What do lenders look for in borrowers?

Money Scale I’m shopping for my first home, and looking at various lenders and what they have to offer. But what are they looking for in me, the borrower?

  • Lenders double check self-employed income. If you're self-employed and shopping for a mortgage, your lender may be contacting the Internal Revenue Service - directly. In the past, self-employed applicants have often had to produce copies of tax returns to back up income stated in the loan application. Now, however, lenders can compare income claimed on the loan application to the amount on the tax forms filed with the IRS.
  • Lenders try to predict credit problems. Some mortgage lenders have added a follow-up credit check on borrowers after they have closed on a loan. Similar to credit scoring now used in deciding whether to make the loan, the new default-risk scoring evaluates the likelihood a borrower may default on the loan. The score indicates, for each mortgagee, whether a delinquency would likely become a default. Then a lender can decide what action to take, if any, if and when payments fall behind.
  • Lenders can help high-risk borrowers. For a high-risk borrower, a lender can intervene early and provide credit counseling, short-term payment modifications or other measures to help prevent foreclosure. On the other hand, a lender may opt to give a high-risk borrower less leeway in time of financial crisis.

Should I ask for a home inspection before I buy?

Magnifying Glass When buying a home, leave yourself the option to get a second opinion. Consider putting a contingency clause in your offer that allows you to get a home inspection and cancel the sale if the results of the inspection are unsatisfactory. If there are serious problems, a home inspection can prevent some serious hassles.

  • Who pays for the inspection? The buyer usually pays for the inspection, which can cost several hundred dollars. The seller generally wants the inspection completed within a short time period, say five or ten days. For this reason, when you start shopping for a home, also look around for a good home inspector. Ask your agent for several names.
  • Who should attend the inspection? You. You'll learn a lot about the place that could soon be your home. If it's practical, your real estate agent and the seller should also accompany the inspector. Wear old clothes and comfortable shoes, as a complete inspection goes from attic to basement. The inspector should check for structural defects, plumbing and wiring problems, dampness in the basement, leaks from the roof, termites, lead paint, dry rot, energy efficiency and compliance with local building codes. Any visible and accessible problems should be noted immediately and then included in the report.
  • What happens if the inspection uncovers problems? If you put an inspection clause in the contract, you may back out of deal if serious defects are found. What happens more frequently is the buyer will negotiate with the seller to have the problem repaired or the sales price adjusted.

Click on “Ask Your Own Questions” for answers to other questions you might have about contract negotiation.

What are the types of agency and who does a real estate agent really work for?

Glasses w/Nose Many beginning home buyers and sellers are confused about who real estate agents represent. Don’t worry, they’re not trying to disguise themselves. Here is a quick look at the various types of agency:

  • Seller agency The most traditional situation is one in which the seller is represented by both the real estate company who lists the home for sale and the real estate company who brings in the buyer.
  • Buyer agency This is a relatively new trend in real estate. Just as a written Listing Agreement is required to represent a seller, a written Buyer Agency Agreement is required to represent a buyer. Under that written agreement, the agent represents the buyer with confidentiality and loyalty, and shares with the buyer any material information.
  • Disclosed dual agency In this case, an agent helps both the buyer and the seller. There must be informed consent of both the buyer and seller, using a written agreement with the involved broker(s). Special conditions apply regarding disclosures to both parties, including limitations on an agent's ability to represent either buyer or seller fully or exclusively.

We like new homes, but what are some mistakes we should take care to avoid?

Building Frame House Buying a new home built to your specifications can be exciting. But there are a few pitfalls that can make a home hard to resell when you are relocated.

