How do I improve my credit?
Banks want to know your Credit Score, your Debt-to-Income Ratio, your Employment, and your Rental History. Let's take these one by one.
1. Credit Score. An FHA loan is a government loan. A conventional loan is a bank loan. The lowest acceptable score for an FHA loan is usually 640. In a conventional loan, if your credit score is higher, you may get a lower interest rate. A 720+ score gives you the lowest interest rate. The FHA loan is one size fits all, as long as it's 640+. For the Texas Teacher's Grant 660 is now the lowest acceptable credit score, even though you can get the loan at 640.
2. Debt-to-Income Ratio (DTI) looks at your debt as a monthly percentage of your income. Let's say you pay $430 on your car. Your student loan is $250. You have a credit card balance of $5000 and the bank says your Minimum Payment is $75. You add $430 + $250 + $75 together, to make a total of $745 debt a month. Now, look at your GROSS monthly income, before withholding, before TRS, before taxes. In other words, your annual salary divided by 12. If you make $50,000 a year, divide by 12, and your Gross Monthly Salary is $4166.66. Now, the ratio: $745 debt divided by $4167 income. That equals 17.9% DTI. Anything under 43% is generally okay. If it's higher than that, the bank figures your bills are already too high to pay a mortgage! (Your current Rent Payment is not counted as a debt since it would disappear if you bought the house.)
3. From the DTI above, you can see that if your salary were $1800 a month, you would not have enough money for a house payment. But the bank also checks other things. They want to know how long you've had your job. 2 years+ is good. But let's say you changed school districts last year. The rule is 2 years in the same career, so you can change employers with no problem, you just can't change careers. If you have only been a teacher one year, but were education classes for the previous year, or worked as a paraprofessional, that would also NOT be a problem.
4. Rental History is the closest thing to a Mortgage Payment. If the bank wants to know how good you are at paying your bills, they look at your credit score and at your rental history. If you forget, and pay late, the bank figures you'll do the same with your loan. So pay on time, every time!
The Bank's first question is "Do you have the money?" and their second question is, "How do I know you're going to pay me back?" If you have bulletproof answers to both those questions, you'll have no trouble getting a new home!
Credit Reports are the actual derogatory reports about your credit. “Derogatory” means some action that lowers your credit score. The REPORT is not the SCORE.
It’s a good idea, then, to look at your credit report to make sure that the information is accurate. The U.S. government requires that the credit companies make your Credit Report available to you once a year. So if you haven’t personally pulled your own Report in the past year, you can get it for free. You can do it by going to Annualcreditreport.com
However, please be aware that this information will include only your Credit Report, but not your Credit Scores! Most Credit Scores cost money, though many claim to be free. freecreditscores.com is NOT free! (Also, have your printer stocked with paper! The report is about 40 pages long!)
The reports are hard to read, and all the important information is in one or two places. If you want an expert to explain it to you, and send you a copy, go to texaszerodownlender.com and fill out the application. Pandian Kumar can go over what's being reported against you and tell you what you need to fix! He will contact quickly after he receives your request!
(You can do this yourself as explained below, or you can go to Texaszerodownlender.com and apply with a very short application, and the lender will give you your scores and interpret your report, and send you a copy if you request it.)
You have 3 FICO Credit Scores!
Be aware that buying a car or consumer goods also uses credit scores, but they are rated on a different scale from mortgage credit scores, which are called FICO scores. Experion, Transunion, and Equifax are the three FICO credit bureaus, and each one will have its own score for you. Which score do you need to get approved for a loan? The score that falls in the middle of the other two. So if you have 690, 630 and 670, the 670 mid-score will be the one that counts!
I don't know of a way to get your Equifax score for free, but the other two bureaus are available online. Beware of sites that offer a "free trial."
Credit Karma gives you a free TransUnion credit score on the screen whenever you log on to the site in exchange for being able to market certain financial services to you.
Credit Sesame gives you a free Experion credit score each month in exchange for sending you occasional e-mail information about their financial products. I think it’s a fair exchange!
If you use both of these websites, you will have two of your three credit scores for free!
The Credit Report is the actual information that is reported to the Credit Bureaus about you. The Credit Score is the number generated by the algorithm (formula) that the Credit Bureaus use to calculate your credit ranking from your report.
There are three Credit Bureaus: Transunion, Experion, and Equifax. They each report different scores. Mortgage Lenders take the middle score (“mid-score”) to pre-qualify you for a loan. Although some lenders will accept lower scores, 640 is the credit mid-score most borrowers need to meet for approval. (660 is necessary for the Teacher Grant Program.)
Credit scoring can be difficult to understand at times but try to remember that the score is only made up of five factors that are summarized below:
- 35% of the score is derived from payment history. Pay your bills on time and avoid judgments and tax liens.
- 30% of the score is derived from balances carried on accounts. The lower the better and remember that revolving credit card debt is the most significant factor in this area. It is always better to pay off credit cards before an auto or mortgage loan to get the biggest score increase.
- 15% of the score is derived from the average length of time you have had credit. The longer the length the better. Never close a credit card because you will hurt yourself in this area since your average account age will not increase in the future as quickly.
