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Financing options for home purchases

Posted June 05, 2013 in Advice Column, Perry

One of the most important things in the purchase of real estate is how are you going to pay for it. There are lots of options, but things have definitely changed. Five years ago almost everyone was given a loan for about any purchase price. In some cases banks were writing interest-only loans. You never paid back any principal, as the banks just assumed prices would always go up. Well, they were wrong.

Let’s look at some of the options of financing today. The bank will look at your employment history, your income to debt ratio and most importantly, your credit score. All of these, combined with the amount you have saved for your down payment, will help you decide the right loan for you. Some of the most popular loans are Rural Development and FHA. These are government backed and have a low down payment. The down on an FHA is 3.5 percent and Rural Development is 0 percent. The home has to be in very good condition to qualify for this appraisal. You are not going to buy a fixer-upper and in most cases, bank owned will not qualify. The bank will order an appraisal and charge you $450 when your offer is accepted. If the home doesn’t qualify for your type of loan, the appraiser payment is still required; you don’t get the house or your money back.

If you are wanting a lower-priced home that needs repairs, have this conversation with your loan officer before ever going into a contract. This is usually a conventional loan. It will require a higher credit score and a larger down payment.

We receive several calls from people looking for a “rent to own” or a purchase on contract. In this case, the owner will act as the bank. These are few and far between. The owner assumes the risk of non-payment. They will usually want a large down payment, charge a higher interest rate and, in most cases, the price is firm.

The strongest buyers have cash. All they have to do is bring the check, and while typical closing costs at a bank start at about $2,500 and go up, a cash sale is about $200 closing costs. For the seller, cash will mean you don’t need an appraisal, but in the end seller will receive the same amount of money if it is cash or if there is a loan involved.

In summary, it is important to do your homework. Get pre-qualified to determine a price range. Let your real estate agent know your type of loan, amount you want to spend, details about the home you want and let the fun begin.

Information provided by Larry Saemisch, RE/MAX Pros on Main, 1207 Second St., Perry, 515-465-5000.

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