REAL ESTATE TIPS FOR BUYERS
How to Avoid Becoming "House Poor"
It goes without saying that everyone wants the nicest home they can possibly afford. And you can certainly expect plenty of encouragement from your real estate agent and your lender. Each will be able to provide you with plenty of good reasons to buy at the top of your price range. In addition, lenders offer a variety of creative loan products from adjustable rate mortgages to hybrid loans to help you buy the most house you can possibly buy. The philosophy is, you are going to trade up eventually...so why not buy the home you want now? There are savings to consider, of course. For instance, you'd save money by eliminating new finance costs, closing costs, moving costs, Realtor and marketing fees, not to mention lost time at work and the hassle of moving. In addition, the housing market could change in a few years, making the house you would like to have unaffordable. All things considered - it's better to buy the most home while you can.
Leading financial advisors, however, will argue just the opposite. Financial advisors have 1 simple goal in mind. To help you build wealth. For this reason they think in terms of return on investment (ROI) vs. risk. Homes offer a fair hedge against inflation, but you really can't expect much more from them as investments. The rise in home values are mostly offset by the continued cost of maintenance, repairs and market fluctuations. All will agree, however, that home ownership offers many more financial benefits than renting. Advisors will insist that you diversify your assets...meaning that you should have a portfolio containing a cash reserve and other investments, in addition to your home. This risk-managed approach allows you to live a little more secure with the knowledge you can handle future events, such as reversals in your finances due to job loss or additions to your family.
While the ideology presented by each side is sound, the solution lies in the expression..."how to have your cake and eat it, too". Ultimately, you will want to buy the most home possible without becoming so poor that you cannot leave the house (hence the term, house poor). Accomplishing this goal will, of course, depend on several things. One being how much you tell the lender, a second being the type of loan you choose, another being how long you plan to stay in the home, and yet another being what your personal financial goals are.
Lenders are in the business of loaning money based on certain guidelines and risk assessments. This is to ensure that their loans can be insured and their risks will be reduced. The amount of your loan will be determined by four basic factors - income, assets, debts and the interest rate. Most insurer guidelines state that you cannot spend more than 28% of your income on your mortgage, and your debts cannot exceed 8% of your income.Income.
Lender's qualify income as gross yearly pay, including overtime, part-time, seasonal pay, commissions, bonuses, and tips. They may also include dividends from investments, business income, a pension or Social Security income, veterans benefits, alimony and child support.
The question is, do you really want to count all this income? Take a moment to think about it. The only income you should really provide is RELIABLE income. For instance, if you included overtime in your gross yearly pay, is overtime really a reliable source of income? Are you willing to commit to working overtime for the next 30 years to hold on to your house? Of course not, so don't include overtime in your income statement. What about child support? Now, be honest with yourself...have you ever received your check on time? More than likely not, so again, don't include it.
If your goal is to own your house and still be able to eat, you'll want to keep some of your financial information to yourself. You're better off to see what kind of a loan you can qualify for based solely on your annual income, without extra bonuses. As for dividends, you could be reinvesting them to make your stock account grow. Better to not include them as income.
By editing your income statement, you can give yourself bargaining room later, should you decide to buy a home that is a little outside the lender guidelines. In this situation, however, there is another option available to you - choose a more favorable loan.
Use the Lender's loan products to leverage more house.
A 30-year fixed rate mortgage is considered to be the standard of the loan industry. Whether it is the right loan for you depends upon two things. One, how long do you plan to occupy your new home; and two, whether you have chosen a home that is just over your edited income range.
For many first-time home buyers, the average time you'll spend in your new home is about four years. Repeat buyers usually average around 7 to 12 years of occupancy. The idea here is simple. The shorter the time you occupy your home, the less time you have to reduce your principle. Until you begin reducing your principal, you aren't really building any equity in the home. Here's something to remember: Equity equals ownership. If you are planning to stay in your home for only a short period of time, make sure your interest rate is as low as possible. You'll also want to avoid paying points, and finance as much of the closing costs as possible.
Typically, 30-year loans represent a high risk for lenders. This is why your credit, debt and income picture must be in such good shape to qualify for one. An alternative loan product would be a variable rate mortgage. While this does require a small risk, the interest rates are usually a point or more lower than the traditional 30-year rate. Variable rates do two things. First, they provide you with a lower interest rate, meaning that you pay less towards interest and more towards principle each month that your in your home. Second, they provide lower monthly payments, freeing up some of your cash for use on other things. That being said, you'll want to strongly consider whether this option is right for you. Many people choose variable rate mortgages if they know they're only going to be in the home for a short period of time, say 4 to 5 years (or less). You'll want to decide on your goals before you commit to a loan product, but be sure they are realistic.