- 10% of the score is derived from the mixture of credit you have on your credit report. To maximize this area you want to have a mortgage, a car loan and a few credit cards.The magic number of credit cards to have is three but it is never a good idea to close credit cards to get down to that number because closing the card does more damage than the increase received by having fewer cards.
- 10% of the score is derived from the number of times you apply for credit. There are several types of inquiries but the only kind that hurts your credit score are the ones where you let someone pull your credit in order for you to get approved for a loan of some sort. Even asking for a credit limit increase is considered applying for a loan of some sort since you are trying to have the credit limit increased. Pulling your own credit report online is considered a personal inquiry and does not hurt your credit score.Anytime you receive a pre-approved credit offer in the mail it is considered what the industry calls a promotional inquiry and will not effect your score either. Lastly, a current creditor of yours looking at your credit report without you asking them to is considered an account review inquiry and has no effect on your credit score.
Credit Cards help your Credit Score
Myth: If you never use credit cards you will have a good credit score.
Fact: If you never use credit cards you will have a horrible credit score!
Why is this true? Because your credit score is built on how well you used your credit. I tell teachers all the time, "There are poor people with excellent credit, and millionaires with terrible credit! How much money you have does NOT determine your credit score."
Pretend you are the Bank. "Teacher A" wants to borrow your money. Your first question is: Will you pay me back? Teacher A says, "Of course. I have enough money." Then your second question is, "But how do I know you will pay me back?"
This is the question that your Credit Score answers for the Bank. As the Bank, you will know if Teacher A will pay back the loan by looking Teacher A's payments on past loans. So if Teacher A never had a loan, doesn't use a credit card, etc. etc. then the Bank has no Track Record that shows whether Teacher A will probably pay back the money, based on past performance.
Always be on time and pay to Zero!
Myth: If I don't have a credit card, I can't get into trouble with my credit score!
Fact: If the Bank sees you have no credit card, it figures you're no good at handling your payments!
It's true that people who can't pay bills on time are better off without credit cards. But if you want to establish your credit, you have to show the Bank that you can make regular payments, on time, every month, without messing up. Banks look for Reliability!
Did you know that even one late payment will keep you from getting a house for a year? Banks are dead serious about wanting to get paid on time!
So how do you handle it so you don't get in trouble with a credit card? Treat your credit card as a test of your seriousness! All the bank wants to see is that you buy a little something with a credit card once a month. Maybe one tank of gas. Then when you get the bill (in your postbox or online), pay it the first day it arrives, and you pay it off to ZERO. A credit card doesn't help you afford things you can't afford. It is just a way to prove to the Bank that you take your payments Seriously!
No more maxing out the credit card!
Myth: If you have a $1000 limit on your credit card, it is maxed out when you reach the limit of $1000.
Fact: Banks consider your credit card maxed out at 30% of the limit. In other words, at $300, you are maxed out of a $1000 limit.
You're right. This makes no sense. But that's just the way things are. Better to stay well under 20%!
So just one tank of gas a month, and don't ever let your credit card take over your life!
Just a point that everyone needs to know about credit:
Credit is your history of paying your debts on time. If you have no debts, and no credit cards, you will have a LOW credit score. That's because the credit bureaus cannot see that you are USING debt and paying it back responsibly.
There are two kinds of debt: installment debt and revolving debt. You should have a little of both.
Installment debt is buying something like a car, or education, or anything else, and paying off the debt with a fixed amount monthly.
Revolving debt is like a credit card, where you can use credit and pay it back each month, but the amount owed varies from month to month.
If you had a credit blowup and decided to cut up your credit cards, you are "living off the grid." In other words, the credit bureaus can't track your debt because you're not using it. If you're turning over a new leaf in order to buy a home, then you should ask your bank for a credit card.
If your bank doesn't want to give you a credit card, then ask for a "secured credit card." This means you'll put, for example, $500 in an account at the bank, and they will issue you a credit card with a limit of...you guessed it! $500! Here's the secret. Never go above 30% of that limit. Which means, if your limit is $500, never spend more than $150 in a month. And, most important, pay that amount down to Zero each month, on time! It will take a few months to establish your "history" but your credit will then begin to climb.
Remember, many people who think they have BAD credit, really just have NO credit. It pays to have good credit. You pay less for many things, like cars, or car insurance, if you have good credit. And when you're ready, you can be approved for a mortgage to buy a home. Get your credit established! It's one of your most important assets in life!
Am I eligible for the Teacher Grant?
The Mortgage Credit Certificate (MCC) is a different type of grant from the state. It has an upfront charge, but it allows you to claim 1/3 of your annual interest as a Credit on your IRS Income Tax EACH YEAR you own the home, up to a maximum of $2000 each year. In other words if you paid $6000 or more in interest during the year, you could reclaim $2000 of it as a tax refund. (A "credit" is NOT just a deduction. It is a fixed amount of money you get back on taxes! Over the years it may give you $20,000 in tax savings!)
Remember, this is NOT the Teacher Grant. You may be eligible for BOTH Grants!
1. Loan Requirements:
Must meet income requirements set by State.
Cannot refinance for 8 years.
