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The last stop on your home purchase journey is to sign the paperwork that transfers ownership of the property from the seller to you. This will most likely take place at a title company. This company plays an important role, not just in preparing the paperwork, but also in many other ways that ultimately mean the transaction runs smoothly.

Reconciles the transaction.

The title company takes all the figures from both sides of the transaction and ensures this information is correct. It prepares and distributes documents prior to closing so that all parties have a very good idea of what will happen at the closing. And, most importantly, it also ensures that funds arrive from your lender so that all other parties in the transaction, including the seller, get paid upon closing.

Provides title insurance.

Title insurance is a policy issued by the title company. This is a very important document, because it says that if any liens (claims) show up against the property after closing, the title company will address these claims using their own resources.

There are actually two policies issued during this process; one protects you, and the other protects your lender. In many states, you pay for the coverage protecting your lender, and the seller pays for the policy that protects you.

Delivers documents.

Once your transaction closes, documents need to be delivered to the recorder’s office, and the title company is responsible for delivering these documents. At this point, the transaction becomes a matter of public record.

As you know, the purchase of a home will likely constitute the biggest investment you’ll ever make. Through your down payment and closing costs, you’ll be committing assets that you will no longer be able to tap immediately in the event of an emergency (although, of course, you can borrow against your home or sell it).

Asset Sources

Assets for your investment may come from several different sources, including checking accounts, gifts, investment accounts, and employer retirement plans. When you turn them over as part of a transaction, they will be held in a checking or savings account.

Any assets you use must be properly documented; you need a paper trail describing where they came from and how long they’ve been there. Money in your checking or savings accounts, for example, must have been there for at least two months. If it’s less than that, lenders will want documentation on where it came from: For example, did you get a bonus or sell some stocks? You need the paperwork.

What can’t you use as assets?

Items that may not be listed as assets are things such as cars, art or jewelry. While these items may have value, and could be converted into cash if needed, lenders won’t recognize them as such. Lenders don’t have a way to verify the value of these kinds of assets; they may not even know if they’re saleable.

Gifts from close relatives can also be considered assets. As with your own assets, gifts must be able to be documented as coming from a particular source, such as a bank account. The assets must also have been in that account for an extended period of time; the donor can’t transfer money from an unknown source to his or her account then immediately into yours as a gift.

This can be confusing. Ask your mortgage professional if you have concerns about assets.

If you are looking for a lower-maintenance home, townhomes and condominiums are a great way to go. They are ideal for the first-time home buyer, as they are often less expensive than single family homes. They are also a good fit for empty-nesters, as they often have a smaller footprint than single family homes and therefore less upkeep.

There are differences between the two, however, and it’s important you be aware of them. In a townhome, you own the land under your home. In a condo, all common areas and land are owned by the condominium association; you own only the interior of your unit.

Townhome associations usually maintain the external part of the development, such as landscaping and snow plowing, but have less say in the decorating of individual units or roof replacements. For this reason, condo fees tend to be higher than townhome fees.

Before submitting an offer on either, it is important that you look at both the bylaws and financial statements of the association. As well, have your real estate attorney review both before you prepare an offer.

Specifically, on the financial statements, look for how well the association is doing. Are there any obvious financial or money management issues? Is the association solvent? Have there been any significant increases in dues lately? How many of the units are in foreclosure? You want answers to all these questions before you make an offer.

While financing a townhome is more like financing a single family home, they usually have their own requirements that are a bit more restrictive. This is because the overall management, and therefore the curb appeal and property values of the development, are in the hands of the association. The better the job they do, the more people will to want to live there, and the more likely you are to sell your unit for a good price.

Of all the money you’ll spend acquiring a home, one of the best investments will be hiring a good real estate attorney. An experienced real estate attorney will provide a completely different perspective on your home purchase than either your real estate or mortgage professional.

An experienced real estate attorney will protect your interests by ensuring the purchase transaction process is going smoothly, and that all the documents and other elements of the sale are properly prepared and delivered on time. He or she will review purchase contracts and home inspection reports, as well as mortgage and closing documents.

