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How Does Rent-To-Own Work?

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Rent-to-own is an option if you are looking to purchase a house. Rent-to-own is not for everyone, and comes with its own set of pros & cons.

Here’s a list of all the things you need to know about renting-to-own before buying a home.

The Basics

Rent-to-own has many appealing features, but it also comes with risks.

When you enter into a contract of this type, you agree to rent a property for an agreed-upon period before you become the owner. The length of time you rent a property can range from a few months up to several years depending on your contract.

A company or an individual may own the property.

The contract stipulates that the seller is entitled to a certain percentage of each rent payment. This money goes towards the equity when the buyer buys the property.

Rent-to-own agreements can be classified into two different types. There are two types of lease-purchase agreements: a lease option contract and a lease purchase agreement. The lease option agreement gives you the option to purchase the home at the agreed-upon time. A lease-purchase agreement is different because you are legally required to buy the home.

The Process

Rent-to-own transactions can have a variety of unique elements.

* The agreement will first specify a price. The price may be based on either the current value or the estimated future value. The price could be set when the buyer and seller sign a contract, but sometimes it’s decided after a lease expires.

* As part of the contract, you will pay a certain amount of rent every month. Rent payments will be higher than comparable rents in the area because a portion of the payment is set aside for your future purchase. When you sign one of these agreements it is important to understand what you are agreeing to.

* You pay a one-time, non-refundable fee to the seller. Some sellers will then apply that towards your equity. It’s calculated as a percent of the purchase price.

* Your lease contract will specify a specific term.
If you plan to buy a home at the end the lease, you will need to obtain financing. A closing date will be set.

Rent-to-Own: The Benefits

Rent-to-own agreements have many benefits for buyers.

*You can build up your down payment gradually rather than having to pay a large amount upfront.

*When you’re ready for a purchase, you don’t need to worry about other buyers.

* You do not have to qualify for an mortgage immediately. Instead, you can work towards improving your credit score.

Rent-to-Own: The Cons

Rent-to-own agreements may initially seem like a great idea, but they have a number of downsides.

* You will pay more rent for a similar home, because you’re forced to put money aside as a downpayment. You could rent a less expensive home and put your money in a bank account that earns interest to help you save for your down payment.

* You will still be required to pay the non-refundable option money, even if you end up not completing your deal.

* You will likely have to pay for the maintenance and repairs of a house that you do not yet own.

* If the value drops, you may be stuck with an agreement that has a much higher purchase price.

*You may lose equity in your home due to circumstances beyond your control. If the home goes into foreclosure, for example, it is given to the bank.

You must weigh the pros, cons and your own financial situation to decide what is best for you.

Rent-to-own is not always the best option for buyers. It’s better to get your finances straightened out and take the traditional route.

Original Blog: https://realtytimes.com/archives/item/1041539-how-does-rent-to-own-work?rtmpage=

10 Maintenance Tips for New Homeowners

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As you learn how to care for your new home, you’ll likely make some mistakes. This basic checklist will help you to get started.

  1. Make sure to check gutters frequently. To make sure they’re clear of sticks and that they are properly attached. Verify that the water flowing from your gutters does not damage your home’s foundation.
  2. Test smoke and carbon dioxide detectors every month. Experts recommend that you also change the batteries of these devices as part your routine at the time when the clocks are changed in the spring and fall.
  3. Replace HVAC filters at home. According to the manufacturer’s recommendations, especially if allergies or pets are a problem. A dirty filter is a sign of an inefficient system.
  4. Check the trees on your property. Tree-service companies can provide you with advice on how to take care of your trees, and help identify weak branches that need to be cut.
  5. Check for running toilets or dripping faucets. The small inconveniences can lead to large water waste. You can fix most toilets and faucets yourself.
  6. Make sure you check the supply hose of your washing machine. It can leak and cause costly damage.
  7. Clean your dryer vent regularly. The dryer vent should not be confused with the lint-trap (which is also cleaned frequently). The dryer vent pushes air out of the house through a duct. However, it can become filled with lint which could cause a fire.
  8. Clean around your refrigerator. Keep the coils and vents under and behind your fridge free from dust to maximize its efficiency.
  9. Be aware of the gaps. Are there gaps or cracks where wires and pipes enter your structure, around windows or doors? Caulk and replace weather stripping if it’s damaged or missing. You will be able to keep your house insulated, and also keep out bugs and other small creatures.
  10. Have a pest-control expert inspect your home. Even if you don’t suspect signs of infestation.