The bottom line is, only you can determine what is comfortable for you. It requires you to look at your lifestyle, income, spending habits, and future financial goals, knuckle down and make a decision. That being said, here's an idea to consider.
Look at the loan amount you qualified for. Now, when looking for homes, try to find homes that range anywhere from 10 to 15 percent less in cost. Chances are, you'll find a home that suits your needs and tastes, but won't overextend your finances. Then, you can take the difference you would have spent on a higher house payment and invest it elsewhere. Add to it monthly. The extra $100 or $200 that you would have spent on your house could be contributing to an IRA (which is tax-deductible) or an investment portfolio. And, if you were willing to spend that money on the house to begin with, then would you really miss it?Mortgage Application Checklist
- Copy of your Purchase & Sale Agreement
- Your present mortgage information
- Two-year history of employment and verification of all income sources
- If self-employed, copies of past two years Federal Income Tax Returns
- Information about your checking, savings and credit card accounts
- Name, account number and outstanding balance of each of your debts
- Application deposits
- Information about any assets
- Information regarding any other assets that will be used as funds to close
- If FHA - Copy of Social Security card and photo ID
- If VA - Certificate of Eligibility or DD214
If Employee Relocation Client - include relocation information and copy of offer, promissory note and copy of check on bridge loan.
Improve Your Chances
With inventory diminishing daily and multiple offers being extremely common, it is of great importance that you position yourself to have the "Best Chance" to get your offer accepted.
You enhance your chance of getting the home of your choice by doing the following:
Get pre-approved for the purchase
This takes very little time and is of great value. At this time, identify the price range for which you qualify and which fits your lifestyle.
Submit a strong competitive offer
Submit the offer as if there will be multiple offers.
Include substantial earnest money deposit
Acceptance of an offer is sometimes determined by the amount of the deposit. A larger amount may signify a bigger commitment to the seller.
Minimize or eliminate contingencies
The fewer contingencies, the stronger the offer.
Make a buyer profile available
Time on the job, flexibility, reason for purchasing seller's home, etc.
Be prepared to preview a new property quickly
Homes sell sometimes in hours. Be prepared to make decisions quickly and be accessible to change the terms instantly.
Buyer and agent to have instant communication access
Let us maintain instant access to each other via office phone, voice mail, fax, pager or cellular phone.
The Down payment: More or Less?
The question is:
How much cash should a buyer use as a down payment and how much of a loan should they apply for?
Well, there is no straight answer to that question. There are several factors that affect the down payment, such as the type of loan you're applying for, your income, your available cash-on-hand, to name a few. It also depends on your long term goals for the home you are buying. Here are a few things to think about:
20% Down - Breathe! The benefits to putting 20% down are fairly straightforward. First, by putting 20% down, you borrow less which means you repay less. Second, you will not have to pay private mortgage insurance (PMI) on the loan, effectively saving you $40 to $70 a month.
Less than 20% Down - This is a more common option for first time buyers. Many loan programs offer buyers the ability to purchase a home with as little or no money down. This allows you to conserve your cash for other expenses. The flip-side to putting less than 20% down is that lenders will require you to pay private mortgage insurance (PMI). PMI is a monthly fee that the borrower pays if the loan exceeds 80 percent of the purchase price. Since a lower down payment results in a statistically higher risk to the lender, PMI insures a portion of the loan to reduce the risk to the lender. There are ways to put less than 20% down and still not have to pay PMI. You'll want to check with your lender for these options to see if one is right for you.
The Monthly Payment "Comfort Level" - This is probably the most important issue that will dictate how much cash you put down. If you have good credit and a solid income, most lenders will qualify you for a loan amount larger than you would ever want. Before speaking with a lender, take a good look at your personal finances and spending habits. Be sure to include all of your expenses, from the utilities to dinner and a movie. Then decide just how much you are willing to pay for a home each month.
Taxes. It's important to understand the benefits of mortgage interest and the real estate tax deduction. Since you will own the home, you will be able to deduct all the interest and taxes you pay on the home. Consult a tax expert on these issues, but it's important to get an idea of how much of a tax break you will receive if you own the home. This will also help you decide your mortgage amount.
Opportunity costs. Ask yourself this question: What am I giving up by putting 20% down? If the purchase price of your home is $200,000, are you going to miss $40,000? What is that money currently doing? Is it earning a good rate of return? Will you have to sell securities and pay capital gains taxes to liquidate that money? Be sure to investigate the true costs associated with a large down payment.
Other debts. Don't forget to consider any other debt you may have. For example, if you are carrying substantial credit card debt, it would probably be better to pay the cards off instead of putting down a large down payment. Or perhaps you only owe $10,000 on your automobile. It would be better to pay off the car, and put the difference towards the down payment, thereby eliminating another expense.
