Non-Qualified Loan

Mortgage Commitment Letter and Pre-Qualification Letter: The Differences

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When you apply for a mortgage, you will hear a lot of different terms thrown around. Understanding these terms and how they affect your bottom line will help you get the mortgage that you need. Two of the most confused terms in the mortgage industry are mortgage commitment letter and pre-qualification letter.

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Below we help you differentiate between the two terms.

What is the Mortgage Commitment Letter?

The mortgage commitment letter is often confused with the pre-qualification or pre-approval letter, but it is neither of those things. The mortgage commitment letter is a final commitment from the lender that they plan to give you a loan barring any unforeseen circumstances.

Typically, the lender doesn’t write up the mortgage commitment letter until your loan file goes through the following:

  • Complete the loan application and provide the proper documentation including your paystubs, W-2s, tax returns, asset statements, and credit report
  • The underwriter evaluates your application and supporting documents. The underwriter will make sure everything matches what you said. They may ask for more documentation during this time or ask for more clarification on what you did provide.
  • The underwriter evaluates the appraisal. They need to make sure that the home is worth at least as much as you agreed to pay for the home. The underwriter must also make sure that the home passes any of the specific loan program requirements.

Once all of these steps are complete, the lender may be able to write up the commitment letter. The letter may include a few conditions, but they aren’t anything major, like the appraisal. The conditions may be about your proof of insurance, an additional bank statement, or one last paystub just to prove that you are still employed by the closing.

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What is the Pre-Qualification Letter?

The pre-qualification letter is almost the exact opposite of the mortgage commitment letter. The pre-qualification a lender provides you with has no merit behind it. The lender gives their best estimate on how much loan you can afford based on the information you provide.

The main difference between the pre-qualification letter and the mortgage commitment letter is that there isn’t any substantiating evidence behind the pre-qualification letter. You don’t have to provide the lender with any evidence of your income or assets. You tell the lender how much you make each month, how much you have saved for a down payment, and what debts you have. The lender will pull your credit to see your credit score and to check your debts, but that’s the only official evidence they have with a pre-qualification.

Basically, the pre-qualification letter is a lender’s intent to provide you with a loan of a specific amount, but it is contingent on a large number of conditions. It’s often the first step in the process, but it doesn’t hold any weight, even when you shop for a home.

The Pre-Approval Letter

The step in between the pre-qualification letter and the mortgage commitment letter is the pre-approval letter. This letter is proof of the lender’s intent to give you a loan, but it’s typically based on a few conditions that don’t have anything to do with the borrower himself, but rather the property.

In order to get a pre-approval letter, you must apply for the loan and supply any borrower-related documents, such as your paystubs, W-2s, tax returns, and asset statements. The underwriter will review these documents and conditionally approve you for the loan. As we stated above, the conditions are usually related to the property including:

  • Appraisal
  • Title work
  • Homeowner’s insurance
  • Flood insurance

The pre-approval letter is what sellers want to see because it helps them know that you are a serious buyer. Without the letter, they don’t know if you can even get the financing that is necessary to buy the home. While it’s not the mortgage commitment letter, it’s more than just a prequalification letter.

If you are ready to buy a home, you want the pre-approval letter. If you are just starting out and have no idea what you can afford, the pre-qualification letter will suffice. If you already signed a purchase contract and have a closing date, that mortgage commitment letter is the only way you will get to the closing.

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Buying a House With an ITIN – What You Need to Know

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You can buy a house with an ITIN. You may even find several lenders willing to give you a loan even without a social security number. But, there are some things you need to know so that you can get the best possible loan for your situation.

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You Need a Credit History

Here’s the thing – you need a credit history. That might seem hard to do if you don’t have a social security number, but there are ways.

The most common way anyone starts with a credit history, whether with or without a social security number is with a secured credit card. These credit lines are typically easy to obtain because you are required to put down a security deposit. The credit card company gives you a credit line that is equal to your security deposit. This way, if you default on your credit card, the credit card company can use the security deposit to pay the bill.

Before you accept a secured credit card, check with the credit card company on their procedures regarding reporting the credit card debt to the credit bureaus. If the credit card company doesn’t normally report secured credit cards to the credit bureaus, it won’t help you establish a credit score, which is the point in getting the credit card.