Legal questions

Also, questions may arise during the home-buying process that nobody but a real estate attorney should be answering, such as the discovery by the property surveyor that your prospective neighbor’s fence sits inside your property line, or vice versa.

These scenarios do happen, and an incorrect answer when these situations arise could cause serious problems. When these situations arise, your real estate agent and mortgage professional will likely encourage you to contact a real estate attorney to weigh in on these issues; it’s important that you do as they suggest and discuss the issue with your attorney.

The reason: Over the years, a good real estate attorney has handled many transactions and has experienced any number of issues. He or she will know how to handle them.

Your mortgage professional has likely worked with a number of real estate attorneys and will be able to recommend a good one.

The purchase of a rent-to-own property is a great way to enter the world of homeownership. If you are either short of a full down payment and/or closing costs, or find yourself with credit challenges, this may be the way to go for you.

A rent-to-own program, which may also be called a land contract, is entered into by you and the seller/landlord. You live in the property and pay rent, with the option of purchasing. You’ll pay a deposit at the contract signing and you’ll both agree to a closing date when you will purchase the property. In some cases, the landlord will apply a portion of your rent to the down payment and/or closing costs, so you really have an incentive to make the program work.

Time frames

Time frames on rent-to-own agreements can range from a few months to close to a year. Buyers with a credit problem, such as a previous bankruptcy, may require more time to be able to requalify to purchase a property and will be at the longer end of the time frame. Another reason for a longer term would be to enable the purchaser to pay down debt so that his or her income ratios would then fall in line with lender requirements.

Rent-to-own shouldn’t be lightly undertaken: On the agreed-upon date, if you haven’t closed, the seller could either determine what you need to do to complete the process and extend the date, or bring in a new tenant and keep your deposit.

Have an action plan

Ideally, before you enter into one of these agreements, you should be working with a mortgage professional to create a plan of action, so that you have a clear idea of what needs to happen. But whatever the case, rent-to-own programs offer opportunities that may not be available to you otherwise, and are well worth looking into.

In qualifying for a mortgage, there are several sources of income you are able to use. But note: Regardless of the source, you will need documentation indicating either that you’ve received this income for two years, or that you expect to receive it for the next three years or more. In addition to the traditional hourly/salary sources of income, others that may be used are:

• Commissioned/self-employed: A minimum of two years of documented income must be provided on signed federal tax returns. A 24-month average will be calculated to determine a usable monthly income for the purposes of qualifying for a mortgage. Lenders are most concerned with self-employed borrowers’ adjusted gross income (their income after write-offs.)
• Rental property income: This also requires two years of documented income supported by tax returns.
• Social security/pension/disability: Even if you have just started receiving any of these through monthly installments, as long as you can prove that you will receive them for at least three years, you can use them as income. With these forms of income, the amount will be “grossed up” to account for the fact that taxes usually aren’t withheld from them as they are with other types of income. To establish gross monthly income – which you can use for income to qualify for a mortgage – multiply your monthly check by 125 percent.

Also note that unemployment benefits, while still considered a payment stream, have end dates, and therefore can’t be used as income in obtaining a mortgage.

If you find yourself in the midst of a credit challenge and feel you need the services of a credit repair agency, you may want to keep a few things in mind before you sign up.

First, credit repair companies work mainly on items that are incorrectly included on your credit report, and they do this by engaging in a dispute-resolution process with credit bureaus. But this only works for errors on the report; legitimate items on your credit report will most likely remain there at the conclusion of the process.

In many cases, most of what credit repair agencies do you could do yourself – providing you know how. Most people are unaware of this, and that’s why they look for outside help. In any case, before you decide to proceed, you need to understand how the process works.

If an erroneous item must be completely removed from your report, the dispute process needs to be opened with all the bureaus reporting the item. Bureaus have 30 days from the date they receive a request to generate a response. Both the request and response are usually delivered by certified mail.

The bureaus may confirm that the dispute is legitimate and, if so, it stays on the report; if is incorrect, it is removed.

You may be asked by the credit repair company for documentation to support a dispute. The more information you are able to provide, the more beneficial it will be in resolving the dispute.

