Can you afford to buy a house?

Can you afford to buy a house?

You have heard it countless time that buying a house is the largest purchase you make in your life. For many, that is absolutely true and for that investment it makes perfect sense to get as much information as possible about the how to buy a house.

Even with prior knowledge and preparation, many first-time home buyers, make a mistake or two along the way. Buying more house than you could afford, or taking on a more decrepit house than you could realistically make habitable, are examples of those mistakes. Despite their best intentions, agents can only do so much with their advice.

The first-time buyers who are happiest are those who had done their research, and planned their purchases, communicated with their partners and agents and did not step too far outside of their comfort zones.  A home is often a big part of your lifestyle, so when you find the right house that meets your criteria, be prepared to pull the trigger and follow through. Waiting to get absolute best possible deal may not be the best strategy. Creeping interest rates and lost opportunities could eat up any saving in the deal.

Financing is one of the major obstacle in most home buyers decision making process.  Even though affordable housing is out of reach for lots of people, there are still programs to help people in their home ownership dreams. If you live in Travis Country, I would like to introduce two such programs.

My First Texas Home Program

This program allows qualified Texans access to low interest rate home loans, and help with down payment and closing cost assistance. The benefit is simple, you get more house for the same down payment or qualify for house easier. You can begin a lifetime of homeownership through My First Texas Home.

Homebuyers who meet the following minimum requirements are eligible to apply for a loan under the program:

  • You must be a Texas resident who has not owned a home for the past three years
  • Your combined income (s) may not exceed program’s income limit:
    • For Travis and Williamson counties median family income (2 people): $77,800
  • Purchase price of home may not exceed program’s purchase price: limit:
    • For Travis and Williamson counties  maximum purchase price: $332,470
  • Credit Score, minimum 620
  • Maximum Debt-to-income (DTI) ratio: 45%

To verify eligibility and apply for these loans, take your personal financial information to your lender. At the time of loan application, you will need the following:

  • Recent bank statements for all of your accounts
  • Pay stubs for the past 3 months
  • Tax returns for the past 3 years
  • W-2 forms for the past 2 years(your employer can provide you this)
  • Information about your long-term debts, including the names of the creditors, account numbers, payment amounts, etc.
  • Proof of any other current income
  • The executed sales contract (if available)

Texas Mortgage Credit Certificate (MCC) Program

This program hat increases a family’s disposable income by reducing its federal income tax obligation. This tax savings provide a family with more available income to qualify for a loan and meet mortgage payment requirements. It is available to teachers, fire fighters, peace officers, veterans, and low and moderate-income homebuyers.  This program is available through a network of lenders across the state and provides the following benefits:

  • A dollar for dollar savings %40 of interest paid, up to $2,000 every year as a special tax credit
  • Saves the homebuyer thousands of dollars over the life of the loan
  • Exclusively for first-time homebuyers or individuals who have not owned a home in the last three years
  • Can be used with TSAHC’s Down Payment Assistance

The example below assumes a family purchases a home for $200,000 at a 4.75% interest rate.  Interest paid the first year is approximately $9,500.  The 40% of the interest paid would equal $3,800 (40% x $9,500 = $3,800).

Mortgage Amount $250,000
Interest Amount 4.75%
Interest Paid $9,500
MCC Rate 40%
Tax Credit $2,000

In this example, the homebuyer would be entitled to a tax credit of the maximum $2,000.00. It is important to note that the homebuyer will still be able to take a mortgage interest deduction

  • Tax Credit          = A $2,000 tax credit reduces your taxes owed dollar-for-dollar by $2,000
  • Tax Deduction  =  A reduction of your taxable income by $7,500 ($9,500 – $2,000 = $7,500), results in lesser tax liability

So the question if affordability should be, have your explored all available options to make the home buying easier on your pocket? Let’s get started!

Best wishes,

 Moe Dadseresht

Austin Skyline Realty, Inc.