You can see that maintaining your home is a big job. These tips are just the beginning. Ask your Realtor about other resources to help you maintain a safe, efficient and well-maintained home.

Original Blog: https://www.texasrealestate.com/members/posts/10-maintenance-tips-for-first-time-homeowners/?utm_medium=email&_hsmi=257660844&_hsenc=p2ANqtz-_lup9ragiZm-lx4eq-Mj_0TcndsbsjMvk536ktKaUvIcQoBeklgoE6qqMljG453ymwNC–urzcFA5kCenRp7Az7F37jQ&utm_content=257660844&utm_source=hs_email

Loan-to-Value Ratio Break Down

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You’re going to hear many terms when you buy a house, and some may be unfamiliar. The loan-to value ratio, or LTV, is one of them.

LTV is the comparison of the amount you want to borrow versus the appraised value of the home you are trying to purchase. This comparison is used by lenders to decide whether to approve a loan or not. LTV can also be used to determine whether you need mortgage insurance.

The higher your LTV, the greater risk you may pose to a lender.

The loan-to value ratio tells you how much you own in relation to the amount you owe for your mortgage. LTV is used most often for mortgages but can also be used for refinancing and car loans.

Lenders will not only look at the LTV. Lenders will also look at your credit score, how much you can afford to pay each month and the condition of what you are trying to purchase.

You’ll be in a much better position to obtain higher LTV loans if you have a good credit rating. You may be denied approval if you have a large LTV ratio. Or, you could have to pay a higher rate of interest. Mortgage insurance may be required, which reduces the risk of the lender.

How is the loan-to-value ratio calculated?

You can calculate the LTV ratio yourself. Divide the mortgage amount by the appraised value and then express it as a percentage.

If you bought a house with an appraised value of $100,000, and put down only $10,000. You would borrow $90,000. This leaves you with a LTV of 90%. If you made a downpayment of $20,000, your LTV would be 80%.

The more money you get from a lender, the higher your LTV and the greater the risk that they are taking.

Collateral and LTV

When the LTV calculation is used to determine a loan’s terms, it’s likely that the loan involves collateral. A loan is secured by a lien. This lien remains in place as you pay your mortgage. If you fail to make payments, your lender may take possession of the home and sell it. The goal of a lender is not to seize your property. Instead, collateral allows them to get some money back in the event you default on a loan.

The idea is that if a lender gives you only 80% of your property’s value, they will still be able to sell it at a discount and still make their money back.

Negative equity is when you get a loan for more than what you paid for the asset. A negative equity is a LTV ratio greater than 100%. It’s an underwater mortgage in that situation.

What should the LTV ratio be?

LTV is usually around 80%. You’ll need private mortgage insurance if you borrow over 80% of a house’s value. This will give your lender protection. Your lender will often let you cancel your insurance once you reach 80% LTV.

You may be able to get an FHA mortgage with only a 3% deposit, which would make your LTV at 97%. Mortgage insurance would be required, possibly for the entire term of your loan.

You can increase the LTV by getting a home equity line of credit. If the value of your house increases, then your LTV will decrease.

There is no definitive answer to the question of what LTV you should have in your mortgage loan. The closer it is to an acceptable percentage the better. However, there are many other factors which affect the decision.

For any real estate questions or information please contact us today!

