Financing Your New Home

Lifestyle Considerations
Most homeowners likely think of house size, floor plan, exterior style and budget as their major concerns. Few ever list things such as changing family size, changing needs, or psychological needs. But these lifestyle considerations should be the first things you look at.
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Ways to Save Money
Once you get to the final stages of your mortgage, be prepared to pay for the closing costs. The amount of money you'll have to pay in closing costs varies a lot by region. Here are few things to remember that can help you save money on your mortgage.
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Ways to Save Money

There are mortgage-related closing costs, so don't be shocked.

When your mortgage is in its final stages, you will have to pay closing costs. This amount can vary in your area. Taxes, attorney fees, realtor fees, and lender fees can all fluctuate from region to region and the market area they are in. To guess at an estimate for your closing costs, range it from three to six percent of your total loan amount. To give you an example: a $200,000 loan can have closing costs anywhere from $6,000 to $12,000. It is definitely a good idea to shop around to negotiate these fees. The Real Estate Settlement Procedures Act requires lenders to provide you with a good faith estimate of closing costs within three days of receiving your application.

The closing costs can also include processing fees, document preparation fees, attorney fees, loan origination fees, loan discount points, appraisal fees, inspection fees, credit report fees, assumption fees, prepaid interest, escrow accounts, title search fees and title insurance.

Now, how can you save some money on these costs? Remembering these tips may help you:

Negotiation! Negotiate with the lender on rates and some fees. You may not always get your way, but it can't hurt to at least try. There are certain fees that are a constant in mortgage, and then there are some that are added by the lenders themselves. Costs that are in the lender's control are such things as document preparation fees and lender's attorney fees. Costs they can't control are things like credit report fees, title fees, processing fees, private mortgage insurance, and inspection fees. The lender does not make money from those items; from the others, they do.

Make additional payments on the principal of the loan. Paying extra whenever you can to the principal alone will help reduce the overall loan rather than paying mostly interest with each payment. In fact, you can reduce your mortgage by almost 10 years simply by making one extra mortgage payment per year.

Making bi-weekly, instead of monthly, scheduled payments can also shorten your loan. This builds up an extra payment per year without a big chunk at one time that is very noticeable in your pocket. If you were to follow your paycheck schedule, if it is bi-weekly, you could pay off a 30-year fixed mortgage in about 23-1/2 years.

Avoid private mortgage insurance and try to put down at least the minimum 20 percent so you can avoid paying PMI. If you are already paying PMI, make sure you watch your equity and drop the PMI once you hit 20 percent.

Be sure that if you choose to pay extra points that your lender will accept this. Sometimes it works for you and you save money, but sometimes the lender you are with will not do this. A lot of the major financial institutes now have point calculators online that can help you calculate your interest rate and monthly payment with purchasing points. Make sure that you will be in the home long enough to make this worth your while.

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Size and Cost Consideration

As you begin the plan of your new home, you should realize that the first step is to calculate a figure that you feel is affordable for you. You should include the cost of the land, landscaping, building material (interior and exterior), and any other options that you know you will need before the completion of the project. As a reference, view the Financing Your Home section to get a better understanding of how much a lender will allow for a mortgage.

Your plans may start out very full and wishful, but you will need to keep in mind the additions and modifications that you will almost certainly make will create an issue with the affordability of your new home. When you determine your budget, you will be able to better determine what is affordable for the size and features of your home.

The size will be the most important factor in building the home. You can contact the National Association of Home Builders in your local area to determine the average square footage cost for a new home in your locality. Multiply the square footage of you building plans with this estimate and you will know your general cost.

If the total cost of the plans has gone way over your budget, you may have to consider choosing a new design or scaling down the one you have. If you are just slightly over budget, you may be able to adjust options and finishing touches to make sure your budget will be met. Calculating your budget is a difficult and time consuming step, but one you must do first. It would be much more disappointing to skip this step and find that you are unable to finish your new dream home.

Write down a list of your priorities for the room you will need. Think of how many bedrooms and bathrooms your family now or in the future will require. Do you want a family room or a living room, or both? Should your kitchen be eat-in or separate with a dining area? Have you thought of any extra areas in the home such as libraries, home office, study, playrooms, and so on? How big will the garage be and will it be part of the home or detached? Are you planning on a finished basement? All of these thoughts will have different budget adjustments depending on the features, sizes and amounts of these rooms.