  •  p:  (512)740-6945                   c: (512)740-6945
  •  w: www.moeproperty.com  e: moe@moeproperty.com
  •  a:  11507 Hare Trail
  •       Austin, TX 78726
      

Texas Real Estate Commission

Who pays the closing costs?

Like everything else in a real estate transaction, closing costs (costs associated with buying or selling a property) are negotiable. Part of the closing costs, such as title insurance, regulated by the state of Texas and is based on a predetermined formula. Others costs are such as association fees, realtor commissions, etc. are negotiable and depend on the price of the house.

Buyer can request the seller to cover some or all of the closing fees. One way is to offer the full purchase price provided that the seller pays all the costs associated with closing. Most sellers expect homebuyers to offer less than the listing price, so they are much more open to negotiate when they have a full price offer at hand. Another option is for the buyer to meet the seller halfway, dividing the closing costs between the two parties.

Regardless of who ends up paying the closing costs, the following steps help making an informed decision.

  • Plan your budget – Carefully review options to reduce the closing costs. Online tools such as SmartAsset closing costs calculator can be used to get an estimate based on the amount of the mortgage loan.
  • Examine Each Fee – When the loan estimate is received, take the time to carefully review and understand each item. Consult with your  , you may be able to negotiate some fees and request the lender to cover some costs.
  • Shop around – Whether transaction is a refinance or a purchase, it pays to shop around for items such as title insurance and home inspections. Be sure to evaluate the cost versus the value; make sure you are getting the most value for your money, which may not necessarily mean you should choose the cheapest provider. Ask your lender to match the closing costs offered somewhere else.
  • Negotiate with the Seller You can request the seller to cover some of the closing fees.
  • Waive the Appraisal – If you are refinancing, you may be able to cut the appraisal fee if your home has been appraised recently. If this is the case, ask your lender for an appraisal waiver. You can also save on your title insurance by asking for a cheaper rate when you refinance.
  • Skip the Points – Mortgage lenders offer discount points to lower the interest rate on the loan. This is essentially pre-paid interest pid to the lender, one point is the equivalent of 1% of the total cost of the loan. In a low-interest rate climate, you may opt to pay less at closing by passing on the points.
  • Roll Closing Costs into Your Mortgage When refinancing, the mythical no-closing cost mortgage could become reality. Typically, you can skip paying fees at closing by rolling the costs into the price of your mortgage.  Don’t be fooled, however, not paying costs at closing may cost you more in the long run.
 Moe Dadseresht

Austin Skyline Realty, Inc.

  •  p:  (512)740-6945                   c: (512)740-6945
  •  w: www.moeproperty.com  e: moe@moeproperty.com
  •  a:  11507 Hare Trail
  •       Austin, TX 78726
      

Texas Real Estate Commission

How much is my closing costs?

In a typical real estate transaction in state of Texas, there are many charges that are paid at the closings. Most, if not all, of these charges are negotiable.  Here is a list of some estimated costs.