Must not have owned a house for 3 years.
Must have 620+ credit score. 660 score.
2. Receive an IRS tax credit each year.
Maximum amount $2,000 tax refund.
1/3 of annual interest credited back to you.
Lasts as long as you own your home.
3. How much do you qualify for?
Loan amount is based on credit score and income.
The bank will let you know the amount.
4. What’s the first step?
Get pre-qualified! Click here to apply!
Find a home you love! Find a Home!
Call Teacher Homebuyer for showings.
5. What’s the next step?
Apply for a loan with my lender who does credits.
Turn in all paperwork required for loan processing.
6.What is Teacher Homebuyer?
We are Realtors.
We facilitate your loan with the lender.
We show you the homes you want to see.
We write the offers and handle negotiations.
We order the inspection and handle repairs.
We come with you to closing!
You pay us nothing!
7. You end up with:
a beautiful home.
a safe, inspected home.
an affordable monthly payment.
a low-interest, fixed rate loan.
a tax Credit each year you own your home!
You can read FAQs for an hour and learn a lot, but if you want to find out for sure if you would be eligible for one of the Grants we offer, or eligible for a Loan (you need them both!), then you need a professional lender to qualify you. You can do that on the qualify tab of this website, or go directly to texaszerodownlender.com and fill out the application. (Both ways take you to the same link.)
Some people ask if having a lender check your credit will hurt your credit score. The answer is yes, it may drop your credit score by 5 or 10 points, but if you don't make lots of other inquiries, the score will come back up in a month or two. There is no other way for you to get a loan, so it's necessary. In addition, take in consideration that the lender may find a mistake on your credit report that is hurting your credit score. Correcting that mistake might make a big difference in your score!
If you do have a credit or debt problem, it's best to know about it now, so you can set your goals and work out the kinks before you're ready to buy. It would be a shock to want a house and find out you'll have to wait a year!
The Teacher Grant was created to be self-sustaining. Rather than have a government program to fund home ownership, the funds available to teachers through the program are provided by a modest bump in the interest rate. A quarter of a point more results in a small increase in your monthly payment (maybe $25), but it gives you money upfront so that you can buy a home.
Think about it. Most teachers make a decent monthly paycheck, enough to cover expenses, but there are only a few who have more than $10,000 in savings! $10,000 is really what it takes to pay for Down Payment and Closing Costs. That means that teachers will not have the capital they need to buy a home and get off the rent-treadmill. The Grant allows you to get that money, pay it back over a 30 year period (and who stays in their home for 30 years nowadays?)
So, in truth, you are paying for it, but it is a true bargain, and one of the few perks that educators get with their job!
Yes, there are.
There are grants available from Texas Department of Housing and Community Affairs, the Southeast Texas Housing agency, as well as various bank-sponsored Community Reinvestment Act programs, various municipal programs, and the HUD Good Neighbor Next Door program.
Teacher Homebuyer recommends the Teacher Grant from the Texas State Affordable Housing Corporation because it currently offers the best terms and the most universally available program for people in education.
Teacher Grants are limited to classroom teachers and paraprofessionals, librarians, counselors, school nurses and police officers. However, Teacher Homebuyer has found homes for many administrators, custodians, clerks, maintenance workers and others using Grants that yielded similar amounts of money. Southeast Texas Housing has no job-related requirement.
By the way, if you are married, your spouse does not have to qualify! Just one of the buyers qualifies the family for the Grant.
You will 5% of the agreed-upon sales price of the home you select.
$100.000 = $5,000
$150,000 = $7,500
$200,000 = $10,000
$250,000 = $12,500
$280,000 = $14,000 (maximum)
This money can be used to pay your Down Payment entirely, and the remainder can be used for closing costs. Remember closing costs are expenses like taxes, insurance, fees, that are NOT included in the cost of the house. Down payment is the portion of the house that you pay as your share of ownership. For example, an FHA loan requires a 3.5% down payment, which would be $7,000 on a $200,000 home. Your $10,000 grant money would pay your $7,000 down payment, and you would have $3,000 left over to help with your closing costs.
Does it pay everything? No. You will need about $2,000 for earnest money, inspector, etc. before the closing, and you may need some more at the closing itself. But if for example it costs you $5,000 with the grant, just keep in mind that it would have been $15,000 without the grant!
Yes. The Grant has been in existence for the past ten years. It is self-funding, and does not depend on limited amounts of funding from government sources. The terms change from time to time. Interest rates, percentage of down payment assistance offered, and requirements may vary.
So, will it be here next year? Almost for sure, if the past is any guide.
Will is be the same next year? This year the required credit score was raised from 640 to 660, and new provisions were added for people who want less than 5%. Interest rates will probably continue to climb over the next year. So, no, it won't be the same, but it will probably still be around!
