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THE DOWN PAYMENT: CHAMPAIGN IL

by Rose Price

With a booming economy and comfortably plump market in Champaign IL, there are many more first time homebuyers flooding the market. So I thought it fitting to start a few blogs for those less familiar with how buying a home works, I mean, lets face it, even if you’ve been buying homes for 20 years, the process doesn't get less confusing.  So, lets start at the beginning; naturally, the Down Payment.

Let’s discuss what a Down Payment IS and IS NOT.

Definition of Down Payment

For a home buyer, the Down Payment, from here on out referred to as the DP, IS the sale price minus the mortgage loan amount. It IS NOT the same as the buyer’s cash outlay (the two are often confused). They are different by the amount of settlement costs charged to the buyer. 

For example, if the price is $100,000, the settlement costs $5,000 and the buyer has cash of $30,000, the amount available for down payment is only $25,000. 

Thus why many home buyers pay a higher interest rate in exchange for a lender rebate that will cover some or all of the settlement costs.

The DP IS NOT the same as the owner’s equity, except on the day of the purchase. Owner equity is what the owner could potentially net from selling the property. Where as the down payment is a one-time measure as of the purchase date, owner equity changes month by month. It will rise above the down payment as the mortgage loan balance is paid down and as the market value of the house rises, due either to property improvements or to market changes. AND obviously the owner equity could also decline if house prices fall…remember 2008? 

Why are down payments necessary?  

Basically to protect the lender.  You risk losing your down payment if your home ends up in foreclosure, so it's a way to make sure you make your monthly payment obligations.  

Minimum down payments

Most mortgage lenders require a down payment of at least 3 percent. FHA loans (mortgages insured by the Federal Housing Administration) require a down payment of at least 3.5 percent. Depending on your credit history, the type of dwelling and your reason for buying, the minimum down payment could be 5 percent, 10 percent, 20 percent or more.  This is why it makes sense to shop around for a mortgage.  Use your Real Estate Agent as a resource.  They will be able to help you find a few different mortgage options.  

Mortgage Insurance

When you make a down payment of less than 20 percent, your only option is to also buy mortgage insurance. There are two main types:

Private Mortgage Insurance (often called PMI), is paid to an insurance company. You will pay what are called annual premiums, which you will most likely pay monthly and most insurers also offer the option of an "upfront premium", in which you make a big payment at the beginning of the loan.

FHA insurance is paid to the federal government. When you get an FHA-insured mortgage, you will pay an upfront premium AND monthly premium payments.

Additional Fees

In many cases, lenders charge fees for down payments of less than 20 percent. Those fees will be on top of mortgage insurance premiums. Usually, the smaller the down payment, the higher the fee.  These fees will be paid at closing, FYI.  Sometimes the lender will charge a higher interest rate instead of fees.  

Options For Down Payments:

Appraised Value VS Sale Price

A big questions I get, is whether in the case where the appraised value is higher than the sale price, the difference can be counted as part of the down payment? From the lender’s perspective, the answer is “no”.  The property value used in determining the down payment is the sale price or appraised value, whichever is lower. The one and only exception to this is when the seller provides a gift of equity to the buyer (usually a family member). In these cases, the lender acknowledges that the house is being priced below market and will accept the appraisal as the value. In most of these cases, Lenders will require two appraisals and then they will take the lower of the two. 

Land as the Down Payment

Another big question is if land purchased as part of a plan to construct a new home can be used as down payment? The answer is “yes” actually. However, the land is then valued based on how long it has been held. If the owner has held the land for a long time, the lender will appraise the completed house on the lot and the difference between the appraisal and the cost of construction will then be viewed as the down payment.

So, if a builder charges $160,000 for the house and the appraisal comes in at $200,000, the land is assumed to be worth $40,000. A loan of $160,000 in this case would have a down payment of 20%.

However, if the land was purchased recently, the lender will NOT value it for more than its purchase price. If the price was only $30,000, for example, the lender will value it at $30,000, and the down payment will only be 15.8%.

Down Payment and Mortgage Insurance

From the borrower’s perspective, a larger down payment means a lower mortgage insurance premium. For example, a home purchaser with a good credit score who puts 3% down on a conventional loan will pay a monthly mortgage insurance premium about twice as large as the premium on an otherwise identical loan with 5% down, and 4 times as large as the premium on an otherwise identical 15% loan with 20% down.

I know, still a bit confusing, but that’s why we’re here, this is what we do!  If you need help navigating the murky waters of first time home buying, give the Rose Price Team a Call, we'd be happy to help you get into your first Champaign IL home.  The best way to buy a home will always be to find a good Realtor you trust and then let them do all the hard work and remember don’t be afraid to ask questions if you need things clarified.  If your Agent doesn’t encourage you to ask questions…find another Agent.  

