Understanding Closing Costs
When buying a home, most people focus on saving up for the down payment, but there’s another important cost you’ll need to account for: closing costs. These are the expenses you’ll need to pay on closing day, in addition to your down payment, in order to finalize the purchase of your home. From appraisal fees to attorney costs, closing costs can quickly add up — and as a first-time homebuyer, they may catch you by surprise. In this blog, we’ll break down everything you need to know about closing costs, including how much you can expect to pay, who is responsible for these fees, and some tips for reducing the amount you’ll need to pay at the closing table. What Are Closing Costs? Closing costs are the various fees and expenses involved in finalizing the sale of a home. These costs cover everything from the appraisal of your property to title searches, attorney fees, and other administrative charges tied to securing your mortgage. The exact closing costs you’ll incur depend on the type of mortgage loan you’ve chosen and your location. How Much Are Closing Costs? On average, closing costs typically range from 3% to 6% of your loan amount. So, for a $200,000 mortgage, you might expect closing costs between $6,000 to $12,000. These costs are separate from your down payment, and while you can’t avoid them, there are ways to reduce their impact on your budget. Who Pays Closing Costs? Both the buyer and the seller pay closing costs, but as the buyer, you’ll usually cover the bulk of the fees. In some cases, you can negotiate with the seller to contribute to your closing costs, known as seller concessions. This can make the purchase more affordable, but there are limits on how much a seller can contribute, which vary based on the type of loan and your down payment. For example: Conventional loans: If you make a down payment of less than 10%, the seller can contribute up to 3% of the loan amount. FHA loans: The seller can contribute up to 6% of the sale price. VA loans: The seller can contribute up to 4% for certain fees, like appraisals and property taxes. In a competitive market, however, the seller might not be willing to offer concessions, so it’s important to understand the limits before making requests. What’s Included in Closing Costs? Closing costs can vary depending on the lender, loan type, and location, but here are some of the most common costs you’ll see on your closing disclosure: Appraisal Fee: A third-party appraiser evaluates your home’s value to ensure it aligns with the loan amount. Fees typically range from $300 to $600. Attorney Fees: In some states, you’ll need an attorney to help with the legal aspects of the sale. This fee varies by state. Title Search & Title Insurance: A title search checks for any claims or liens against the property, and title insurance protects you and your lender from future claims. Expect to pay between $300 and $1,000 for these services. Home Inspection Fees: Depending on the loan, you may need to pay for an inspection to ensure the home is in good condition. This can cost around $300 to $500. Closing Fee: This fee is typically paid to the escrow company or attorney handling your closing. It can vary depending on your location. Escrow Fees: These funds are held in an escrow account to cover future expenses like property taxes and homeowners insurance. Your lender may require you to prepay a few months’ worth of these costs at closing. How Can You Reduce Closing Costs? While you can’t avoid closing costs entirely, there are ways to minimize them: Shop Around for Lenders: Not all lenders charge the same fees. Take the time to compare offers from different mortgage companies to find the best deal. Ask the Seller for Concessions: In a buyer’s market, sellers may be more willing to contribute toward your closing costs to help you close the deal faster. Consider a No-Closing-Cost Mortgage: Some lenders offer mortgages where you can roll your closing costs into your loan. While this can reduce your upfront expenses, keep in mind that it will increase your loan balance and interest payments over time. Negotiate Fees: Some fees, like application fees or processing fees, may be negotiable. Ask your lender if they’re willing to reduce or waive certain charges. Closing Cost FAQ How can I estimate my closing costs? On average, closing costs range from 3% to 6% of the loan amount. You can get a more precise estimate from your lender or use online calculators based on your home’s purchase price, loan type, and location. When do I pay closing costs? Closing costs are typically paid on the day you close on your home. This is when the funds for your down payment and closing costs are transferred to the seller and the various service providers involved in the transaction. Can I wrap my closing costs into my mortgage? Some lenders offer the option to include your closing costs in your loan, but this increases the total amount you borrow and