1. You must occupy the home yourself. It cannot be a rental or investment property.
2. You cannot currently have your name on another home in the USA.
3. The house you buy must cost $280,000 or less.
4. The house must be located in Texas. It can be new-built, but you can't construct it yourself.
5. You must have been in education for 2 years (including teacher training).
6. You must have at least a 660 credit score. (new requirement)
7. You must qualify for an FHA loan. (The Grant without the Loan wouldn't work!)
8. You must meet income limits.
Income limits are roughly $66,000 or less for a single household, and $77,000 for a 2+ household. There are exceptions and special ways of finding the money if you exceed these amounts, so don't take these limits as the final word. Our lender would be happy to look at your specific situation to see if there are ways you can meet the requirement. Just go to Texaszerodownlender.com and fill out the application at Apply Now.
The Professional Educators Grant is one part of the Texas Heroes Grant (which includes teachers, police and firefighters). It is offered by the Texas State Affordable Housing Corporation which is established by charter under the authority of the Texas Legislature. You can research this group by going to tsahc.org under the home ownership tab.
People often ask if the grant is taxpayer money. It is not. The grant is self-sustaining. The interest rate for the grant program is generally a quarter point above market, though the rate is set and the market fluctuates daily. That means that you might pay an extra $25 a month on your monthly payment. Why would you do that? Because the grant might give you $5,000-$14,000 upfront to give you the money you need to buy your home. As you pay back your money, it gives the next teacher the funds for the Down Payment on her next home! This is not a government giveaway. As a teacher you have earned this perk!
This may seem like the opposite of offering grants for teachers and other school employees, but I don't believe in false advertising, and I do believe in full disclosure, so here goes!
If you have more than $10,000 in savings to spend on buying a home, you probably would be better off not using the Grant money, even if you are eligible. The reason is that the Grant has a 1% of sales price fee which is added to your closing costs, and a slight bump in interest rate, which will make your monthly payment slightly higher. In the long run, paying these costs yourself would be cheaper for you if you have the cash in hand.
However, let's say you have $10,000 and the total costs of down payment + closing costs is 11,500, and you need to buy furniture for your house when you move in. In other words, you want to hold on to some of your cash. You might still want to use the grant because it will not leave you penniless!
The consideration about the higher interest rate may be a LOT of money over 30 years, but the national average for owning a home is about five years, so a lot of that extra payment will never be paid anyway. And interest rates are expected to go higher. So it may be very low in 5 or 10 years, compared to the available rates then.
For those of us with less than $10,000, the Grant is probably the only way we can make the numbers work at closing. If you want more on that, go to the Calculations blog.
First of all, if you a NOT a classroom teacher, there are other grants WITH THE SAME TERMS that you may qualify for, so read on! This blog will give you the math, how to do the calculations for buying a home!
- The Grant gives you 5% of the sales price of the house. For a $100,000 house, that's $5,000. For a $200,000 house, that's $10,000. The money is delivered to the title company at the time of your closing on the house you've bought. It will pay for your down payment on an FHA loan, with a little left over for closing costs. (Remember, closing costs and down payment are not the same, and both must be paid.)
- An FHA loan will finance 96.5% of the sales price. For a $100,000 house, that's $96,500. For a $200,000 house, that's $193,000. In both cases, the loan doesn't cover the full cost of the house, and it doesn't cover the closing costs (title and loan fees, property taxes, insurance, etc.). If you don't have enough savings for the house ($3500 or $7000, depending on which house) how can you get it? The Grant! The grant pays the down payment at 3.5% and has 1.5% to cover closing costs. (Truth in lending: the Grant we use has a 1% fee currently which is added to your closing costs. This is how the Grant is made possible.)
- Closing costs can be paid by anyone, but down payment must be paid by the buyer or as a gift from the buyer's family (no friends). That's why it's a big deal that the Grant is allowable to make your Down Payment! However, you still have closing costs, which are over and above the cost of the house itself. Closing costs may be higher than the down payment! Traditionally, the buyer without very low savings would ask the seller to pay the buyer's closing costs. However, in today's market, which usually has very high, competitive offers, asking the seller to pay closing costs may mean your offer is rejected. That's why it's a good idea to have at least $5000 of your own money to cover closing costs. (Family gifts are okay, too!)
- So let's say you buy a $100,000 home. Your closing costs are $4500. You owe a total of $104,500. You get the loan for $96,500. You get the grant for $5000. You also get $1100 back from refundable deposits you paid earlier. So, 96,500 + 5000 + 1100 = 102,600, or $102,600 coming in to pay what you owe. The difference is $1400. That $1400 is the amount you would have to bring to closing to buy the house. These numbers can vary a lot depending on many variables, but this gives you the idea of how a house is paid for, and how to do the Math! Do the calculations on a sheet of paper with different amounts until you get the idea. (That's your seatwork assignment!)
How do I go about buying a home?
When you buy a home, you are selecting two very important things: a home and a loan.
Teacher Homebuyer Real Estate is a brokerage of Realtors who works to find you the ideal home. Our partner is Pandian Kumar's team of loan experts at Mortgage Financial Services. We recommend them because the agency in Austin that processes the grants first recommended them to me! MFS has consistently been recognized by the State of Texas for outstanding service to the Affordable Housing market, and for the past 7 years has been the Texas's #1 Grant Lender! (Remember, grants are prepared and submitted by the Lender.)