Original Blog: https://realtytimes.com/archives/item/1043363-loan-to-value-ratio-explained?rtmpage=

What Is a Verified Approval Letter – and How It Helps in a Competitive Market

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“Congratulations, your offer has been accepted!”

There is no doubt that those words are a cause for celebration to any prospective homebuyer, but they are especially true when competing with other buyers in a hot market. There are many factors that you cannot control when competing against other buyers, but there is one thing that can give you the edge. Get a verified approval letter (VAL), a written offer that proves to sellers that your financing has been confirmed.

The process to get a VAL can be relatively simple, even at a time when purchasing a home is a daunting task. It’s easy to connect with an expert who will perform a thorough analysis of your credit score, debt, income, and employment status. You’ll then receive a Verified Loan Approval letter so you can shop in confidence. It’s also helpful to have a conversation with a Home Loan Expert.

I have personal experience of buying a house in a hot market for 2020. In a seller’s marketplace, we had to prepare more than when my husband and I bought our first home in a buyer market several years ago. She made it clear from our first meeting that being pre-approved might not be enough. She stressed that we should take extra steps to demonstrate to sellers that we are serious about buying a home, even before touring any homes. A VAL is a step above a preapproval letter. It shows that we are serious and ready to buy, even before touring a single home.

Unlike with a pre-qualification, getting a VAL requires pulling credit scores. However, we knew we’d have to take this step in our home buying process eventually, so the slight ding to our scores was a non-issue when compared to the benefits of the VAL. In a market where moving quickly is key, having these steps done ahead of time meant that there was no down time once we were ready to make an offer. With this pre-approval, we could show sellers, yes, we could afford homes up to a certain amount and, no, our financing wasn’t going to be an issue for closing.

I am grateful we took our agent’s advice to check this task off the list before looking at houses. We soon realized that houses would come and go in a single day in our market. If we found one we wanted, the last thing we needed to do was scramble to get a pre-approval letter. By getting a VAL in advance that is valid for 90 days, buyers can be confident they can be competitive when ready to make an offer.

At the same time, going through the pre-approval process helped us get a clearer picture of what we could afford. Although we couldn’t control the ever-changing mortgage rates and how that would affect our ultimate payments when we purchased a new home, we knew how much we would be approved to spend on a home. It also gave us a chance to assess our real comfort level with our budget, which led us to set our personal “max” below the pre-approval figure.

All the while, we were also preparing to sell our home—which, let me tell you, was a very different experience! In this position, we knew we could confidently expect a handful of competitive offers within days of listing our home. Again, our Realtor counseled us to take into account whether a potential buyer had a pre-approval letter. We knew that if we were looking at two side-by-side offers for the same amount, the buyer who came with a locked-and-loaded VAL would win out.

After practicing patience and having a bit of luck, we were able to confidently make an offer on a home that checked all of our boxes. Even in a hot market, that one offer was all it took: Our bid backed by a pre-approval was accepted!

Although our lender still needed to consider the home’s appraisal value, condition and title before giving us the official approval, we were glad to know our finances weren’t going to hold up the process. When we turned around to list our first house, we were thrilled to get a number of offers within the first few days—and ultimately went with a buyer who had a pre-approval letter.

I can say from experience that buying a house in a competitive real estate market is an exercise in coping with a lot of unknowns. From waiting for the right house to hoping the seller will accept your offer, learning how to take deep, calming breaths is a helpful skill to have. With a Verified Approval Letter, though, you don’t just have to cross your fingers and hope for the best—you can actually give yourself an advantage.

– Emily Glover

 

Are you thinking of buying? Our agents at Preferred Properties of Texas are here to help!

 

Original Blog: https://www.realtor.com/sponsored/verified-approval-letter/

Earnest Money – What is it and how much is enough?

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It is crucial to make your home offer stand out in today’s market. You can let the seller know that you are serious about purchasing a house by obtaining a preapproval. You can also put down a deposit as a sign of your seriousness.

This article provides an overview of earnest money, including how you can use it in your favor when purchasing a home as well as how to protect yourself after depositing it.