If you have done all of the above and are finding that you are not going to be able to have it all in the budget you set, consider options to build the home now and expand later. You may want to add a lower cost patio or second floor area that is suitable to build or add to later for the extra rooms you would like to have. Knowing in advance that you plan to expand, these areas can be built with foundation and accessibility options to ease the additional cost during expansion. There are also many finishing touches you can consider holding off on until your budget allows. (See a later article on this subject.)

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The Right Mortgage For You

When you begin choosing your mortgage, you should know that there are several different types available. There are also a few things that you should consider before choosing a particular mortgage. Your current and expected financial situations and the points you are willing to pay should be taken into account. Take into consideration the interest term you will want. Will you prefer to be on a set interest rate or gamble on an adjustable rate? Below are a few of the most common types of mortgages available.

Fixed-Rate Mortgages will offer a set interest rate. This will not change throughout the term of your loan. If you are given a locked rate of 7% that creates a payment of $1,150 per month, then in 20 years, you know you will still be paying that same amount per month. Remember that your insurance and property tax payments yearly can still increase and decrease your monthly payment, as they are included in it.

Adjustable-Rate Mortgages (ARM) will have fluctuating interest rates that are based on market changes and economic trends. They normally offer a rate lower than fixed-rate mortgages to start. Your monthly payment may increase or decrease considerably. Long term, it may be frustrating to not know what your payments will always be, but if you are not planning to be in the home for more than a few years, this may work to your advantage.

Balloon Mortgages start out with a lower interest rate than fixed-rate mortgages. This rate will last five to seven years then will require a "balloon" payment. This balloon payment will be the final payment and remaining balance of the loan. The monthly payments are low since the interest rate is amortized low for the length of the loan. If you plan to sell, pay off, or refinance the home before the balloon payment is due, this may be a good option for you.

Government Housing Loans are helpful to lower the cost of the mortgage so that more people can afford to own their own home. There are three options available through government agencies. Lenders must be approved to offer these loans, and they must meet standard requirements to qualify. The FHA, Federal Housing Administration, is part of the U.S. Department of Housing and Urban Development. The RHS, Rural Housing Service, is a branch of the U.S. Department of Agriculture. The third government agency is the VA or Veterans Administration.

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The Right Kind of Loan

Choosing the right loan or loans for your building project can seem like a balancing act. Knowing about the basic types of loans may help with your frustrations.

A bridge loan is a short-term loan to help with the money situation you will have in between closing your new home and your old home. The term 'bridge' refers to beginning the new construction while you are selling the current home. The home you are selling is used as the collateral for the bridge loan. The interest rate is normally a bit higher on these loans. There are also processing and administrative fees included in the loan. For most residential bridge loans, the term is six months or less. If you choose this loan, be sure that you can pay all your loans until the closing on your old home. You will probably be paying your old mortgage, new one, and the bridge loan for at least a couple of months.

Construction loans are for financing the 'construction' of your new home. Most financial institutions will require a construction rather than conventional loan when you are building a new home. They will transform the construction loan into a conventional loan once the home is finished. There usually aren't any fees for this either. With the construction loan, the builder will have the ability to get 'draws' from the bank during the different phases of the construction. They receive one last one at the completion of the home. The amount of draws that are available will depend on the bank you choose and the down payment you make. Most banks will charge a fee for each draw, and some will also charge administration fees and higher interest rates.

Once your new home is done, you will most likely have a conventional mortgage. The typical term on these is 15 or 30 years. A 15-year mortgage will probably have a slightly lower interest rate. Most financial institutions will allow you to buy down your interest rate to a lower rate by paying points up front. Each point costs one-hundredth of the amount you are mortgaging. For instance, a point on a $100,000 mortgage would cost you an extra $1,000 as part of your mortgage application fees. As a general rule of thumb, each point your purchase will reduce your interest rate by a quarter of a percent. It is wise to do this if you plan to own your home for five years or more. Each point you reduce can save you thousands over the term of your loan. Remember the points at tax time also. In most cases, you can deduct the points you have purchased in the tax year on your federal income tax return.

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Plan Ahead for a Homebuilding Loan

Be ready to fill out lots of forms and supply tons of notarized and legally sealed background documentation. To be prepared for this onslaught, you should have these documents ready:

* Past 2 years tax returns with W-2s.
* Social security card.
* Past 3 months of Bank and credit statements.
* Current employer information and verification (employment contract or letter from your employer will probably suffice. You will need 3 years of professionally prepared tax statements if you are self-employed.)
* Most recent pay stub showing year-to-date earnings.
* A list of any investments, including: pension plans, 401ks etc.