Not only that, but I keep track of my buyer with them daily, and they report your loan progress to me. If there's a problem they notify both of us, you, the borrower, and me, your agent. That way, if you need reminding or follow-up, I can provide it. It keeps us on track. (Remember, as a Buyer, you pay no commission for your Realtor.)
Another reason I work with them is that I am confident they will treat you right, just as they are confident we will treat you right! Both Realtor and Lender must succeed together for you the buyer to succeed!
So if you plan to use MFS for the loan or grant, use us as your Realtors!
If you plan to use Teacher Homebuyer to find your home, then use them as your Lenders!
(P.S. Neither company profits from the other's business, so we do not profit from working together for you. You do!)
Let me be honest. The world will be here next year, and we will find a way to buy and sell houses. So to say "The World is Coming to an End! Buy Now!" is simply not accurate.
Interest rates are edging up, nothing I'd be concerned about.
On the other hand, prices in Texas are rising rapidly and have been for about 3 years. Houses that used to cost $100,000 now cost $130,000. I sold a home to a teacher who has decided she wants to move after about 18 months in the house. Six years ago, that would have been financial suicide, but she's making a hefty cash profit from the sale. By that I mean a year's salary all at once. Just sayin'.
Some teachers want to save for their down payment. Let's say they save $10,000 but next year the house they want costs $10,000 more? Plus, consider that the Teacher Grant would have paid that $10,000 at minimal cost, and that $10,000 raise could have happened to them!
Whatever you do, it will be the right thing. The future is unknowable, but we can either take the risk and share the profit or loss, or we can continue to work by the hour to pay our rent by the month. It's not just a financial choice. It's a lifestyle choice.
To a Realtor, there are customers, and there are Clients.
If you are a customer, we Realtors owe you:
3. full disclosure about the property.
As our Client, we owe you:
3. full disclosure about the property
4. obedience to your instructions.
5. loyalty to client over one's own interests.
6. full disclosure about any relevant fact (landfill, crime, flooding?).
7. confidentiality, not giving away your bottom line on negotiations.
8. accountability, responsibility for your money in our care.
9. reasonable care, "protect from any foreseeable harm."
In order to enter a Client Relationship, we both sign a Representation Agreement.
As a Client, you have responsibilities as well:
1. Availability. Stay in touch with us.
2. Information. Furnish accurate information to Realtor's questions.
3. Compensation. Paying commission when due (for Sellers, not Buyers).
4. Indemnification. Means the Realtor is "held harmless" during relationship.
At Teacher Homebuyer, we have never had a Client sever their relationship with us, but if for any reason, someone wanted to fire us, we certainly would let them out of the agreement!
Overall, the Client Relationship is similar to having an attorney represent you. We are not only salespeople responsible for selling, we are advocates responsible for your satisfaction.
These days, it is important to shop online. Houses sell fast. You've got to be faster!
On teacherhomebuyer.com/search-the-mls/ you will find access to the Multiple Listing Service. This is the List that Realtors themselves make of homes they post on the market.
Why is the MLS better than Zillow? Zillow is a real estate Aggregator, which means they have spiders that grabs houses from everywhere and list them on the website. That means that Zillow has MANY more houses than the MLS. The problem is that about 40% of them are no longer for sale. Another problem is that it takes Zillow an average of 9 days to post a listing. Most desirable houses are sold in a week!
Are you on a cell phone, and want information. Download the app NTREISgo.com. NTREIS stands for "North Texas Real Estate Information Service" and the phone apps is dynamite! NTREIS is the MLS for all of North Texas. It asks for a professional Realtor sign-in, but you can go directly to the listings without a password.
An Appraisal is an opinion of the value of a home given by an Appraiser, who is an individual specially trained to compare a home in a neighborhood with similar homes, to evaluate the values that those other homes sold for, and to arrive at a fair value for the home you are buying. The Appraiser works for you, but you will probably never meet him, though you will get the appraisal.
Let's say, you're buying a home for $200,000, and the Appraiser comes to visit the home. The Appraiser can see defects and order them corrected before the sale.
Or, the Appraiser can compare the home, and say, "It's only worth $192,000!" In a period of rapidly changing prices there is always a chance that the home will not "make value." When this happens, it doesn't mean that your Realtor had you pay more than the house was worth. With very competitive buying in this seller's market, it's quite likely your Realtor had to make that offer in order to get a contract accepted. The lower appraisal will often be a way for the Buyer to save money once the transaction in well underway.
So, what happens when the Appraiser says it isn't worth the sales price? The agents for the buyer and seller talk with each other and then report back to their clients. Usually, though not always, the Seller lowers the price. Sometimes, the deal falls through. Sometimes, the Buyer agrees to pay the extra money out of her or his own pocket. What does that mean? It means that the Bank will only finance the value at $192,000, and the Buyer will make up the $8,000 in cash, in addition to closing costs and down payment. It doesn't happen often!
The Appraisal is usually the last step before the Lender sends the paperwork to the Underwriter. The reason that it comes up last is that if there are repair or loan problems that kill the transaction, the Appraiser will be an unnecessary expense. So the Appraisal is the last step.
The Buyer is not present at the Appraisal, and usually it is a non-event. However, it can occasionally become a major negotiating headache!