Ultimately, the decision on what amount to put down will be up to you. Consider this a step in the right direction. There may be other factors to consider, so think carefully. When in doubt, talk to friends or relatives that have purchased homes. They may be able to provide you with additional insight.
10 Ways to Avoid "Rookie" Mistakes
Don't rush into the transaction. Buyers searching for homes in tight markets may feel pressured to make an immediate offer.
Solution: Become familiar with the local market before making a purchase offer.
Ask questions. First-time homebuyers, by definition, simply don't have home buying experience. If you don't know, ask. It may be uncomfortable, but let's face it...a broker cannot answer an unasked question.
There's no such thing as the "ideal" house. Many buyers run themselves, not to mention their brokers, ragged as they repeatedly dismiss homes that meet most...but not all...of their requirements. A buyer who turns down a house that meets most, but not all, of their criteria may miss out on the best available property as well as good financing, should market conditions change.
Solution: First-timers should definitely view many different homes as possible before making an offer. However, they should definitely not make an offer on the first home they like...but also, and more importantly, they should not hesitate to make an offer when they find a home they love.
Don't "Overbuy". Many First-timers are routinely seduced into becoming "house poor". That is, they spend so much for a home that they must forego annual vacations, restaurant meals and other forms of entertainment.
Solution: Get Pre-approved with a lender. This can help determine a reasonable target price range and also identify the mortgage programs which can work best for you.
Don't wait for that 20% down. It's an admirable goal, but it's often years in the future for many first-time buyers. Instead -- especially in markets with rising values -- buy now with as little down as possible. Consider VA, FHA and other loans with private mortgage insurance (PMI).
Be realistic. It's tough to ignore a home's curb appeal, but what about practical matters? Is there enough space? Is there off-street parking? Is the construction solid in good shape? What about maintenance costs? How far to work? It may seem like boring stuff...but it's important none-the-less.
Find out about zoning. Is the property next door zoned for a 24-hour service station? Fire station? Super Wal-Mart? Ask the broker about zoning for the property and the surrounding area. Find out before you buy. Otherwise you might be stuck with the home of your dreams...right next door to the new landfill.
Don't ignore representation. Chances are good that the seller has a broker. Who's representing you?
Solution: A buyer broker, an attorney, or both can give you needed representation at the bargaining table.
Don't skip an inspection. A professional home inspection is simply a "must" whether you are buying an existing home or a new one. Speak with inspectors before you enter the marketplace to see how they work, what they cost, and what they recommend.
Don't under-estimate closing costs. Closing costs comprise much of the expense when purchasing a home. In many cases, the closing costs can be as much (if not higher) than the down payment amount being required.
Solution: Examine your good faith estimate provided by your lender. Talk to people who have recently been through the buying process. Ask about fees you don't understand. If some of the fees seem excessive, ask the lender if they can be waived (or at least reduced). Many lenders will work with you to secure your business. Just be realistic. If you feel that the lender is "taking advantage" of you, consult another lender.
REAL ESTATE TIPS FOR SELLERS
Choosing your REALTOR ฎ
The most important decision you will make in the sale of your home is the Realtor you choose. Some points to consider:
Find someone you feel comfortable with. If you don't feel you can ask questions or go to your Realtor, you have the wrong Realtor.
Your Realtor should show you research to back up any recommendations. This includes information about recent sales, current listings and recent expired listings in your neighborhood.
Choose a local Realtor. He or she will know your area better than an outsider, will be seen as a source for people looking to relocate in your neighborhood, and will get better co-operation from other agents. It is likely that any amount you might save by having a friend or relative from outside the area serve as your Realtor, will be lost in their lack of knowledge about the very specific local market. Ask for references from the Realtor. He or she should be willing to give you names of previous clients.
Ask your friends and acquaintances for recommendations, but make your final choice based on your needs.
Ask the Realtor to show you what will be done to market your home. Consider the office and company support available to him or her as well as the initiative and professionalism shown by the individual.
Look for a Realtor who tells you what he or she knows from experience in the market, and not what they think you want to hear. Flattery may sometimes get the listing, but it doesn't sell the home!
What are the five biggest mistakes home sellers make?
If you're like most people, your home is your largest, and most valuable investment. When it comes time to sell, you'll want to profit as much as possible. And so does the next guy. That's why it's important to remember that when selling your trun home, you're in competition with other home sellers in your area, and just as in any other competition, mistakes can be costly. Here are some of the most common home seller slip-ups to avoid:
1.Overpricing or under-pricing.
A comparative market analysis is not only necessary, but a major aid in helping you set the best price for your home.
2. Selling "as is."
In the competitive home sale marketplace your home should be in "move-in" condition from the first day it's listed. It's important to know your home's key assets and find ways to highlight them, as well as identify and correct those items which need improving.