If you plan to include the income you receive from support or alimony of any kind, be sure to take copies of court records and cancelled checks to show proof of receipt of these payments.
If you are shopping around for the best loan rates, be sure to consider in the different fees that are associated with getting the mortgage. Different lenders may include or not include some things or have different costs. Know each individual fee and compare them along with the total overall costs.
These fees may include escrow, loan processing, title insurance, flood reports, and more. Some financial institutes may have low interest rates, but the other fees may be much higher or even unnecessary. Be persistent about having all the cost and fees shown and explained to you up front.

Source thehousedesigners.com

Mortgage Agencies

Shop around to find the best mortgage. It may be a good start to ask neighbors and colleagues whom they can recommend. Referrals tend to be the best way to find new business contacts, even mortgage brokers. Shopping around a little can help you find security and enable you to put more money into your home.

Here are a few things to consider when beginning your search.

The Federal National Mortgage Association (FNMA)/Fannie Mae is one of the largest single sources of mortgage funds. They underwrite a huge portion of the conventional loans by mortgage bankers. The FNMA provides funds for FHA and VA loan guarantee programs and conventional loans. They are what you would consider as secondary lenders. They will purchase primary loans from other banking institutions if they meet Fannie Mae loan requirements. Most bankers do their best at meeting these requirements so they will have that later option of selling the mortgage to them.

The Federal Home Loan Mortgage Corporation (FHLMC)/Freddie Mac is similar to Fannie Mae. They purchase loans for FHA, VA and conventional loans.

The Veterans Administration (VA) is a government loan guarantee that provides financing to qualified veterans, national guardsmen and reservists. These loans are guaranteed by other loan sources.

The Appraisal
You will be required to have an appraisal done after you have chosen the lot and purchased the home plans. This will determine the value your new land and home will have. This amount will determine the loan amount, down payment and monthly cost of the loan by the lending institute. Knowing the appraisal value, the lenders can factor your financial standings and the actual requirements. If you are unable to agree or meet the terms offered, speak with your builder. They may be able to make some changes to lower the cost that will satisfy the lenders. Remember location, age of subdivision, design, size of house, number of houses for sale in the prospective area, etc. all determine the total value of your home and property.

Source thehousedesigners.com

Lifestyle Considerations

Most homeowners do not consider the appropriate things as the major concerns. Most will think of the house size, the floor plan, the exterior, and their budget first and foremost. There are some things that are overlooked, but are very important and should be considered first. Think about the possibility of the size of the family changing, needs that may change, or even psychological needs changing.

Identify their needs. The first time any of the ten designers or architects of The House Designers has a meeting with a new client, that is the first issue they discuss. Knowing what the family needs will help to create a design that is as close to exactly what the client wants as possible. They help clients to develop a program that creates a framework within which to work.

When you are doing the developing yourself, make a list of what your needs are. Make the best effort at being honest and open about what you need in your new home, what you want, and what you expect from your new home. You should understand that these are your personal requirements for now and in the future. How much time do you expect to spend in what type of areas? What about changes in the future? Are you planning a family or is there a possibility of additions to the family?

What about your parents or other close loved ones? Many people welcome them to their home as they are getting older to help care for them. Is this a possibility for you? Do you need a home office in now or in the future? Will you be living in this home after retirement? Is there a possibility that a child will return home after college? Do you have the space to accommodate an elderly, ill or disabled person?

Do you plan on entertaining in your home? Some people like to have separate areas for adults and children. Are you at a point where you used to require those things, but no longer do now? How do you feel about a Great Room that opens the entertainment area to the cooking and dining rooms? Would you prefer a casual meal in a country style kitchen that combines the kitchen and dining area or do you consider your kitchen heavily used and prefer the dining area to be separate?

Whether you like to admit it or not, do you worry about impressing other people? If you do regular entertaining for business and it is important to you that your home is impressive to your guests, then consider this in your home's design.

If you are less concerned with the perceptions of others than you are with personal gratification, then let your instincts be the guide. You may need to search deeply to strike a balance between personal needs and making a statement.

Budget should also be a concern. Don't forget your landscaping and furnishings. Leave enough in your budget to accommodate these things. A guide to allow cost overages is a minimum of ten percent over the total cost. This will help cover unforeseen changes, additions, or upgrades that will more than likely occur.

Source thehousedesigners.com