The buyer pays for the home inspection. The cost is usually between $300-$500, and depends on the size and age of the house, and whether a termite inspection is included (usually $80-$100 more).
The Inspector works directly for you, the buyer. You can hire any licensed inspector you want for the job. The Realtor usually has some recommendations in case you don't have any preference.
The inspector should spend 2-3 hours in a home testing everything. Sometimes they won't get on a roof if it's steep, or it's rainy weather. They won't be able to test the AC in the dead of winter, or the heat in the summer. What they are required to do, and required not to do, is all established by the Texas Real Estate Commission, and they are professionally trained.
Inspectors are required to tell you everything in the house that is not up to current Building Code. Building Codes change every year, so older houses are not going to be "up to code" 100%. This does not mean it's a repair. It's not defective. However, if the item were replaced, it would be required for the contractor to "bring it up to code." The Inspector is required to tell you these things, but if you ask, they will usually give you a personal opinion about how important the item really is.
Inspectors stand behind their reports, and you can call them for up to year afterward for any help they can provide. The Inspection Report should include photos of all the items that are mentioned. The Inspector should also show you how to change air filters, drain the hot water heater, or do any other standard maintenance on your new home.
The Home Inspector works for you, the buyer!
Earnest Money is the buyer's deposit on the purchase of a new home. The Earnest Money check is collected by the buyer's agent at the same time that the agent collects the Option Fee. Copies of these two checks are included with the contract and the letter of loan approval from the Lender. The documents and a few addenda make up the "contract" that is your offer for the house.
The Option Period allows you to be absolutely sure that you want to proceed with the sale, and after it's complete, then the Earnest Money will be forfeited if the sale doesn't go through. The reason Earnest Money is required is that many Buyers get nervous and want to back out. Meanwhile, the Seller has put everything in boxes, or perhaps already moved, and is counting on the sale of the house. If the Buyer backs out, the Earnest Money reimburses the Seller some of the time and trouble.
Earnest Money is traditionally 1% of the cost of the house. Sometimes $1,000 is enough. For a more expensive home, more Earnest Money is usually required.
Here's the Good News: When you go ahead and buy the home, you get your Earnest Money and your Option Fee credited back to you. The owner doesn't keep the money, if you keep your promise!
Not all states have an Option Period, but it is a very convenient and useful way of handling an offer that we use here in Texas.
No buyer wants to be locked into an offer that might be a bad deal. The Option Period gives the buyer a week or 10 days to get the home inspected, show it to friends or family, find out the monthly payment, drive the rush hour traffic, in short, to make sure that the home is really a good deal. For that privilege, the Buyer offers an Option Fee, say $100, to have the Seller remove the house from the market.
The Option Period works like this: after the seller has accepted the offer, the buyer has 7-10 days to check out the home, and at any moment, for a good reason or no reason at all can say No, I don't want the house.
Let's say you offered $200,000, and two days after your Option Period began, the Seller received another offer for $210,000! The Seller cannot accept the higher offer! The Buyer has the right of refusal, but the Seller does not. The Seller may wish the Buyer would NOT buy so he could accept the higher offer, but the Seller cannot refuse to sell to the Buyer who has the Option.
The Buyer has that advantage. But let's say that the Buyer sees another, nicer home. Or the Buyer's mother doesn't like the house. The Buyer can get out of the offer at any time for any reason.
At the end of the Option Period, the Earnest Money Period begins. Earnest Money is the deposit on your new home. It is usually 10 times or more the amount of the Option Fee. The Earnest Money would really be enough to convince the Seller that the Buyer was Earnest about buying the house.
Moral? A buyer can make an offer and change their mind without losing their shirt!
This is a fictional timeline, but accurate!
The time required for buying a home is from 2-4 months ahead of your closing date.
Let's say you start January 1. You fill out a loan application, and you get approved.
Jan 4. You are referred to a Teacher Homebuyer Realtor and you make plans.
Jan 7. You meet your Teacher Homebuyer Realtor, have orientation, and see a few homes.
Jan 14. Second showings. You want to see newer/larger/updated/nicer homes in another area.
Jan 21. Third showings. You see a wonderful house, make a full-price offer.
Jan 23. Offer rejected for a better offer.
Jan 28. More showing. Another contract. This one $2000 over asking price.
Jan 31. Owner accepts.
Feb 5. Inspector meets you at the house. It needs 5 repairs. Discuss with Realtor.
Feb 6. You sign Repair Amendment, send to owner.
Feb 8. Owner doesn't want to make repairs but will reduce price $500.
Feb 9. Realtor says it will cost a $1000, and gets repair money at closing.
Feb 12. Lender needs tax return that you can't find.
Feb 18. You get your tax return to the lender. Loans docs now complete!
Feb 21. Lender is working to get insurance docs, tax docs, etc.
Feb 27. Your loan is ready to go to Underwriting.
Mar 3. The home is appraised. It's worth exactly what you offered.
Mar 7. Underwriting approves the loan and it goes for legal review.
Mar 9. Paperwork is sent to the Title company for closing and funding.
Mar 16. One week period for review of documents by buyer (new requirement).