Not ready to talk to an agent yet?  Then check out some of the FREE Home Buyer Tools we offer.

Thanksgiving Survival Brief

by Rose Price

This thanksgiving will be different you tell yourself!  You’ve decided on the menu ahead of time, you have your guest list and what everyone is bringing, but no matter how well you plan, something always goes wrong.  So here are ten extra tips to help your Thanksgiving go smoothly.   

 

Coolers aren’t just for tailgating!

 Everyone knows that refrigerator real estate is precious closer and closer to the feast, and the day of…forget about it!  So, bring out the cooler support.  You can clear your fridge of all of those large jars of pickles and condiments!  You can basically but anything you will not be needing for thanksgiving in your cooler and forget about it until after the big day.  If you live in colder climates you can store the cooler outside, away from all the ruckus of relatives.  The cooler isn’t just for storing space hogging jars of pickles though.  For instance, you could use it to brine your Turkey over night (just make sure there is plenty of ice!)  Or you could use it as a warming drawer…I mean it is insulated right?!  Line it with aluminum foil, add some folded towels and fill it with hot dishes as they come out of the oven.  

*NOTE* Use a little common sense…Don’t melt your cooler!

 

Pennies…Not just a useless form of currency!

 Pennies make great pie weights!…what’s a pie weight you ask?  Well, let me tell you.  Pie weights prevent your pie crust from rising, leaving you with an awkward bottom to your pie…just put a layer of tinfoil over your crust first, then fill it with pennies, then bake!  Boom, perfectly flat crust!

 

Aluminum foil!  One of Thanksgiving's MVPs

You can also use it as a Roasting Rack.  The point of a rack is to hold the bird above the pan so heat can circulate evenly, but who says it has to be made of wire?  If you don’t already have a store-bought rack you can make you’re own.  1. Crumple some sheets of foil into thick ropes and wrap them in coils on the bottom of the pan, that’s it.  Or you could go the green route and roast atop a bed of halved carrots, celery and onions.  

 

Ah the slow cooker.

 The only thing worst than lumpy mashed potatoes on thanksgiving is cold, gluey ones.  Keeping your spuds toasty while using the burners for other dishes is a piece of pie.  Butter your slow cooker, add some heavy cream to the potatoes, set the temp to low and then stir every hour or so.  Your potatoes will stay warm and silky s smooth!

 

Fat Separator…no not your belt.

The secret to great gravy is skimmed (not greasy) pan droppings.  If you don’t have a fat separator, simply pour your drippings into a large heatproof measuring cup and pop it in the freezer.  The drippings will cool and the fat will rise to the top and solidify, making it super easy to skim off with a spoon!

 

That thermos isn’t just for coffee.  

Put your gravy into a thermos… let sit until you’re ready to eat!  It’s that easy!

 

Local Salad Bar as Sous Chef

Ok this tip is going to be controversial, but it can literally save hours off of your prep time.  Go to your local market and pick up ingredients from the salad  bar that are already cleaned and ready to eat; chopped onions, trimmed beans, sliced bell peppers, hardboiled eggs, crumbled bacon…  It will save you a lot of work!…and you don’t have to tell anyone why you look less frantic this year, simply pour yourself a glass of wine and wait for the turkey.

 

Use your cabinets as cook book stands!

 If your recipes look anything like mine, they are covered in splashes and spills, the letters are barely visible at this point.  It’s a pain to keep flipping back and forth as well. Solution:  Print copies and tape them to your cabinets.  Keep them at eye level around your kitchen.  You’ve just minimized your kitchen clutter and can now  follow directions hands free, take notes on the fly; you could even arrange them in order of your cooking prep!  This is my favorite tip!

 

Bring that Turkey back from the dead!

Oops, did you over cook the Turkey?  Before glumly handing out the dried out bird  your guests, drizzle a little warm chicken broth over the meat.  It’ll moisten and add flavor.  This also helps for slices that have gone from room temp to cold!  

 

Deflect your guests

…in a nice way.  A busy kitchen is the worst when your trying to cook 8 things at once in order to eat on time, as to not disappoint your mother in-law.  So, give your guests jobs…outside of the kitchen.  Have a wine table with wine glasses and bottles as well as carafes of water.  Ask them to open the wine, pour the glasses, set the table, hang the coats, heard the kids.  Anything really, as long as they stay out of the kitchen!

 *Special Thanks to the Food Network 

 

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