What is Earnest Money in Real Estate?

To show that you are serious about buying a home, earnest money is paid before the closing. This is also called a good-faith deposit.

If a buyer enters into a agreement of purchase with a seller, the seller removes the property from the market and the transaction proceeds to the closing. The seller will have to start over if the deal fails.

The seller is protected if a buyer cancels. The amount is usually between 1 and 3% of the total sale price, which is kept in an escrow until the transaction is completed. It depends on the customs in your area. If everything goes well, the earnest cash is applied towards the down payment or the closing costs.

The buyer will get their earnest money refunded if the deal fails due to a failed inspection or other contingencies in the contract. Earnest money deposits can reduce the chances of a buyer walking away from multiple offers after the seller has taken the house off the market.

Why should you pay earnest money?

It’s not always necessary to pay earnest money, but you may need it if the real estate market is competitive. These good faith deposits are preferred by sellers who want to make sure that the deal will not fall through. Earnest money is a form of insurance that both parties can use.

Earnest money can also reduce the amount needed at closing, as it is applied directly to down payment and closing costs. You’re essentially putting some money down earlier in the process.

Verified Approval: How it Could Help

If a seller is evaluating multiple offers, they are more likely to favor a buyer who has approved funding. Having earnest money on top can also make your offer standout.

How much earnest money is enough?

How much earnest money to offer will depend on which real estate market you are interested in. If a real estate listing is languishing in a slow-moving market, you may not require as much earnest cash as if there are multiple buyers vying to buy the property. A higher deposit may be necessary if you are planning to buy in an area where bid wars and cash offer are frequent.

You should consult your agent to determine how much earnest cash you should offer. It’s best to not undercut other offers for the same home if you are competing with them. You could lose out to someone who makes a better offer. Your agent will be able to tell you whether a standard good faith deposit is sufficient if the market is slow or moderate.

Is Earnest Money Refundable?

Earnest money is protected by contingencies for both buyer and seller in certain situations.

If you submit an offer to buy a house and the seller accepts it, the sale will only be finalized if certain conditions are met. These are usually listed in the contract and include items such as the appraisal, mortgage approval and inspection.

Home Inspection Contingency

Home Inspection can be a major reason for potential buyers to back out of a deal. A home inspection contingency allows you to cancel the deal if your prospective home has been inspected by professionals and certain elements need repair. You can also negotiate with the seller for the repairs to be made, or to lower the price of the home so that you can make the repairs yourself.

Appraisal Contingency

Appraisal Contingency is also important. It protects the buyer in the event that the property is valued too high. The lender will hire a third party appraiser to assess the value of a home, and compare it with similar properties that are for sale. If the appraised value of the home is less than the purchase price, the buyer can opt to not proceed with the transaction and receive their earnest money. You can also use the appraisal as a tool to negotiate a price increase.

Financing Contingency

Mortgage contingency protects you if your mortgage application is denied. If this contingency is listed in the contract, you can walk away from the deal and receive your earnest deposit back.

Contingency For Selling An Existing Home

Some contracts include a contingency to sell your current home. This contingency allows you to back out of a deal if you cannot sell your current home before closing on a new home.

When To Waive A Contingency

Some buyers may feel pressured to waive contingencies in hot real estate markets. For example, they might do this if are absolutely sure they will qualify for a loan. It’s not a good thing to waive appraisal or inspection conditions. These contingencies exist to protect you.

How to protect your Earnest Deposit

You can protect your earnest cash by taking a few simple steps:

Step One. Use an Escrow Account

Fraud is not a rare occurrence in the real estate industry. You should not give earnest money to a seller or real estate broker. You should instead use a third-party, such as a title or Escrow , to hold your earnest funds.

You can pay with a certified check, a wire transfer or if you’re paying by personal check. You can request and keep a receipt and a copy. Your check must be payable to the third-party. These funds will be held on the escrow until it closes.