Here are some keys to a smart selection:

  • Look at the location. One way to compare the value of various locations is to see how national builders price the same home in different nearby suburbs; there may be thousands of dollars of price difference for homes a few miles apart. Also, check how quickly existing homes resell in the neighborhood, and whether the sellers realize a profit or loss.
  • See what they're selling. Check if the builder has a model on site of the style and price home you want, or if a model is available at another nearby subdivision. Look for things that may not be noticeable on plans like narrow or steep stairs, poor workmanship, awkward placement of doors, etc. Also, try to see a nearly completed home to judge how the home will look with less finish and fewer upgrades than the model has.
  • Stick to the facts. Bring a scale floor plan of your current home with you, and be sure to include room measurements on the plan. Also, bring floor plans of any other homes you especially liked so you can have something concrete to compare.
  • Add up the options. Putting in too many options may price your home out of the market, but too few may make it difficult to resell. Hardwood floors on the main level, a fireplace in the family room; rear deck and walkout basement are important options in many areas.
  • Check it out. Hire a home inspector to check the home during construction as well as before closing. And consider having an experienced real estate attorney read the purchase contract before you sign it.

I’ve found the home I want, but it needs a lot of repair. Can I borrow money for both the mortgage and the repair?

Kitchen You love the home, but it needs work, and all your cash is going toward the down payment. Now, with a special government program, you can apply for a buy-and-repair loan to borrow enough to fix up the property as well as buy it. The program, which is the Federal Housing Administration’s (FHA) 203(k) loan, rolls the cost of repairs into the mortgage.

  • Under this program, first-time buyers may be able to purchase a fixer-upper with no down payment. And recent changes in the program make it more user-friendly, including a reduction in mortgage insurance costs and streamlining the approval requirements.
  • Qualified repairs, which must total at least $5,000, can include re-roofing, replacing windows, replacing a water heater or furnace, energy improvements, landscaping and providing handicapped access. Be sure to ask about local loan limits for this program, the same as for other FHA loans.

When we work with you, your concerns are our concerns. If we don’t have the answers you need, we’ll find them. Call or e-mail us, then get ready for a productive partnership.

If we contract to buy a home for a higher price than the appraisal, can we get our deposit money back if the loan falls through?

Skyscraper Consider adding a clause in your purchase offer that makes your offer contingent upon obtaining acceptable financing. Then, if financing is unavailable to cover your purchase offer because of a low appraisal, you can renegotiate your offer with the seller to meet the appraised price, or find another home.

Timing seems to be critical. Should I wait until interest rates drop?

Piggy Every home buyer wants to buy when interest rates are at their lowest. When interest rates are at near-record lows, potential buyers or homeowners looking to move up are asking themselves if the time is right to act.

No one can predict with certainty where rates are headed at any particular time. But time is money and waiting for a bottoming out may instead provide time for rates to rise. This chart shows how rises in interest rates can have a dramatic effect on monthly payments.

Monthly Payment

Loan Amount at 7½% at 8½% at 9½%
$50,000 $350 $384 $420
$100,000 $699 $769 $841
$150,000 $1,049 $1,153 $1,261

Can you afford to wait? For information specific to your needs, call or e-mail us today. We’ll be happy to answer your questions.

What do I do if I can’t move into my new home for quite some time?

Mailbox When several weeks of temporary housing are part of the relocation plan, many transferees opt for furnished extended stay hotels. Roomier than hotel accommodations, extended-stay facilities often offer transferees many of the comforts of home, while saving money over the cost of hotel beds and restaurant meals. Extended-stay suites, like a typical apartment, offer kitchens, dining and sitting areas as well as sleeping quarters. Many also offer hotel amenities like housekeeping service.

  • Special Services Available Different levels of accommodations are available even when the units are similar. Some extended-stay providers include furniture delivery and cable hook-ups, deluxe furnishings, kitchen utensils and dishes, and full housekeeping, while others offer a range of services on a cafeteria-style basis. Also, some providers will bill the employee's company directly and will tailor leases to the time actually needed. Call or e-mail us about extended-stay facilities we know.

We have answers to your relocation questions. Call or e-mail us, and we’ll be happy to talk to you about your special situation.