Mar 17. Closing at the Title company, but banks are closed by 5:00 PM.
Mar 18. Funding occurs, in which case you pick up the keys and go to your new home!
As you can tell, there are a lot of variations possible, some of them disastrous. That's why you want a Realtor, and also why it's going to be a long time before people buy houses online!
If the inspection showed bad problems with the house, if the appraiser decides the price is too much, if the seller refuses to make any repairs, if the underwriter demands a document you don't have, any of these common occurrence can gum up this timeline.
Moral: it's never too early to start!
Yes. There are many reasons, but basically, consider this: Would you go to the store and leave your wallet at home? Not if you're a serious buyer.
There may be exceptions. For example, you have a huge tax refund coming! But even then, in the current real estate market, houses move really fast! A week's delay might cost you your Earnest Money ($1000+) and you would have no recourse.
So, yep, let's make sure you've got your resources together before we hit the homes for sale!
NO! As a buyer, you do not pay a commission to your Realtor!
A fair question, then, is, How do Buyer's Realtors get paid? When the Seller puts a house on the market, she or he agrees to pay the commission for BOTH the listing agent and the buyer's agent. You might argue that as a buyer, you are indirectly paying the commission as part of the sales price. That's really not the case. The reason is that the price of the house would be NO LESS if there were no buyer's realtor. The listing Realtor would simply keep both halves of the commission.
So it costs you nothing to have a Realtor show you homes, give you advice, educate you on home-buying, write up your contracts, negotiate with the seller's agent, help you ask for the repairs discovered on the inspection report, and to attend closing with you to make sure there is no disappointment! Realtors are sworn to keep your secrets confidential, serve your best interests, and to provide recourse if there is a problem in the future.
All this for free. And at Teacher Homebuyer Real Estate, we care about you!
It looks like it will continue to be a Seller's market in 2016!
Many people ask what's going on in the real estate market right now?
Right now, interest rates are still at historic lows, but they are already moving up. That means that the interest rate on your mortgage will make your total monthly payment less than 1% of the sales price you are paying. For example, 1% of a $120,000 home would be $1200. But the payment right now, with property tax, mortgage insurance, and homeowners insurance all included will probably be less than a $1000 a month. When interest rates climb to 6%, which is a more traditional rate, your monthly payment will increase. In general, buyers want to buy because the financing is a good deal.
Also, rents are increasing. If a renter is paying $1200 a month rent, why not buy a home? If you don't have savings, the Teacher Grant can often make your down payment. Another reason is that home prices are climbing rapidly. If the same home is 6% more expensive next year, then it makes good sense to buy now. Of course no one knows what will happen, but that has been the recent trend in our area.
There are not nearly as many homes on the market as there were 3 years ago. That's why it's a seller's market. We have more buyers shopping among fewer active homes for sale. Buyers may have to make many offers, and accept the results they get.
On the other hand, I have a client who bought her home less than 2 years ago, and now she is selling it for $60,000 more than she paid! That's a year's salary for having bought a house!
As you are shopping online for homes you will notice that at the top of each home listing the words Active, Active Option Contract, Pending, and other terms appear. They designate the Sales Status of the house.
These are Texas real estate terminology, and here's what they mean:
Active = For Sale, no offer yet, fully listed and available for your offer.
Active Option Contract = A buyer has made an offer and the seller has accepted it. The buyer now has a period of time (usually 7-10 days) for inspection. The seller can no longer accept another buyer's offer on the house. It is Active, meaning you can go see it, but it is just for information, or perhaps hoping the buyer decides not to buy the house.
Pending = The house is inspected, the buyer wants to buy it, and the seller is selling it. The sale is "Pending" because the buyer's lender is completing the loan procedures. If the buyer backs out of buying this house, he or she will lose the Earnest Money (deposit) they have made.
A word to the wise: Houses go fast these days (2015) so the seller's agent may not have had time to change the Status of the House even though it's still listed as Active!
Hope that helps!
When I was a teacher, I had NO IDEA where to start with buying a home. What makes a person ready to buy a home? How does a person get ready? And, of course, I didn't want to talk to a Real Estate Professional when I might be totally ignorant, grossly unqualified, and ineligible!
Result? I waited 9 years to buy a home, after I was married and my third child was on the way!
If you don't want to ask DUMB QUESTIONS, just know that I was in your position. Your concern, however, is not justified. The reason we have Professionals in any field is to answer dumb questions. If you taught sixth grade, and none of your students asked dumb questions, what need would there be for teachers?
The other thing to remember is that real estate changes everyday. Even people who have bought and sold many houses are not aware of rules, forms, procedures, etc. that change everyday. Unless it's your job to keep up with changes, there's no need to be an expert!
That said, what do you need to get your finances in order to buy a home?
- You need to make enough money to support a monthly payment. Look at your take-home pay. If 20% to 40% of your pay went to pay a mortgage, how much would that be? Currently, with the cost of houses, it is highly unlikely you will find a suitable home for under $100.000. That would mean a payment of at least $800 a month. A house for $150,000 might be $1200-1300 month. Would you feel comfortable with such a payment? (By the way, this sum includes taxes, insurance and mortgage insurance, along with your principal and interest payment.)