Consider an Alternative Credit History

If you can’t get a secured credit card or you can’t find a credit card company that reports to the credit bureaus, consider an alternative credit history. This is a history of your regular monthly bills that don’t report to the credit bureaus. Think of bills like:

  • Tuition
  • Rent
  • Insurance
  • Utilities

If you pay any of these bills regularly, you may be able to build a history that way. You’ll need a 12 – 24-month history of these bills in order for lenders to use them, though. They use the alternative history as a way to gauge how well you handle your finances.

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You Need a Large Down Payment

Lenders don’t like to give loans with high LTVs (loan-to-value ratios) to those without a social security number. What if you have a reason to leave the country quickly? If you don’t have a lot of your own money invested in the home, it could be easy to just walk away from the home, leaving the lender without their money.

Just how much you must put down will depend on the lender and your qualifying factors. It’s a good idea to have at least 20% saved for a down payment, but there’s nothing wrong with putting more than 20% down on the home. The more money you can put towards the home, the lower your risk of default becomes. This could make lenders more willing to give you a loan or even more willing to give you better rates and terms for the loan.

You Need Employment That Continues

You probably figured you have to prove an employment history. Lenders like to see at least a 2-year history at the same employer. This shows the lender consistency and reliability. While that’s great, lenders need to see that the employment will continue for the foreseeable future.

No one is able to predict whether you will have a job a few years from now, but the lender needs to know that the potential is there. You can prove that your job will continue by providing your contract with the employer. If the contract doesn’t expire within the next three years, most lenders will accept that as proof of continued employment.

You Need a Low Debt Ratio

Giving you a loan when you are a foreign national is a risk for a lender. Proving that you have the money to put down on the home and that you have a decent credit history is a start. But, lenders also like to see that you have a low debt ratio. They want to know that your income isn’t already spread thin. If you have a high debt ratio, it could leave you with difficulty paying your mortgage on time. Lenders want to avoid this as much as possible, so they will favor those borrowers with an ITIN that have a lower debt ratio.

You can buy a house with an ITIN almost as easily as someone with a social security number. You need similar qualifying factors, but with a little boost. You need to show lenders beyond a reasonable doubt that you are a good risk.

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5 Ways to Tell if You Can Afford Your Dream House

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Before buying a home, you need to know how much you can afford. You may have the perfect number in your head, but does the lender agree? Knowing what you can afford before you look at homes saves time and frustration.

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Use the simple steps below to see how much home you can afford.

Know Your Monthly Debts

Chances are you have debts now. They won’t disappear just because you buy a home. Credit cards, installment loans, and student loans are a few examples. Lenders use these payments to calculate your total debt ratio.

Don’t worry, lenders don’t include utility bills, grocery spending, or insurance payments. They only consider the payments on your credit report.

If you notice you have too many debts, consider paying them down now. The fewer monthly debts you have, the easier it is to qualify for a mortgage.

Know Your Gross Monthly Income

Lenders look at your income before taxes. Do you earn an annual salary? Divide it by 12 – that’s your gross monthly income. You need this number to figure out your debt ratios. Lenders have different debt ratio requirements for each program.

If you work hourly or on commission, use your year-end W-2s to figure out your gross monthly income. Divide the annual income by 12. This gives you an average over the course of the year. This is important, especially with variable income.

Know Your Front-End Ratio

Lenders use your gross monthly income to determine an affordable mortgage payment. Each loan program has its own guidelines, for example:

  • Conventional loans – 28% housing ratio
  • FHA loans – 31% housing ratio
  • USDA loans – 29% housing ratio

Once you know your gross monthly income multiply it by the appropriate front-end percentage. For example, if you make $5,000 per month, your maximum mortgage payment on a conventional loan is $1,400 and $1,550 for an FHA loan.

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Use these numbers as a guide. Your total mortgage payment can’t exceed these amounts. Your total mortgage payment includes:

  • Principal
  • Interest
  • Real estate taxes
  • Homeowners insurance
  • Mortgage insurance (if applicable)
  • Calculate your Back-End Ratio

Your back-end or total debt ratio could reduce how much mortgage you can afford. This is where your total monthly debts affect things. Your back-end ratio is the maximum amount of your gross monthly income you can commit to your monthly obligations. This includes the new mortgage.