If you do decide to hire an agency, check its rating with the Better Business Bureau. Also, start the process as soon as possible after you realize you’re going to need help to repair your damaged credit. Some items may take months to correct, and only after multiple communications between your repair agency and credit bureaus.

Your mortgage professional can provide more information.

If you are planning on purchasing a home and are wondering how much money it will take to get into it, this information may help.

The minimum down payment when purchasing a home using an FHA mortgage is 3.5 percent. Conventional mortgages, meaning those using Fannie Mae or Freddie Mac guidelines, now have a minimum down payment of 5 percent.

However, bear in mind that there will be additional costs above and beyond the down payment, including closing costs, asset reserves, and escrow accounts.

FHA has no asset reserve requirements, but conventional mortgages require two months of mortgage payments, including taxes and insurance if applicable, as a reserve.

Depending on the property’s location, your lender may require that a number of months of property tax reserves be placed with the taxing body. You need to be aware of this so that you have an idea of what tax reserves, if any, you’ll need when closing.

Depending on your situation, you may receive seller and/or lender credits to help offset additional costs. These credits may be used for closing costs, asset reserves, and tax reserves only.

Your down payment must come either from your own funds or in the form of a gift from a close relative. All lenders require this to ensure that you as a buyer have a vested interest in the property; it’s assumed that those with a financial interest in a property are more likely to work hard on resolving potential financial challenges when and if they arise.

You’ve likely heard the term “mortgage insurance,” but you still may be wondering what the heck it’s all about. In fact, this is very different from other forms of insurance you’re used to, such as property or hazard insurance.

It works this way: Under certain circumstances, a lender may take out mortgage insurance to cover the lending company in the event that the borrower defaults on the mortgage; as the borrower, you pay the premiums. Typically, mortgage insurance is taken out on a loan where the down payment is low or the borrower’s credit is less than ideal.

Conventional mortgage insurance

Conventional mortgages – those using Fannie Mae or Freddie Mac guidelines – require insurance when there is less than a 20 percent down payment. The closer the down payment to 20 percent, the lower the monthly premium. The insurance (and the monthly payments) can be removed when it is shown that there is now sufficient equity in the property and it’s no longer required.

FHA mortgage insurance

FHA has two types of mortgage insurance: One that you pay (or finance) at closing, and one you pay on a monthly basis. The first is called the “Upfront Mortgage Insurance Premium,” and the second, the “Annual Premium” (although it is paid monthly.)

Both premiums are a percentage of the loan amount, and are the same whether you are putting down the minimum (3.5%) or much more.

Unlike Fannie and Freddie, this mortgage insurance will remain on the mortgage until it is paid off, refinanced, or the property is sold. The upfront premium is non-refundable, but if you were to finance into another FHA mortgage within a few years, you would get a partial credit toward the mortgage insurance on the new loan, depending on how long it’s been since you last financed.

If this sounds complicated, contact your mortgage professional to translate it for you.

Acquiring a 15-year mortgage, as compared to the traditional 30-year variety, has both benefits and challenges. Take this imaginary $100,000 loan as an example:

For the 30-year loan, we’ll assume a rate of 5.00 percent; the monthly payment, excluding taxes and insurance would be $536.82. Because the rates for 15-year mortgages are typically lower, we’ll use 4.75 percent as a rate. This gives us a monthly payment of $777.83 – a difference of $240.91 per month.

While this is no small difference on a monthly basis, it’s a big difference over the long term. The total amount you will pay for the 15-year loan is ($777.83 x 180 months), or $140,009.40. The 30-year mortgage, however, will set you back ($536.82 x 360 months) $193,255.20. This is a difference of $53,245.80, or over half of your original loan amount.

If you are unable to afford the 15-year payment each month, but would like to reduce the mortgage balance more quickly, you can always get the 30-year loan, and make the equivalent of one extra payment per year.

In this scenario, you could add one-twelfth of your payment ($44.74 per month) to $536.82, and shave off almost seven years from the end of the loan.

Despite the slightly higher payment, the advantage of this solution is that if one month your financial situation is especially tight, you could make the regular payment, then catch up the following month.

Discuss your options with your mortgage professional, who will help you pick the term that’s best for you.