Buying a home in Napa

There are a myriad of details related to purchasing a home, a major financial investment for most.

Below are articles related to that home buying process.  They address private mortgage insurance that are required for certain mortgages, the competitive housing market and how to make offers, VA loan benefits and assessing a home’s value with price per square foo.

•    An Unexpected Expense
•    Make Good Offers Better
•    The Reason They’re Called Benefits
•    How Was It Measured?

An Unexpected Expense

65% of buyers who are required to pay mortgage insurance report that the amount they pay month is more than what they had original expected.  This comes from a TD Bank study.

When loans exceed 80% of the value of the residence, private mortgage insurance is required. Premiums range from 0.5% to 1% annually for conventional loans.  This means that borrowers can be expected to see $100 a month added to a mortgage of $200K and twice as much, if they have a FHA mortgage.

For a FHA mortgage, there are two parts:  at closing an up-front charge and the 2nd is an annual charge.  The first component is 1.75% of the loan amount.  This can be paid for at closing or the amount can be added to the loan amount.  Annual premiums range from 0.45% to 1.35%, dependent on the life of the mortgage loan and the loan-to-value ratio.

Most borrowers can expect that it would take 8-11 years for their loan-to-value ratio to reach 78% when they are no longer required to have mortgage insurance.  In fact, most lenders are required to cancel such coverage automatically when that point is reached.  In the case that the home has appreciated so that the loan-to-value is below 80%, borrowers can petition their lender for release from paying mortgage insurance

From April 2013, however, the FHA changed this rule so that mortgage insurance is required the whole length of the loan.  Prior to this, a minimum of 5 years was required for the mortgage loan to be in effect but could be cancelled when payments had reduced the mortgage to 78% of the purchase price at the beginning.

If a homeowner wanted to reduce their housing costs, avoiding mortgage insurance would be an excellent strategy that can be achieved with a minimum down payment of 20%. If in order to purchase a home a higher loan-to-value mortgage is needed, borrowers should focus on paying down the mortgage to a point that they are no longer required to have mortgage insurance.  Generally, lower interest rates are secured with loans that have a lower loan-to-value ratio.

If home buyers are planning to use IRA funds to help with purchasing a home, expert advice about their individual situation should be sought from their tax professional.

Make Good Offers Better

When your heart is set on purchasing a particular home, being turned away can be very discouraging and frustrating.

In the eagerness to acquire a home, many buyers today need to be aware that just because they are writing an offer doesn’t mean you are getting the home you want.  You may not even see a counteroffer.  Why?  the low inventory makes the marketplace too competitive.  Therefore, today’s buyers need a different strategy.

1.    You can’t be holding back on your best offer because you may only have one chance.
2.    A written pre-approval letter from the lender must be submitted.
3.    Earnest money should be above what is considered normal.
4.    Consider making a larger down payment.
5.    Avoid having unnecessary contingencies.
6.    If personal property isn’t included in the listing agreement, forget about asking for it.
7.    Consider paying your closing costs.
8.    The inspection period should be shortened as much as possible.
9.    You want to buy the home “as is”.  Remember that if inspections aren’t acceptable, you can get your earnest money back.
10.    Make your offer personal by writing your story, handwritten, about why their home is one you want.  You may even want to include a photo of your family.
11.     For title company?  Offer to use the company trusted by the seller or listing agent
12.    Cash offers are powerful so if you can do so, pay cash and after closing you can arrange for financing. You need to be able to prove you have the funds available.
13.    Closing should be scheduled ASAP while also letting the seller know you can be flexible.
14.    It’s important to move ahead quickly once you’ve decided to buy a home.
15.    Remember to ask for suggestions from your real estate professional.

Remember that purchasing a home is competitive, so you can think of it as though you were applying for a job.  You want to put your best foot forward and let them know why selecting your offer is their best choice. It’s probably realistic to assume that there will be multiple offers and yours needs to be the most attractive.

Remember to work with your real estate agent to craft the best offer.