the interest you’ll pay over the life of the loan. Consider whether paying upfront or negotiating seller concessions might be a better option for you. The Bottom Line Closing costs are a necessary part of the home buying process and typically amount to 3% to 6% of your loan balance. While they can be significant, understanding what to expect and exploring ways to reduce them can help make your home purchase more affordable. By working with a trusted lender, like those at Avantiway Financial, you can make informed decisions about your mortgage and ensure a smooth closing process. At Avantiway Financial, we’re here to guide you through every step of your home purchase, from securing the right loan to helping you navigate closing costs. Reach out to us today to learn more about your mortgage options and get started on your home
Investing in a Fourplex
Real estate investing offers a myriad of avenues for generating wealth, with investors often leveraging diverse strategies and property types to maximize returns. Among these options, the fourplex stands out as a compelling choice for those seeking simplicity in property management and robust cash flow. Characterized by its relatively modest entry price and the potential to accommodate multiple tenants, the fourplex presents an enticing proposition for savvy investors. But is it truly worth the investment? Let’s delve into the concept of investing in a fourplex and explore key considerations before diving into this real estate venture. What is a Fourplex? A fourplex, also referred to as a quadplex, represents a multifamily dwelling designed to accommodate four separate households within a single structure. These units may be arranged side by side or stacked atop one another, with each residence typically featuring its own entrance, kitchen, and bathrooms. While tenants may share common entryways or foyers, the autonomy of individual units remains intact, distinguishing the fourplex from traditional apartment complexes. Assessing the Investment Potential Investing in a fourplex offers several compelling advantages, making it an attractive option for real estate enthusiasts: Enhanced Cash Flow: With the potential to generate rental income from up to four tenants simultaneously, fourplexes offer superior cash flow compared to single-family properties. Accessible Financing: Unlike commercial properties, which often require specialized financing, fourplexes can be financed using residential loans, easing the burden on investors, and expanding accessibility. Simplified Management: Consolidating multiple units within a single building streamlines property management efforts, offering operational efficiencies and minimizing logistical challenges. However, prospective investors must also remain cognizant of potential drawbacks associated with fourplex investments, including: Tenant Turnover: The management of multiple tenants can entail higher turnover rates, necessitating proactive tenant acquisition and retention strategies. Operational Demands: Maintaining occupancy and addressing tenant needs demand time and resources, requiring diligent management practices to ensure optimal performance. Initial Investment: While fourplexes may offer favorable cash flow potential, the initial investment required to acquire such properties can be substantial, necessitating careful financial planning. Navigating the Investment Landscape When evaluating fourplex investment opportunities, investors should adopt a comprehensive approach, considering factors such as location, financing options, and potential returns: Market Research: Conduct thorough research into local housing markets, assessing key indicators such as population demographics, employment trends, and neighborhood dynamics to identify promising investment prospects. Listing Analysis: Utilize multiple listing services (MLS), real estate agents, and networking channels to identify available fourplex listings, both on-market and off-market, aligning with your investment criteria and objectives. Financial Metrics: Leverage essential financial benchmarks, including net operating income (NOI) and the 1% rule, to evaluate the viability of prospective investments. These metrics offer valuable insights into cash flow projections and return on investment potential, guiding informed decision-making. In Conclusion Fourplex investments represent a compelling avenue for real estate investors seeking robust cash flow potential and simplified property management. While these properties offer distinct advantages, including accessibility and scalability, investors must conduct thorough due diligence to mitigate risks and optimize returns. By navigating the investment landscape with diligence and strategic foresight, investors can unlock the full potential of fourplex investments, realizing sustainable wealth accumulation and financial prosperity in the realm of real estate.
Why an FHA loan might be the right choice for you!