The back-end ratios are as follows:

  • Conventional loans – 36%
  • FHA loans – 41%
  • USDA loans – 41%
  • VA loans – 41%

Calculate your back-end ratio by adding up the new mortgage payment with your current monthly debts. Next, you should figure out your max total debt ratio. Do this by multiplying your gross monthly income by the appropriate percentage.

Using the $5,000 monthly income, you could have maximum debts of $1,800 for a conventional loan and $2,050 for government loans. If you want a $1,400 conventional mortgage payment, your other debts can’t be more than $400.

Does your income and debts fit this requirement?

Put the Number Into Your Budget

Thus far you have a fictitious number. Sure, it looks good on paper to have a $1,400 mortgage payment, but does it fit into your budget?

If you use a computer program or app to keep track of your budget, toss that $1,400 payment in there. How does your bottom line look? Do you still have money for your ‘other expenses?’ Can you still live the life you’re used to? Do you need to sacrifice? Are you willing to sacrifice?

If you don’t use a program or app, physically take $1,400 out of your bank account. What’s left? Can you cover your other bills? Do you have the cash to do the other things you want to do? Try this for a few months and see how it feels. Practicing before you own the home is a lot less risky than taking a chance on late payments and foreclosed homes.

Knowing how much mortgage you can afford before you shop for a home helps avoid delays. You can shop for a home within your budget. If you have the necessary qualifications for the loan, you’ll have fewer issues getting approved.

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How to Evaluate an Investment Home Purchase

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Buying a home to rent out can be a very lucrative investment. However before you purchase just any home, you should know what to look for. Just buying a home and hoping to make good money on it isn’t going to work. You have a lot of legwork to do before choosing just the right investment home.

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Where is the Home Located?

Before you purchase an investment home, you’ll want to consider not only the home itself, but also its location. You could have the most beautiful home that suits a family of four, but if it’s in a rundown area and sticks out like a sore thumb, it won’t likely make you any money. In fact, it could be a sinking investment.

Even when you buy a home to live in as an owner-occupied property, you want to look into the neighborhood. You’re not just buying a home, but an area to live. You want it to be somewhere you feel comfortable and enjoy living. The same is true for an investment home. You want it to be somewhere where there is a large rental market and where people would want to live.

A few things you’ll want to consider is the proximity to major things like shopping malls, churches, and schools. If you are buying a home that is large enough for a family with kids, you’ll want to make sure the area is kid-friendly and that the school district is reputable.

Consider the demographics of the area. Is it better suited for retired people or young families or somewhere in between? This will help you determine if it’s a good place for a rental home. If it’s a good area for retired people, you may not have as large of a market of renters as you would if it’s an area for families just starting out.

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What’s the Home’s Condition?

Next, you want to know the home’s condition. Obviously, this plays a role in the home’s value, but you need to dig deeper than that. You need to know how much work the home needs and around how much it will cost. This will help you figure out the financial aspect of the purchase.

It doesn’t matter how cheap you can get the home or how much you think you can get for rent. You have to figure in the cost of making the home livable and desirable. Remember, you are trying to appeal to an audience that has many other opportunities to rent other homes.

Once you know what repairs the home needs, you should figure out if you can afford the repairs. This means can you afford the materials as well as the labor to conduct them? If you can do them yourself, think about the time commitment. Do you have the time to make the changes within a decent period? Remember, time is money.

What’s the Market Like?

You will also want to know what the rental market is like in that area. You can have the best home at the best rental price, but if there isn’t a market, you won’t make any money. Do your research and determine what the going rent is in the area as well as what percentage of vacancy exists. If there is a large number of vacancies, you may want to look at other properties in other areas.

Figuring out if an investment home purchase is worth is a big task. You have many factors to consider outside of the value of the home. Understanding if the home will be profitable for you requires a little research as well as some guessing. The more input you have and the more time you take, the better the decision you will make.

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Buying a Foreclosed Home With the Freddie Mac First Look Initiative

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Freddie Mac offers owner occupied borrowers and certain non-profit agencies to have first dibs on Freddie Mac owned homes. It’s made possible through the Freddie Mac First Look Initiative. You’ll recognize the homes as they are advertised and sold HomeSteps.

What is the Freddie Mac First Look Initiative?

First, let’s look at the idea behind the Freddie Mac First Look Initiative.

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Freddie Mac created the program to enforce some stabilization in specific communities. Right now, the program is available in 10 states. These are homes that Freddie Mac financed, but the owners defaulted. Freddie Mac now owns the properties. They try to sell them to owner occupied borrowers first before marketing the property to investors.