Fifteen Will Get You Three

Most buyers choose the usual 30-year mortgage.  According to Frank Nohalt who is chief economist at Freddie Mac , the reasons are that because they are most affordable, are flexible and stable.  However, there are good reasons for those who have the resources to choose a 15-year mortgage:  you build your equity faster, retire your debt in half the time and you definitely save on the interest that you pay.

First-time buyers especially are focused on affordability, choosing the smallest amount for a down payment and the smallest affordable monthly payments.  They overwhelming choose at 30-year mortgage with fixed interest rates.

As an example, compare the total interest paid for a $200K mortgage.  The monthly payment for 30 years at a 4.2% interest rate. is $433.15, however, especially through the first 10-15 years, the amount of interest paid is considerable.  A 15 year mortgage at 3.31% will result in.saving three times the amount of interest:  $54,012 compared with $152,090.

As you can see from examining the chart even from the first payment, more monies are applied to the principle. With a 30 year term it will take 13 years before the amount paid toward principal is greater than what is paid as interest.

Obviously, the more you pay beyond the monthly payments will accelerate the accumulation of principle.  Hence, if possible it’s every prudent for any extra funds be toward toward the mortgage, as if borrowers were on a 15-year plan.  This is one of the “hidden” financial bonuses of a mortgage: the savings that is forced upon borrowers because of the build up of equity when monies are paying the principle.

The Reason They’re Called Benefits

Veterans have an attractive option when acquiring a mortgage for a home purchase.  A VA loan is guaranteed by the government and requires no down payments (up to a specific loan amount) and no mortgage insurance.  Consequently, monthly payments are impressively less than for usual mortgage holders.

Let’s look at an example of a $200K purchase with a 30-year mortgage with a 4.5% interest rate.  A FHA loan monthly payment would be $1,215.94 because additional mortgage insurance of $221 would be included. In addition there is an up-front mortgage insurance payment of $3,377.50 added to the down payment of $7,000.

Whereas, a VA without down payment, a funding fee of 2.15% that can be included in the mortgage would have a monthly payment of $1,035.16 for a $204,300 mortgage.

Loan limits were revised for 2014 and subsequent changes can be expected especially where homes prices are high.  However if a 25% down payment were made the limits can be exceeded.

For example, a purchase of a $600K home where the VA limit is $417K, a $45,750 down payment will qualify the borrow for a $554,250 mortgage loan.  The down payment is less than 10% and remember, there is no mortgage insurance premium added to the monthly payment

Veterans are advised to look at their options after gathering all funds available to them for a down payment.  Then additional help can be sought from a real estate professional and a mortgage loan consultant who can be trusted.

How Was It Measured?

One of the common ways in which homes are compared is looking at the price per square foot.  While it seems like a straight forward way of comparing two potential purchases, there are unfortunately different ways that homes are measured. measured.

Comparing square footages between properties assumes that they are comparable in other ways such as condition, location, amenities.  Each of these factors would affect the value of  a home and it’s price per square foot.

The usual sources of the square footage are:  from the builder or the original drawings or the tax assessment or from an appraisal.  Errors can always be made.

Another factor that may results in inaccuracy is what is included in the measurement.  Does it include porches and patios?  How about garages, storage areas?

Then, there’s the issue of the basement.  In many areas nothing below the grade is considered in measuring square footage.  Yet almost everyone would agree that a finished basement adds value to what a home offers.

Having accurate square footage is obviously important because it is a factor in how a seller bases a listing price and how a buyer assesses a prospective home.

For example, a 2,800 square feet residence may be appraised at $275K resulting in a $98.21 price per square foot.  Then you can see the challenge when the assessor uses 2,650 square feet and the owner using builder’s specs uses 2.975.  Three different figures.

Taking the example one step further, the property above with the assessor’s square footage results in $103.77 per square foot.  The owner’s calculations would be $92.44.  Depending on which valuation you use, there is a $30,000 difference in the home price.

Buyers are advised to avoid assumptions about price per square foot.  More investigation is required to discover how square footage was calculated.