Charge  Description Amount Who Pays
Appraisal The appraisal is required to determine the fair market value of the home. A property appraisal is generally required by a lender before loan approval to ensure that the mortgage loan amount is not more than the value of the property. Therefore, an appraiser is needed to make this determination. $300-400 Buyer
Courier/FedEx At times, documents need to be shipped to other places. This can be for the buyer or the seller and it is charged to the benefiting party. Not commonly negotiated in the formal contract for sale, your closing agent will collect these charges at closing. ~$50 Buyer, Seller
Document Preparation Covers the cost of preparing the final legal papers, such as a mortgage, deed of trust, note or deed. ~$125 Buyer
Escrow Fee Fee for title company’s services  in receiving and holding funds (earnest money, buyer purchase money funds, loan funds, etc.) and disbursing those funds to the various parties. This requires a separate accounting for each transaction. All funds must be received, and the account must be balanced before any checks are sent cut. ~$200 Buyer, Seller
Home Warranty $Fee for an insurance policy to protect you from cost of unexpected failures in the major systems and appliances of your new home. ~$500 Buyer
HOA Resale Certificate Some neighborhood Home Owner Associations  require a transfer fee at the time of home sale. $500-$700 Negotiable
Mortgage Insurance Premium The lender may require you to pay your first year’s mortgage insurance premium or a lump sum premium that covers the life of the loan, in advance, at the settlement Varies Buyer
Prepaid interest This is money you pay at closing in order to get the loan interest paid up through the first of the month. Varies Buyer
Property taxes The property taxes for the balance of the year from the closing date. This is collected from buyers and seller pays for the previous months, so the title company can pay the first ear’s property taxes. Depends on closing date Buyer
Realtor Commission Generally the seller is represented by an agent. This fee is negotiated by the listing agent and seller when the property was listed for sale. A portion of this fee is offered to the other agent (buyers agent) . There is no law requiring this co-brokerage arrangement and sometimes listing agents are unwilling to share their commission with a selling agent. In this case, unless the buyer expects his agent to work for free, both seller and buyer may pay a brokerage fee. This fee is almost always paid at closing, except on some owner-financed deals. Depends on the loan amount Seller
Recording Fees These are the fees that the county charges for recording the new deed and mortgage into the public record. These are sometimes referred to as Deed or Mortgage taxes and is based on the sales price of the property, the number of pages, number of documents, and when recording mortgages, the value of the mortgage. In cash transactions, sometimes it is left up to the buyer to physically carry the deed to the recording authority after the closing. This is a negotiable cost but realize the seller has no interest in whether or not a buyer’s documents get recorded. Thus the buyer usually pays the fees and is calculated for each page of documents to be recorded (e.g. $26 for the first page and $4 for each additional page). ~$15 Buyer
Survey The lender may require a property survey. This is a protection to the buyer as well. Unless there is a very recent survey, it is a advised to get a survey done that corresponds with the physical boundary lines that are evident on the property. Having a current, clear survey is one of the best sales tools a seller can have. This is one that you just work out by negotiation. Care should be taken as to what type of survey you are negotiating. It could be as simple as having the corners marked, and a legal description derived from the information gathered in the field and previous deeds. It could also include fences, roads, and structures located on the plat of the property, boundary lines marked. Sometimes it may be necessary to include a topographical survey as well. ~$400 Buyer / Negotiable
Title Policy –Lender When a lender agrees to issue a mortgage for a piece of property, the lender must receive a guarantee that the property is indeed owned by the seller. Title fees pay the lender for the costs associated with determining the current owner of the property and legally certifying that the title information is correct.

In addition to the formal title search, your lender is likely to require a title insurance policy to protect it against an error in the title search.  Errors are rare, but they do occur.

Premiums and the scope of coverage can vary widely. As a rule, look for a policy with the least exclusions from coverage as possible.

The title insurance required by the lender protects only the lender. To protect yourself against unforeseen title problems, you may also want to take out an owner’s title insurance policy. Normally the additional premium cost is only a fraction of the lender’s policy.

Depends on the loan amount

~$1800 for $250K

Buyer
Title Policy –Owner The owner’s policy protects the homeowner’s investment for as long as they, or their heirs, own the property. This fee charged by the title company to search public records to determine if there are any title issues such as breaks in the chain of title, any unsatisfied mortgages, liens or judgments which have been recorded.

When it comes to houses, providing clear title is not a simple process. Public records affecting real estate title are spread among several local government offices, including recorders of deeds, county courts, tax assessors, and surveyors. Records of deaths, divorces, court judgments, liens, and contests over wills also must be examined.

Examinations also review the history of ownership, including all trusts, will and deeds associated with the property in the past. This is called reviewing the chain of the title, and inspects whether the property’s ownership may be legally tied to anyone other than the current buyer and seller.

Depends on the sale price of the house

~$1800 for $250K

Seller

 

 Moe Dadseresht

Austin Skyline Realty, Inc.

  •  p:  (512)740-6945                   c: (512)740-6945
  •  w: www.moeproperty.com  e: moe@moeproperty.com
  •  a:  11507 Hare Trail
  •       Austin, TX 78726
      

Texas Real Estate Commission