By Stephen Fournier, President, Central New York Market, KeyBank
With the deadline to file taxes having just passed, and the effects of recent tax reform laws coming to light, real estate and tax professionals agree on one thing: not every taxpayer is created equal. As a result, a broad determination of tax reform on homeowners is not simple.
Overall, the consensus is the impact of tax reform on borrowing will be minimal. The economy is strong, wages are growing, and interest rates remain favorable. These are great signs for buyers and sellers, and this spring, industry experts expect both groups to be active.
Homebuying basics
When it comes to getting a loan, doing your homework pays off. Even if you have been through this before, reviewing the application and understanding the steps in the process can help you find best loan and interest rate for you.
First, get your finances in order. Check your credit score. For the best rates, lenders are looking for a FICO of at least 720. The healthier your FICO score, the better your rate will be. But even if your credit is not stellar, there are still options available to most potential homebuyers. You just need to know how to prepare yourself by taking the following steps.
- Step one: determine your available down payment. How much will you be able to put down on a house? Ideally, you should have a down payment of 20 percent. This will save you from paying PMI and may help you get a better interest rate. But low down payment options are available to credit worthy buyers. A KeyBank Mortgage Loan Officer can help explain these options to you.
- Step two: research interest rates. Do not go into the process blind. Read up on what is being offered right now, and get rate quotes so you can make an informed decision.
- Step three: collect paperwork and documentation. You will need to provide pay stubs for the past 30 days, W-2 forms or tax returns if self-employed from the past two years, as well as statements from bank and investment accounts when you begin to apply for a loan.
- Step four: get preapproved. You will need a preapproval letter from a lender to put an offer in on a home.
After you’ve had the opportunity to talk with lenders, determine the type of loan that best suits your needs. There are many types of loans available, including fixed rate (FRM), adjustable rate (ARM) and government-insured loans. The type of loan you choose will really depend on your particular situation, such as how long you plan to stay in the home and the monthly payment you can comfortably afford.
Alternative financing
Although credit standards are fairly rigorous, alternative forms of financing remain available to potential homebuyers:
- FHA – these are a great option for those with steady income but not a substantial down payment.
- VA – for those with current or previous military service, low down payment options are available.
- USDA – another great option for those with a lower down payment but with income limits.
- Jumbo – for loans exceeding the conventional loan limits in your area.
Don’t be afraid of uncertainty. Lack of a sizeable down payment or a weak credit history won’t necessarily keep you out of a house. For example, many banks, including KeyBank, offer mortgage products that allow for low down payments, flexible underwriting, assistance with closing costs and client-centric terms.
Word to the wise
As already mentioned, one of the best steps you can take to make the financing process easier on you is to get pre-approved for a loan. When you are pre-approved, you know your price range for shopping, you are more attractive to sellers and you can expedite the closing process.
Shop smart and stay within your price range. Save yourself time and possible heartache by shopping for homes you can actually afford. Many people have had to sell or foreclose on their dream home because they were in over their heads.
Talk to your banker or go to homebuyer education programs in your community. They can help you understand your options and show you that homeownership may be more affordable than you realize. Provide local organizations (i.e., TRIP, RCHR and AHP) are just a few Central New York organizations that help local individuals and families realize the dream of homeownership.
Remember, purchasing a house is more than a long-term investment, and there is no perfect time to buy. Like taxes, it is very individual. However, homeownership is a great measure—and driver—of financial wellness.
Will the new tax law impact homeowners? Yes. How much and whether or not that will be offset by other savings remains to be seen. Your accountant should be able to help provide you with answers to any tax-related questions you may have.
About the author: Stephen Fournier is president of KeyBank’s Central New York Market. He may be reached at either 315-470-5096 or [email protected].
Things to consider before buying a house
Your house is your shelter, but it is also likely the largest investment you will ever make. So not only do you need to make sure you are really ready to take the plunge, but it is also important to know how you can best maximize the value of your purchase. That means doing some homework before you sign on the dotted line.
Think about your long-term plans. According to Kiplinger.com, you need to stay in your home five to seven years to make the purchase worth your while. The reason: in most markets, home values increase only marginally year-over-year.Look for ways to boost your credit score. Ideally, you want to review and start working on cleaning up your credit report months before you start the loan application process. Make sure the details are accurate. If they are not, have them corrected. If your credit score is not as high as you would like, talk with your banker to see how you might be able to strengthen it before applying for your mortgage. You can view your credit report for free at annualcreditreport.com.
Calculate how much house you can afford. The cost of owning a house is more than your monthly mortgage payment. You need to account for taxes, debts, and other expenses, as well as maintenance fees. Online calculators and tools, like KeyBank’s financial wellness tool HelloWallet, can be helpful.Value location. It’s a cliché, but location rules supreme. Research the schools, crime rates and quality of municipal services. First, buying in the right location will improve your quality of life. Second, homes in great communities with great schools generally increase in value and will be easier to sell further down the road.
Work with a professional. With the internet, you can conduct your house hunt from the comfort of your living room couch. However, there are still many details you will likely overlook if you try to represent yourself during the buying process. In addition, an experienced agent will know the nuances and history of the market better than you, which will help you secure the best possible price on your new house during negotiations.Hire a home inspector. A home inspection and an appraisal are two very different things. The appraisal is the bank’s method for determining the value of the house you are buying. An inspection will identify problems that need to be addressed at an additional expense. In some instances, you may be able to renegotiate the terms of the contract if costly repairs are required.