Step Two. Know Your Contingencies

You should be aware of all contingencies that protect the buyer and seller. Make sure that you understand the contingencies, and you are comfortable taking any action.

Step Three. Keep Your Responsibilities in Check

The purchase agreement usually includes a schedule of when each aspect must be completed, for example, when you have to get an inspection or the approval date for the mortgage.

The seller may withdraw the offer if you fail to meet the deadlines. The seller will not rescind a contract if they miss the deadline. However, if the delay is too great, this could prove to be a deal-breaker.

Step 4. The Fourth Step is to Put Everything In Writing

Many of us are going to make a large purchase. You should always protect your investment, so you must put all the details in writing. Included in this are any timeline changes and the buyer’s responsibilities. The purchase contract should clearly state who receives the earnest deposit if the agreement is cancelled.

In the event that the inspection is a failure and the buyer gets to keep their earnest money then state this in the contract. So, if the buyer changes his mind and wants to keep the earnest cash from the seller, you should also state that in the contract. The contract should explain everything in full detail.

Bottom line

Earnest money is a way to protect both the buyer and the seller in the event of a problem with the property. A Verified Approval, or earnest money can show a seller you are serious and make your offer standout from others.

 

Original Blog: https://www.rocketmortgage.com/learn/earnest-money

Buying Your First Home? Know These 3 Things

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It is a joy to work with first-time buyers. I love helping first-time home buyers find their first home and teaching them the process of buying a home. These are the three things you need to know before you begin looking.

1. Only work with one agent. It is best to work with one agent for your real estate search. Your agent will work with you to find the perfect property and negotiate all terms for your transaction. It is important that the agent gets to know you personally and your family so they can negotiate on your behalf. Remember that an agent who shows you a house is ethically the one who should handle the transaction. You are also dealing with the seller’s agents if you call an agent through a yard sign. Although most professionals can handle both sides of a transaction professionally it is more beneficial to work with someone you know well and who will look out for your best interests as the buyer. Your agent is not paid; the seller pays him or her upon closing. You are still hiring an agent to work for your business. Therefore, it is important to interview as many agents as possible and to choose the one you like best.

2. Pre-approval is required for financing. A lender must be pre-approved unless you plan to pay cash for your home. It helps you to set a realistic price range for house hunting. Frustration can result from looking at houses you cannot afford to buy. The mortgage lender will tell you how much you can borrow and also what your monthly payment will be. They will also give you information about closing costs and what you should do to protect your eligibility during the loan process. A current pre-approval is important to ensure you don’t lose your chance to buy another house. You will need to make an offer on the house you have found. The pre-approval letter must be included with your offer. I am happy to give you the names of local mortgage lenders who have been great to my clients.

3. There are some upfront costs. After you have found the perfect house and agreed on the terms and price, and signed the contract, it is time to pay your escrow deposit, also known as “good faith”, deposit. If you cancel the deal due to reasons not covered by the contract, this is money that you risk. It is usually between 1% to 5% of the sale price, but it can vary depending on the terms you and the seller have agreed to in the contract. During negotiations, your agent can help you with this. The escrow deposit is a part of the final sales price.

4. A certified home inspector should inspect the property. The cost of this inspection varies depending on how large, old, and what features the property has, but it is typically around a few hundred dollars. This amount will be due at the time service is rendered. Based on the results from the first inspection, you may choose to pay for additional inspections. If the inspector finds a problem with your HVAC system, you might need to pay a fee to have an HVAC contractor inspect it. To be able to move forward confidently with your purchase, you want as much information as possible during the inspection period.

5. A survey and appraisal of the property will be required. These costs are added to closing costs and should not be paid upfront. In the unlikely event of closing, however, you might be asked for a credit card number.

All of these steps will be covered during your home-buying journey. Are you ready to get started? Give Preferred Properties of Texas a call! 

Preferred Properties of Texas

(254) 965-7775|Contact Preferred Properties of Texas