How it Works

The first 20-days of a home’s listing is reserved for owner occupied borrowers or those with a non-profit agency. The agency must be affiliated with a program that promotes community stabilization. Investors can’t bid on the property directly to Freddie Mac during the first 20 days.

You do not need to be a first-time homebuyer. However, you must be able to prove you are buying the home to live in as your own. It can’t be a second home or an investment home. You may see the listing in the MLS, like any other property. Freddie Mac also advertises it on their website. You can search for eligible homes by specific address or search broader with any of the following:

  • City
  • County
  • State
  • Zip code

You’ll see which properties are still in the ‘first look’ phase, where only those planning to live in the property can bid. You’ll also see the properties that are no longer in the ‘first look’ phase and are eligible for bids from anyone.

If you successfully bid on a home within the first 20 days, you must complete an Agreement of Purchaser for Neighborhood Stabilization Non-Profit, NSP, NCST or Government Agency. Fraudulently signing this agreement could result in criminal charges.

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Using HomeStep Financing

If you bid on a HomeStep home, you may qualify for HomeStep financing. Participating lenders offer this flexible financing option. They offer the following benefits:

  • No need for an appraisal
  • Low 5% down payment
  • No mortgage insurance

Not every home is eligible for HomeSteps financing. Your listing agent can inform you if the Freddie Mac First Home Initiative Home is eligible or not.

Making an Offer

In order to make an offer on a Freddie Mac First Home Initiative Home you need to work with an approved real estate agent. You can find approved agents directly on the HomeSteps site. You should take your time choosing an agent, though. You’ll want someone experienced with the process so you are able to successfully buy the home you want. The real estate agent plays a vital role in the process of you getting the home.

Secure Preapproval

As with any loan, you should apply for loan preapproval first. Whether you use the HomeStep financing or other options, knowing what you can afford will help you bid the right price on a home.

When you have the preapproval handy, you can get through the process faster. You only have 20 days to complete the process. If more than 20 days pass, bidding on the home opens up to anyone, not just owner occupied borrowers.

If you are looking for a home to use as your primary residence, take advantage of the Freddie Mac First Look Initiative. You don’t have to use the HomeStep financing. You can use your own lender and type of financing, if you wish. It just gives you the first advantage at securing a low purchase price on a foreclosed home.

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How to Avoid Delays Related to Mortgage Processing

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The last thing you want is a delay in your mortgage process, especially if you are purchasing a home. You have a deadline to meet, but you must comply with the lender’s rules in order to meet it. If you don’t follow the rules, you could seriously delay your mortgage processing.

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Are you afraid of falling in that bought? Use these five simple steps to help you avoid any delays in your mortgage approval process.

Be Honest With the Lender

It’s easy to embellish a little bit when the home of your dreams is on the line. Here’s a bit of advice though – don’t do it. The truth will come out eventually. With all of the red tape mortgage lenders must go through today, they verify everything. They cannot take your word for anything. If it’s not on paper and documented several times, they cannot use it for qualifying purposes.

So what does that mean for you? Be upfront with the lender. Honestly, it helps you in the end anyways. The more honest you are, the more likely it is that the lender will line you up with the right program. For example, if you fib and say you only have a ‘little’ debt, when in reality, you have more than you can handle, it could derail your loan approval.

No matter how risky you think a factor is, tell your loan officer. He’ll tell you upfront what you might face. But, he may also have other loan programs that you’ll qualify for easier given the circumstances. Wouldn’t you rather know this information up front?

Provide All Documentation Right Away

It’s impossible to know every single piece of paper your lender will need, but there are some basics you can get ready immediately:

  • Last month worth of paystubs (4 if you are paid weekly, 2 if you are paid bi-weekly)
  • Last 2 years of W-2s for every job you have held in that time
  • All schedules of your tax returns for the last 2 years (especially if you are self-employed)
  • All pages of all investment or asset statements (even the blank pages)

If you own a business, be prepared to provide all financial statements pertaining to your business. You’ll also need to provide proof of a fully-paid homeowner’s insurance policy before the closing.

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Providing the lender with a full package up front can help speed the process along. However, when the underwriter asks for more documentation, act fast. The longer you take, the longer it takes for your mortgage process to go through.

