford

Prepare a household budget before meeting with a lender. Create a budget of what you'd like to spend. Use receipts to create a budget that reflects your actual spending habits over the last several months. This approach should factor in unexpected expenses, such as car repairs, as well as predictable costs such as car insurance, utility bills, groceries, etc.

Look for ways to save. Try writing down everything you spend for one month. You'll probably spot some ways to save.

Reduce your debt. Lenders generally look for a total debt load with payments of no more than 36% to 42% of take home pay and less debt usually means a less stressful life.

Increase your income. Ask for a raise or take on a second job to get your income level higher.

Save for a down payment. Designate a certain amount of money each month to put into your savings account.

Do Some Home Research

What features are most important to you? A large kitchen. Lots of closet space? Distance to work? Keep in mind it's okay to have a lot of wants but don't be unrealistic with your expectations - no matter what the price range - there is no such thing as a perfect home.

Decide on the Moving Timeline

Do you have a lease? Do you have another home to sell? Strategize and plan the options in advance.

About Getting a Mortgage

What is the difference between a preapproval letter and a prequalification letter?

While there are some legal distinctions, in practice both terms refer to a letter from a lender that says the lender is generally willing to lend to you, up to a certain amount and based on certain assumptions. What is assumed versus what is verified is the difference between a preapproval and a prequalification. A preapproval carries more weight with seller and can help you win the competition if there are several offers on a home from different buyers. This information is courtesy of Laura Brownfield and the Home Grown Loan Team at Flat Branch Home Loans, Laura can be reached at laura@flat-branch.com or (573) 489-4681 or click here to Apply Now .

Preapproval Letter

  1. The file has gone through underwriting and the borrower has proven to be eligible.
  2. The only way that a transaction will fall through is if there are unanticipated issues with the property (i.e. appraisal, inspections, title work, etc.).
  3. The lender has received a full set of documentation and little is assumed.

Prequalification letter

  1. Documentation is not required.
  2. The file does not go through underwriting before a letter is issued.
  3. Assumes without verifying that the buyer's income, assets, and credit will support the mentioned payment.
  4. Often is contingent upon receiving a full set of documentation.

Essentially, a prequalification and preapproval letter can serve the same purpose. However, a preapproval letter is far more solid because everything has already been assessed rather than the majority of the information being assumed. Always be wary of a letter being issued if the lender has yet to receive any income documentation or pull credit. If the letter is contingent upon too much, it will hold little weight and will reduce your negotiating power.

Here are some things NOT TO DO between mortgage loan application and closing on the home purchase

This is a list of 8 items that can kill a mortgage transaction (these items are courtesy of Kristy Bryant at Missouri Credit Union, she can be reached at kbryant@missouricu.org or (573) 489-7608

  1. Rule #1: Do not buy a new car or enter into a bigger car lease. Don't buy a new car or trade up to a bigger car lease. Most lenders re verify a borrower's credit during the processing stage or in the Quality Control state. In addition an inquiry recently made by a car dealership will also bring up a reason to investigate a car loan further. Over the years I have had a number of loan applications fail during the re verification process as a new car loan has pushed the ratios too high for a loan approval.
  2. Rule #2: Do not quit your job during the processing of your loan application. Don't quit your job to change industries or to start a new company. The loan was originally approved because the applicant has income or job stability. Now that the applicant has left his job we no longer have job stability and possibly income stability as well.
  3. Rule #3: Do not switch from a salaried job to a heavy commission job. Don't switch from a salaried job to a heavily commission job. If a borrower earns a salary and qualified for the mortgage with that salary that is why the borrower was approved. If the borrower goes from a salaried position to a heavy commission position the commission income will not be counted to qualify as there is no history to average the income.
  4. Rule #4: Don't transfer large sums of money between bank accounts. Don't transfer large sums of money between bank accounts. If a bank account is re verified and it is noted that there are large deposits and or withdrawals from one account to another the loan processor and or Quality Control person will have to question these moves. There could be a delay in closing the loan due to the large deposits, transfers and withdrawals. If an underwriter feels uncomfortable with these moves they might invalidate the loan approval.
  5. Rule #5: Do not forget to pay your bills - even those in dispute. Don't forget to pay your bills even those in dispute. If a borrower does not pay his or her bills and a new credit report is pulled, there will be new late payments and the credit scores will change.
  6. Rule #6: Do not open new credit cards - even if you are getting 20% off. Don't open new credit cards - even if you are getting 20% off. New credit cards change the borrower's credit capacity and utilization of their credit. These changes can also cause a change in a borrower's credit score. Credits scores can change weekly so do not open new credit during this period. In addition the ratios can also change.
  7. Rule #7: Do not accept a large cash gift without filing the gift documentation. Don't accept a cash gift without filing the proper "gift" paperwork. If a borrower receives a sizable cash gift and deposits the funds in a bank account and the lender discovers it they will be required to explain this. If a borrower does not use a bank account fund and uses the cash gift more questions will arise. If this should happen during the processing stage, notify the lender so the proper gift documentation can be completed.
  8. Rule #8: Do not make random bank deposits without the supporting documentation. Don't make random undocumented deposits into your bank accounts. All deposits made into bank accounts during the processing stage should be documented in case questioned. It is a good practice during the processing stage to keep good records behind each and every bank deposit.

How do I/We Determine a Fair Price for a Property That We are Interested In? How Do We Decide What Amount to Offer?