- You need a credit score of 640 or above. There are lenders that say they can approve anyone above 580, but it will be a long, difficult process! Better to handle it before you go buying a home. People commonly think having good credit means having enough money to buy a house. That's wrong! Enough money is #1 above. Credit is different. Credit is "HAVING DEBT THAT YOU HAVE PAID OFF OVER TIME MAKING ON-TIME PAYMENTS EVERY MONTH." That's it. Financial institutions are looking for your Reliable History of On-Time Payment of Debts. That's the way they predict if you will be a good mortgage-payer or not.
- You can't have a ton of debt already. Let's say you have a car payment, a student loan, credit card debt, etc. and your payments are 50% of your paycheck! As far as the bank is concerned, you are a bad risk because you already have a full load of debt. You calculate debt not by how much you owe in total, but by how much you owe THIS MONTH. So, credit cards, for example, you count the minimum payment due as your debt. So even if you owe $5000 to Visa, you only count the $125 minimum payment per month.
- You should be paying rent or own a house already. Sometimes I have a potential client who lives at home with family to save money for a house. Bad idea! The bank wants to see that you're making your $800 a month rent, so that going to $1200 a month isn't such a leap! If you live at home and pay $0, and expect to go to $1200 a month, the financial people call this PAYMENT SHOCK. That might result in a foreclosure, so banks won't lend to people who aren't currently paying for housing.
- You need at least $2000 in savings to pay Earnest Money, Inspector, etc. before your closing (when you actually buy the home). This is cash you'll have to live without. You get back part of the money at closing, and it will go toward your down payment and closing costs. It's much better to have at least $5,000 in savings. This pays the expenses, plus it gives you negotiating power when your Realtor is trying to secure the acceptance of your offer with a homeowner or builder.
From the point of view of Finances, these five points will give you a firm foundation for buying your first home!
For the past year, the number of houses for sale has decreased, while the number of buyers has increased, or at least held steady. What this means is a shortage of homes for sale. As you can imagine, when an attractive, inexpensive home comes on the market there are a LOT of buyers ready to make an offer!
So, more and more often we are seeing "multiple offer situations," which is more like an auction than a traditional home sale! I called to make an appointment at one home, and the showing service person said, "You can go at that time, but there will be 9 other agents there with their buyers!" Sure enough, the block looked like a yard sale with people waiting to get in.
My buyers liked the home, and decided to make an offer. I called the listing agent and said, "Can we still make an offer?" She said, "Yes, but we have 15 other offers already, and they are all above the listing price, and 3 are for cash."
My buyer was a teacher who barely had enough for closing. However, he really wanted the house and so, without going way over sales price, and with less money than the other buyers, we were able to purchase the house!
If you'd like to know how we made our offer the most attractive of all, give me a call at 972-365-5994 and I'll share my secret techniques! John Godbey, Realtor at Teacher Homebuyer Real Estate
What’s the housing market for 2016?
Mortgage Insurance is one of my least favorite topics in real estate!
Mortgage Insurance, which is called "Private Mortgage Insurance" or PMI in an FHA-type loan, is basically a charge which the banks make to the borrower to insure the bank that the buyer (who is paying the insurance) won't default! It is far more important right now that interest rates in determining your monthly payment. A 1/4 of a point interest might cost you $25 a month. PMI might cost you $175 a month!
There is also a closing cost expense for PMI.
Imagine if you were staying in a hotel, and they charged you $20 a night insurance that would pay the hotel if you didn't pay them. It might make sense if you got your money back at the time of payment. But you NEVER get your money back.
On a conventional loan you can refinance when your equity reaches 20% of your home's value. At that point you should definitely refinance and get rid of your FHA loan. But if you have less than 20% ownership of your house, conventional and FHA loans both have Mortgage Insurance.
In December of 2015, the Federal Reserve Bank raised the interest rate from Zero where it had been for the past seven years to 1/4th of a percent. That means that instead of letting private banks borrow money for free, they began to charge a tiny interest rate.
We have seen mortgage interest rates climb for our Clients from 3.5% to around 5.0% over the past five years. When a mortgage interest rate climbs 1/4th of a percent it is not a disastrous increase in your monthly payment. It might be $25. Maybe $40. (We're not talking about multimillion dollar mansion here--mostly houses under $200,000.)
The historic "average" is around 6%. However, in the early 80's interest rates went up to 13% or 15%--unimaginable in today's market. Those increases would catastrophic, but right now, with slow growth around the world, it's very unlikely.
Your monthly payment is made up of:
- Principal--the amount of money you borrowed that you are paying back.
- Interest--the 5% of the total you pay each year as the bank's profit.
- Taxes--collected and paid by your mortgage servicer on your behalf.
- Homeowner insurance--also collected and paid on your behalf.
- Mortgage insurance--insures the bank against your default.
At first, the interest may be the largest of the five categories in your monthly payment. But over time, the interest is not the majority of your payment, so the impact of the interest rate decreases in importance. Also, as inflation occurs, your payments will seem less and less! And if the interest rate goes down, you can always refinance your home!