Work Closely With the Seller

If you are buying a home, the purchase contract is a vital piece of information for the lender. No matter how well you qualify for the loan personally, the home must pass the requirements as well. The fully expected purchase contract will give the lender some information. However, you also need to work with the seller to get the appraisal and inspection done right away.

You can’t control when the seller allows the appraiser and inspector in the home, but keeping a good relationship with the seller can speed things along. The longer the seller delays, the more the mortgage process is at a standstill. The lender cannot move forward until they know the value of the home as well as its condition.

If you have an inspection contingency on the home, you’ll need to complete the inspection within the allotted time. If you miss the expiration date, you miss your chance to back out of the contract without financial consequences. This gives the lender the chance to review it as well to make sure the home meets the specific requirements of the loan program, such as FHA or VA requirements.

Don’t Use Your Credit Cards

If there’s one golden rule while you go through the mortgage process, it’s to freeze your financial life. Don’t make any large purchases during that time. You might think the lender would never notice since they already pulled your credit, but you’re wrong. The lender will pull your credit a minimum of one more time before you close. You have no way of knowing when that final time will be. It could be on your closing date.

How will you know if your credit card reported your new purchases to the credit bureau yet? You won’t. You live your loan approval to chance this way. If your credit card balance increased, your credit score may drop. The lender will also have to go back to the drawing board and figure out your debt ratio to see if you still qualify for the loan.

The entire loan process could be interrupted with just one purchase.

Don’t Make Large Deposits in Your Bank Accounts

Along the lines of freezing your credit is the need to avoid adding funds to your investment accounts. Small deposits are okay. Large deposits send up a red flag. The lender will ask to track those funds. In other words, they need to see where they came from if they cannot be tied to your income.

Basically, the lender wants to know if someone lent you money, if you got a gift, or if you took a cash advance on your credit card. Any type of loan affects your debt ratio and possibly your mortgage loan approval.

Avoid making any deposits other than your standard income if you can. If there is money you must deposit, talk to your loan officer about it beforehand. This way he can tell you what you need to do if you must use the funds for your mortgage.

These simple steps can help you avoid a serious delay in the mortgage process. Even delaying your closing a few days can cost you hundreds of dollars. In some cases, it could even cost you the home if the seller cannot wait. Take these steps seriously and move your process along as quickly as possible!

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Do Mortgage Lenders Verify Down Payment Sources?

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You found a home and now it’s time to get your loan cleared for closing. Your credit score, income, and the home’s value play important roles. However, don’t overlook the importance of the down payment. You can’t just tell a lender you are going to put 20% down and expect them to take your word for it. You have to prove where the money came from and that it belongs to you first.

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Keep reading to learn the proper procedure to verify your funds.

Your Own Savings

If the down payment money comes from your own savings, the lender will require the last 3 months’ of bank statements. On these statements, they will look for irregular and large deposits. If there are regular deposits that occur on a consistent basis, they will not question it.

But, say for example you sold your motorcycle and put the money in your savings account. That’s not a regular deposit and it’s likely a large deposit. The lender will need to know where that money came from. If you have any large deposits similar in nature, you’ll need to provide a paper trail showing where the money originated.

In the example of the sold motorcycle, you can show the deed of sale and the check from the buyer. You can also keep your deposit ticket showing the deposit so that it matches the amount of the check from the motorcycle buyer. Any transaction you conduct should have a paper trail.

If you don’t have a paper trail, the lender will assume the money is a loan. They will then include a monthly payment amount in your debt ratio. This can affect your loan approval. It’s to your advantage to keep as much paperwork as possible for proof.

Stocks and Bonds

Liquid investments can serve as a valuable down payment tool as well. Just like your savings account, the lender will need the last 3 months’ of statements. They will determine the value of your account to ensure that it meets the amount you need to put down on the home.

However, you will also need to show the lender the proof of the sale of the asset once you sell it. You’ll provide the lender with the paperwork you receive for the sale. You’ll also need to prove that you transferred the funds into your account. Keep the deposit ticket from the transaction and provide it to the lender alongside your proof of the asset’s sale.

401K

In extreme cases, you may borrow from your 401K. This isn’t a recommended method because it depletes your retirement funds. Even though you’ll pay the money back, you lose the time value of the compounded interest you would have received.