If Jim & Lisa are representing you as your Buyer's Agent, we will perform a comprehensive Comparative Market Analysis (CMA) on the property that you are considering before you make the offer. Having this opinion of value will help you decide what to offer and how to respond to counter-offers from the sellers. Note that there is a difference between a CMA and an appraisal. A CMA assesses the attractiveness and the characteristics of the property in comparison to similar to homes that have recently sold. An appraiser's report is similar in concept to a CMA and both are an opinion of value, but an appraisal follows a more rigid format and adjustment methodology. Lenders generally require an appraisal as part of the process of making you a mortgage loan.

What Does the Assessed Value of a Property Mean? How is it Calculated?

Assessed value is often a lot less than market value. In general, property taxes increase when the property is reassessed or if there has been a special assessment to the area. The reassessment process occurs every two years and often does not keep pace with market values.

Are Estimated Property Values on Websites Like Zillow and Trulia Accurate?

Sites like Trulia and Zillow are great real estate search tools but poor estimators of real estate value in our area. They are on shaky ground when they purport to estimate property values based on sold prices. In some states, the sale price of a home is a matter of public record or easily calculated from transfer taxes. This is not the case in Missouri where such information is not captured in the process of recording deeds (except in some parts of the St. Louis and Kansas City metro areas). A small number of individuals may choose to report the prices that they pay to Trulia, Zillow or to the county assessor but not enough do so for inferences from this information to be accurate in the Columbia market area. The best source of sales price information is a REALTOR®, such as Lisa or Jim, or a real estate appraiser -- professionals who have access to the local Multiple Listing Service (MLS) where the vast majority of such transaction information is captured. Our advice -- feel free to use these sites to search for properties that you may be interested in and note the list prices, but do not assume that you can rely on the estimates of value in your negotiations with sellers.

How Can Buying A Home Save Me/Us Money on Income Taxes?

The tax deductions you are eligible to take for mortgage interest and property taxes can increase the financial benefits of homeownership and almost always make it worth your while to itemize your deductions rather than take the standard deduction. Here's how it works. Let's assume that you purchase a property on January 1st for a sales price of $180,000 with a 30-year, fixed-rate mortgage in the amount of $150,000 at an interest rate of 5.000%. Assume that the assessed value of the property for tax purposes is $165,000:

  • At the end of the first year, you will have paid $7,449.74 in mortgage interest. In future years, this amount will gradually decrease as you pay down the loan balance.
  • At the end of the first year, your property taxes will be about $1,815.00. This amount will likely go up in the future as property taxes tend to increase over time.
  • Your total homeownership related deductions then are $9,264.74 for the first year. And they will be in that ballpark each year thereafter as the taxes go up a bit and the interest paid goes down a bit over time.
  • As of 2015 the federal standard deduction for a single person is $6,300 so you can easily see that a single person would come out ahead by itemizing their homeownership related deductions.
  • As of 2015 the federal standard deduction for a married couple filing jointly is $12,600 so the case is not as clear. However; both single and married people can also claim other deductions once it makes sense to itemize. For example you may itemize your personal property taxes which in Missouri includes your cars. A couple with 2 late model cars could easily pay $900 in personal property taxes on those cars. Also, when you add in things like charitable deductions, unreimbursed employee expenses and tax preparation fees it is quite possible that a couple's itemized deductions might exceed the standard deduction.
  • If you are in the 15% federal tax bracket and your itemized deductions are $1,000 more than your standard deduction would have been, you save $150.00 in federal income taxes. If your itemized deductions are $3,000 more than than your standard deduction would have been, you save $450.00.
  • You will also lower your state income tax payments. For example in Missouri, assuming your marginal state tax rate is 6%, if your itemized deduction is $1,000 greater than your standard deduction would have been, you save an additional $60.00 on your state income taxes. If your itemized deductions are $3,000 more than than your standard deduction would have been, you save $180.00.
Note: Mortgage interest may not be deductible on loans over $1.1 million. In addition, deductions are decreased when total income reaches a certain level. Be sure to seek the advice of a tax professional and/or the IRS website for more information about the ins and outs of the tax benefits of home ownership.

The Day You Take Ownership is Called Closing - What is a Closing?

It's the final procedure in the purchase or sell of a real estate transaction in which documents are signed and recorded. This is the time when the ownership of the property is transferred. It's when you get the keys to your new home.

What are Some Costs Associated With Purchasing a Home and Required at Closing?

Down payment, loan application fee, loan origination fee, points (or loan discount fees), your desired home inspection(s), appraisal, flood zone certification letter, credit report, private mortgage insurance premium (if required based on down payment amount), insurance escrow for homeowner's insurance, property tax escrow for property taxes, lender title insurance policy premium, land survey (rarely required), title company closing fee, deed recording fees, proration of costs split between buyer and seller such as real estate property taxes and home owner's association fees. Many of these fees do not apply if you pay cash and there is therefore no mortgage loan involved.

Some Helpful Tips When Purchasing Homeowner's Insurance

Shop smart. Know about exclusions to coverage, dollar limits on claims, replacement cost, actual cash value if your home is destroyed by an act of god (e.g., tornado, earthquake, lightning strike, etc.) and know the insurer's liability. Review the Comprehensive Loss Underwriting Exchange (CLUE) report on the property you're interested in buying. Seek group discounts. If you belong to any groups (VFW, Knights of Columbus, or Professional Organizations) you might qualify for a discount on your premium.

What Documents Should I/We Keep After Closing?

Some of the documents you will want to keep in a safe place are: the Closing Disclosure Statement, the Deed of Trust and the Promissory Note, the Warranty Deed, affidavits, riders, insurance policies, appraisal, home inspector's report, and home warranty (if applicable).

Educational Videos:

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