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Tips on Buying a Home
10 Ways to Prepare for Homeownership1. Decide what you can afford. Generally, you can afford a home equal in value to between two and three times
your gross income.
2. Develop your home wish list. Then, prioritize the features on your list.
3. Select where you want to live. Compile a list of three or four neighborhoods you’d like to live in, taking into
account items such as schools, recreational facilities, area expansion plans, and safety.
4. Start saving. Do you have enough money saved to qualify for a mortgage and cover your down payment? Ideally, you should have 20 percent of the purchase price saved as a down payment. Also, don’t forget to factor in closing costs. Closing costs — including taxes, attorney’s fee, and transfer fees — average between 2 and 7 percent of the home price.
5. Get your credit in order. Obtain a copy of your credit report to make sure it is accurate and to correct any errors
immediately. A credit report provides a history of your credit, bad debts, and any late payments.
6. Determine your mortgage qualifications. How large of mortgage do you qualify for? Also, explore different loan
options — such as 30-year or 15-year fixed mortgages or ARMs — Check current mortgage rates.
7. Get Pre-approved. Organize all the documentation a lender will need to preapprove you for a loan. You might need W-2 forms, copies of at least one pay stub, account numbers, and copies of two to four months of bank or credit union statements.
8. Weigh other sources of help with a down payment. Do you qualify for any special mortgage or down payment
assistance programs? Check with your state and local government on down payment assistance programs for first-time buyers. Or, if you have an IRA account, you can use the money you’ve saved to buy your fist home without paying a penalty for early withdrawal.
9. Calculate the costs of homeownership. This should include property taxes, insurance, maintenance and utilities,
and association fees, if applicable.
10. Contact a REALTOR®. Find an experienced REALTOR® who can help guide you through the process.
SBA 7(a) LoanThe Small Business Administration’s flagship loan, the 7(a) loan, can be used to purchase land or buildings, construct new property, or renovate existing property, provided the real estate will be owner-occupied. Through this program, you can borrow up to $5 million through an SBA-affiliated lender. The maximum allowed interest rates for the program are based on the WSJ Prime Rate plus a margin of a few percentage points. Interest rates can be fixed, variable or a combination of the two. Repayment terms for 7(a) loans used for real estate can go up to 25 years. These loans are fully amortized, meaning each monthly payment will be the same until the loan is paid off.
SBA 504 LoanBeyond the 7(a) program, the SBA offers loans specifically for owner-occupied real estate or long-term equipment purchases. These loans, called 504 loans, are actually composed of two different loans: one from a Certified Development Company (CDC) for up to 40% of the loan amount and one from a bank for 50% or more of the loan amount. You, as a borrower, will be responsible for putting at least 10% as a down payment. The CDC portion of the loan can go up to $5 to $5.5 million, meaning the entire project being financed can be upwards of $10 million or more.
Interest rates on the CDC loans are based on U.S. Treasury rates and are fixed once you get the loan. The interest rates on the bank loan are typically variable. If you’re using the loan to purchase real estate, the maximum term is 20 years. Like the 7(a) loans, these loans are fully amortized.
Conduit/CMBS LoansConduit loans are commercial mortgages that are pooled together and sold to investors on a secondary market. Because these loans are securitized, they behave a little differently than a traditional commercial real estate loan. The main differences relate to prepayment and loan administration as well as the flexibility you have in negotiating loan terms. The minimum amount that most conduit lenders will finance is between $1 million and $3 million. Most conduit loans have terms of five to 10 years with 20- to 30-year amortization periods. This means that each monthly payment will be the same until a final balloon payment at the end of the loan term. Interest rates on conduit loans are normally fixed and lower than rates on a traditional mortgage.
Commercial Bridge LoansLike their name implies, bridge loans are used to “bridge the gap” until long-term financing can be secured for the commercial property. In some cases, the lender making the long-term loan will also make the bridge loan on the property. Most bridge loans come with very short terms, typically six months to two years, and many are not amortized (i.e., interest-only payments with a balloon payment at the end). Interest rates on bridge loans are a few percentage points higher than the going market rate.
How easy it is to qualify for a bridge loan will depend on the lender. Most lenders don’t take a one-size-fits-all approach, instead evaluating the unique situation at hand. Because of this, many borrowers will use a bridge loan to renovate a property that wouldn’t qualify for a traditional mortgage before selling it or getting long-term financing. Another advantage of bridge loans is the relatively low down payment requirement–generally between 10% and 20%. For comparison, many traditional commercial mortgages require a 20% to 35% down payment. Bridge loans also close more quickly than conventional real estate loans.
Soft and Hard Money LoansHard money loans are very similar to bridge loans, with the primary differences being that most hard money loans are made by private companies and there are higher down payment requirements. Like bridge loans, hard money loans have short terms, higher interest rates and interest-only payments. They are also easier to qualify for and faster to fund than a traditional mortgage. In many cases, they can fund faster than a bridge loan.
Soft money loans are a hybrid between a hard money loan and a traditional mortgage. Unlike hard money lenders, soft money lenders will place greater weight on your creditworthiness and the strength of your application. This means you’ll get a lower interest rate, lower down payment and longer terms than with a hard money loan. Like hard money loans, soft money loans are also quick to close. They can be a good option for borrowers who need to move quickly on a property but don’t want to pay the high rates that come with a hard money or bridge loan.
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Important: Information is gathered from multiple sources. It should be used for research purposes only, understanding average rates available on the market and not relied on for your actual interest rate. Your rate, terms, pre-paid finance charges and APR may vary based on a number of factors including, but not limited to, the creditworthiness of the applicant(s), self-employment status of the applicant(s), condo or townhouse structure, loan amount and geographic location of the property and other considerations.. Contact your lender for specific rates the meet your particular financial situation. LoanPower is not responsible for the accuracy of information or responsible for the accuracy of the rates, APR or loan information posted by brokers, lenders or advertisers. LoanPower is not associated with the government, and our service is not approved by the government or your lender.This is not, and is not intended to be, a mortgage application. Once you have completed this expression of interest (or information request form) your information will be sent to our participating lenders. You will be contacted by telephone and/or email. By submitting your expression of interest you are consenting to receive telephone calls from our participating lenders even if you have previously listed yourself on any internal company, state or federal Do-Not-Call List. . Privacy Policy/Terms of UseCopyright© 2020