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If you go this route, you’ll need your latest 401K statement. You’ll also need proof that you are eligible for a 401K loan. You’ll need your employer’s approval along with proof of the required payments. Some lenders may count the payment against your debt ratio. It varies by lender. Even though you are paying yourself back and you don’t owe interest, it’s still a debt. Lenders give you a specific timeframe to pay the debt back. This is the same as if you took out a loan from a bank, so the lender will likely count it.

Gift Funds

Many loan programs, including FHA and conventional loans allow gift funds for the down payment. You must follow a specific procedure in order to have the funds count.

The donor must provide you with a gift letter. The letter should be signed and dated by the borrower. It should state the amount of money they are gifting. It should also state the reason (home purchase) along with the address of the home. Finally, it should state that this is a gift and not a loan. This is the most important statement to the lender. Again, if it’s a loan, it could count against your debt ratio.

You’ll also need to provide the lender with proof of receipt of the funds. Some lenders also require proof of where the donor received the funds. They may ask for the last 3 months’ worth of banks statements from the donor. The lender will look for any large deposits that throw up a red flag. They’ll also need proof of the funds transfer. You can do this with a canceled check from the borrower and the deposit ticket into your account.

Verifying the down payment isn’t difficult, but it does require a paper trail. Lenders are on the lookout for any red flags that make them think the money is a loan. Even if it is a loan, it doesn’t always mean you’ll lose your mortgage approval. If it fits within your debt ratio, you may still have an approval.

Be honest with your lender about the source of your down payment funds. Ask what proof they will need to source the funds and what timeframe they must cover. Some lenders require more than 3 months’ of bank statements just to make sure the money wasn’t stuffed in your account just to make it look like you had more money.

No matter the case, keep a good paper trail and you’ll get your down payment verified in no time.

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Understanding the Turnkey Home

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Shopping for a home can be exhausting. As you look at home after home, you start to feel frustrated at the amount of work the homes require. Wouldn’t it be great if you could find a move-in ready home? Fortunately, they do exist – they’re called turnkey homes.

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What are Turnkey Homes?

Homes in great condition, ready to live in and that don’t need repairs are turnkey homes. These homes have no structural issues, look cosmetically pleasing, and don’t need minor repairs. If you chose to, you could literally move right into the home as-is.

Typically, turnkey homes were recently fully renovated. The sellers make the necessary repairs and renovations, hoping to recoup their investment within the sales price. Turnkey homes are great for busy families as well as investors that want a home they can rent out right away.

The Pros of Turnkey Homes

Turnkey homes have several obvious benefits:

  • You may not need to make any renovations to the home
  • You may love the cosmetic appeal and won’t even need to paint the walls
  • Investors can rent the home out right away rather than putting more money into it and wasting time
  • You don’t have to worry about meeting building codes or failing the appraisal

The Cons of Turnkey Homes

Turnkey homes sound amazing, but they do have their downsides:

  • Turnkey homes cost more since the seller invested his/her money to make it move-in ready
  • You don’t have a say in the home’s cosmetic appearance
  • Real estate taxes could soar once the assessor figures in the new renovations
  • You should still pay for an inspection to ensure that all work was done well

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Use Caution With Turnkey Homes

Don’t fall for the label on the packaging, so to speak. Anyone can slap the term ‘turnkey homes’ on a home. But is it really? The term is rather subjective.

Do your own due diligence. Hire an inspector to make sure the home doesn’t just look pretty on the outside, but really has major internal flaws. Also, ask for a list of the recently done repairs. Pay close attention to those areas. Are they up to your standards? Does the work look like it was done by a professional? Do you see any issues?

Do you like the look of the home or would you make changes anyway? It’s not worth paying the inflated price if you will invest more in the home’s appearance anyway. Really look at what the seller claims they did and decide if it’s something you like and will keep or will change in the near future.

The turnkey home can be a great option for investors – it allows you to rent the home out almost instantly. But does it? Is the price worth it? Are there still things you may need to fix? Do you like the appearance of the house and does it meet the needs of your target audience? These are all factors you should consider before buying a move-in ready home.

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Understanding the Patio Home

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The name sounds deceiving. You’d assume a patio home has a patio, right? That has nothing to do with it. Instead, patio houses are attached homes, similar to a townhouse or condo, but they’re different. They typically only have one story, whereas condos and townhomes have two or more stories.

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Keep reading to learn more about patio homes.