As a home buyer in today’s market there are many challenges to getting approved for a home. Many may be unable to meet the traditional down payment requirements tied to conventional approval. You may also find yourself not approved for a loan due to a subprime credit score. Even if you just can’t find a rate that suits your budget, this can prevent you from being able to get approved for a home. An FHA loan offers solutions to commandeer all these issues. Down payments start at 3.5% when you have a FICO score above 580, bringing down the barrier of entry a traditional 20% down payment puts up. You may also still qualify for approval with a higher down payment with a credit score as low as 500. This means you may qualify for an FHA loan if you weren’t able to qualify for conventional funding due to a low credit score. Depending on your credit situation, an FHA loan may also offer a lower interest rate than a conventional loan! Regardless of the reason, there are solutions to alleviate these barriers. FHA Loan Requirements: Home must be your primary residence. Fico score at least 580 (3.5% down) Fico score 500-579 (10% down) DTI below 43% Must have a steady income and proof of employment. Must pass FHA inspection. Loan limits vary by county. Depending on your situation, an FHA loan may be the best choice when it comes to financing. From lower down payments to lower rates, to lower credit requirements, FHA loans provide solutions to help in almost any situation. To see what you may qualify for, use our handy pre-approval tool available at bananaloans.com. Mortgage lending without the monkey business, that’s banana loans. FHA Vs. Conventional Loans: When shopping for a mortgage, it can be confusing trying to figure out and understand the different types of loan products available to you. Different situations work best with different products and the type of loan you get influences your terms, rate and qualification requirements. Here, we will look at the differences between FHA and conventional loans as well as the pros and cons of each. FHA loans are loans backed by the Federal Housing Administration and are generally easier to qualify for than conventional loans. They also tend to have smaller down payment requirements, however, do require you to pay mortgage insurance for at least 11 years. Conventional loans, unlike FHA loans, are not insured or guaranteed by any federal agency. They come with stricter lending standards and larger down payment requirements. Contrary to FHA loans, private mortgage insurance is only required with down payments below 20%. If that happens, you can request your lender to cancel your PMI when your loan balance drops under 80% of the home’s original value. Credit Requirements: For some FHA lenders you can qualify with as low as a 500-credit score although, it is preferred to have at least a 580. Lenders that do accept lower scores may have stricter Debt to Income or down payment requirements. It will also be considered a subprime loan, meaning you may have a significantly higher interest rate compared to an FHA loan with above a 580-credit score or a conventional loan. Conventional loans, on the other hand, typically require a credit score of 620 or above. Down Payment Requirements: If you have above a 580-credit score, you can qualify for an FHA loan with a down payment as low as 3.5%. Those with credit scores between 500 and 579 must put at least 10% down. Conventional loans have options for first time home buyers with as little as 3% down however, to avoid paying mortgage insurance you would need to put at least 20% down. If it’s not your first time buying a home, and you make less than 80% of the median income, the lower limit goes up to 5%. For second homes it jumps to 10% and 15% for multi-family dwellings. Debt to Income Ratio: Your debt-to-income ratio compares your monthly debts with your monthly income. Lenders use this number to determine what you can afford when it comes to taking on a mortgage payment. Expenses that will be considered include: Rent or mortgage payment Minimum credit card payments Student loan payments Auto loan payments Personal or other loan payments Any other recurring monthly costs Then you take your total monthly income and divide it by the total of your monthly payments to get your DTI ratio. With an FHA loan, the maximum DTI allowed is 45% if your credit is below 580. Most conventional and FHA mortgages require you to have a DTI of 50% or less. Mortgage Insurance: Depending on the size of your down payment as well as your mortgage terms you may have to pay mortgage insurance. Mortgage insurance, unlike other insurances, doesn’t protect you. Instead, it protects the lender if you stop making payments. FHA loan borrowers are required to pay mandatory minimum mortgage insurance premiums, regardless of the amount you put down. There is both an up-front payment that can be rolled into the loan as well as monthly premiums. If you put at least 10% down must pay this for 11 years. If you make a down payment of less than 10% then you must pay these premiums throughout the life of the loan. Overview of FHA Loans: FHA loans are issued by FHA approved lenders including credit unions, banks and other lending companies and federally insured. They are intended for borrowers with either limited savings or lower credit. Since FHA loans are federally insured, these lenders can typically offer more favorable terms including lower interest rates and can lend to borrowers who might not otherwise qualify for a home loan. This also means it can be easier to qualify for an FHA loan compared to conventional financing. Property Types eligible: Single family homes Multi-family homes (Up to 4 Units) Condominiums With an FHA loan you
Getting a Mortgage Without a W-2
Introduction It can be extremely challenging trying to qualify for a mortgage when you’re not in a normal hourly or salary position. Generally, when it’s time to verify your income, you’ll need to provide your W-2’s along with pay stubs from the last 2 years. Having a non-traditional career makes this option no longer viable. Thankfully, at Avanti Way Financial we have solutions for you to qualify for a mortgage based solely on your true take home over the last 12 to 24 months. We have options for both bank statement loans as well as 1099 based loans! Perfect for business owners, freelance employees, consultants, independent contractors, real estate agents and entrepreneurs. We make getting a mortgage without a w-2 easy. To qualify for a bank statement loan you must: To qualify for a 1099 based loan you must have: A bank statement or 1099 loan is a way to get approved for a mortgage without dealing with the traditional income verification. If this sounds like it may fit your situation, use our handy pre-approval tool below to get the process started!