Defining the Patio Home

Patio homes are typically smaller. Not only are they on one story, they have less square footage too. They may or may not have a yard. If they do, it’s a small one. The homes are generally very close together, if not attached. The idea is to save land/space and provide a large number of homes for first-time homebuyers as well as empty nesters.

Most patio homes are part of a homeowner’s association. Many developments have common areas for recreation, increasing the cost of the HOA dues. The HOA typically takes care of the external maintenance on the property too, making it an attractive option for those nearing or in retirement.

What Should you Consider When Buying a Patio Home?

Just like buying any home, you should consider a few factors including:

  • How much are the HOA dues?
  • What does the HOA do/cover?
  • What common areas/recreational activities are included?
  • How large is the lot?
  • How close are your neighbors?
  • What is the layout of the home?
  • What is the size of the home?

Just like buying any other home, you need to be sure the patio home will suit your needs. Just because it costs less doesn’t mean it’s the right answer. Make sure you are comfortable with the closeness to your neighbors or the cost of the HOA dues, for example.

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The Pros and Cons of the Patio Home

All home purchases have pros and cons. The patio home’s pros include:

  • Low maintenance – Typically the HOA handles the exterior maintenance, which decreases the work you must do year-round. This can be good for first-time homebuyers as well as retired homeowners.
  • Low cost – Compared to single-family homes and larger townhomes, patio homes are typically much more affordable (depends on the location)
  • Access to a community – Homeowners of adjoined homes with common areas often have a larger sense of community and togetherness.

Patio homes do have some cons including:

  • Less space – Patio homes are compact. You won’t find large versions as that defeats the purpose of the type of home.
  • Less yard space – Some patio homes have no yard space and those that do have little space available. It’s typically enough for a small slab of concrete or small grassy area in the backyard.
  • Homeowner’s association dues – You’ll usually have HOA dues, which increase the cost of homeownership.

Fortunately, getting a loan for a patio home is the same as getting a home for a single-family home. It’s no more difficult than securing financing on a townhome or condo. If the HOA is in a secure financial position and most of the homeowners are on time with their association dues and not in foreclosure, you should have an easy time securing financing.

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What is a Single Family Home? And Why Should you Care?

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When you look for a home, you will come across many different types of properties. Knowing what is available and what you want will help narrow down your options. The most popular type of real estate is the single family home. What is it and how does it affect your ownership?

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Keep reading to find out more.

The Definition

A single family home is a home on its own lot or parcel of land, it does not share land with other properties. SFHs do not share walls or roofing with other homes. It is its own detached property. Single family homes also have private street access (no lobby or shared parking lot) and its own utilities.

Other characteristics of single family homes include:

  • Attached or detached garages
  • Small or large yards depending on the size of the lot
  • Single kitchen

The Reasons to Consider a Single Family Home

Single family homes have many benefits, most of which is privacy. Since you don’t share walls or property with others, you have more privacy than you would in an attached home. Typically, you have neighbors, sometimes rather close neighbors and sometimes neighbors with quite a distance, but they either way, the neighbors are much further away than those in an apartment, condominium, or duplex.

Other benefits of single family homes include:

  • Freedom to do what you want with the home
  • More room to store items rather than feeling crammed
  • The ability to work outdoors, which can be good if you love gardening and yard work

It is often easier to get mortgage financing on a single family property than it is any other type of property, including condominiums. Mortgage lenders prefer single family properties for the lower risk of default. When you share the property with other owners, such as is the case with a condominium, the lender is dependent on all owners making their payments in order to avoid foreclosure. If even a few owners lose their unit to foreclosure, it can bring the values of all units down, putting all lenders at risk of default.

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Reasons to Consider Something Other Than a Single Family Home

Single family home living isn’t for everyone. It does have its downsides including:

  • There may be a homeowner’s association that limits your ‘freedom’
  • You must shoulder all maintenance and repairs as well as the costs
  • You are solely responsible for the property taxes

If you aren’t ready to take on the hard work and financial responsibility of a single family home, condominium or townhome living may be a better option for now. When you own just a unit, but not the land, the homeowner’s association manages the maintenance and repairs on the property, taking the financial and physical burden off you.

A single family home is a great option when you are ready to take on the work and financial responsibility of it. You will likely get a mortgage much easier and have more freedom in what you can do with the property. If you aren’t ready, thought, there are several other options available to you.

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