While clearing out clutter, deep cleaning and making repairs are important ways to get your home ready for sale, undertaking a major project could cost more money than you would recover from the sale. However, some major repairs, such as replacing a roof, should be done if they are needed.
4.Selling it yourself.
While not necessarily a slip-up, it is important to note that doing your own marketing can be a tempting way to save money, however, recent surveys show self-sellers net about 3% less from the sale of their homes than sellers who use a real estate agent.
5. Ignoring your agent's advice.
As experienced professionals, Realtors know what works and what doesn't. If you haven't contacted an agent about selling your home, it is highly recommended that you do so. An agent can work with you, discussing many recommendations and working with you to find the best way to sell your home.
Benefits of Proper Pricing
When your home sells faster, you save carrying costs, mortgage payments and other ownership costs. A quicker sale creates less inconvenience for you. If you've moved before, you know the energy it takes to prepare for showings: keeping the home clean, making child care arrangements and altering your lifestyle. Proper pricing reduces these demands on you, by helping your home sell faster. At market value your home will gain exposure to more prospects who can afford the price. Sellers who list at a high price are looking for that one buyer who will pay it. Sellers often do not realize that they have discouraged many potential buyers who could have afforded the home. The final sales price is probably one that will be affordable by more purchasers. This is because sellers many times accept a much lower price at a much later date since that one buyer willing to pay the higher price never comes.
Increased Salesperson Response
When salespeople are excited about a home and its price, they make special efforts to contact all of their potential buyers. Knowing that it is priced properly for its market, they expect it to sell soon and encourage their prospects to act quickly. Their excitement is contagious!
Better Response from Advertising And Sign Calls
Ad calls and sign calls to Realtors turn into showings when price is not a deterrent. Most serious prospects are well educated about asking prices in the areas they are seeking. They will not waste their time on a home they consider overpriced.
Higher Offers Attracted
Buyers fear they might lose out on a good home when it is priced right. They are less likely to make "low ball offers. Better pricing attracts multiple offers, too!
Means More Money to Sellers
If a home is priced right, the excitement of the market produces higher sale prices. You net more both in terms of actual sale price and in less carrying costs.
What is curb appeal and how important is it?
Curb appeal basically means that if a buyer drives past your house at 5 or 10 m.p.h., the front of the place should be alluring enough for that buyer to stop the car. If the job was done properly, the buyer should then get out of the car and write down your information.
According to the National Association of Realtors, "curb appeal" sells 49 percent of all houses. Relax...you, too, can achieve curb appeal for your home - whether you have a city townhouse with no front yard or a suburban house on a well-landscaped acre of land.
One thing that you, as a seller, must be aware of is that you cannot control every facet of curb appeal. The condition of your neighbors' houses and yards can affect the curb appeal of your own home. If they all look nice, then the buyer will become as intrigued with the neighborhood as with your house. If your neighbors' yards are filled with children's' toys, and the buyer has children, that means potential playmates. On the other hand, if the other yards are overgrown with a car on blocks in the front yard....good luck to you.
The following are some things you can do to increase your home's curb appeal.
Inspect the exterior of your home for blemishes. Chipped paint and stains on the exterior of your home can be rather unsightly. If necessary, you may want to power-wash the exterior to remove dirt and stains from siding, windows, patios, and other finishings (be sure to check with a professional so you don't accidentally damage your home).
Fresh Paint! While it may not be necessary to paint the entire exterior of your home (for those with wood siding), it is recommended to give your window, patio, and door trim a fresh coat of paint. Be sure to repair any cracks or blemishes you come across. Also, it probably wouldn't hurt to give the front door a couple coats, if you have a painted front door, that is.
Add some foliage. For townhomes and condominiums without yards, this isn't a major concern. You might be able to add a planter by your front door with some nicely arranged flowers, etc. Window boxes also work well for these types of homes.
For homes with yards, you'll definitely want to dedicate some time to the landscaping. First, be sure your grass is cut regularly (weekly is usually good) and well watered. Be sure to edge the lawn where it meets walkways, driveways, and sidewalks. Keep the hedges neatly trimmed. Refresh your mulch, preferable with a dark mulch that is watered regularly. Trim the flowers to present a healthy appearance, and if necessary, plant more. Check all of your landscape timbers (if present) and replace any that are looking a little worn. And finally, be sure to clean (and paint, if necessary) all of your lawn fixtures, such as benches, statues, birdbaths, planters, etc.
Remove trash. You'll want to not only remove trash from in front of your house, but also from in front of your neighbor's house. For townhomes and condominiums that share common grounds, you may want to contact your association, or simply remove the trash yourself. A trash-free yard gives a tidy appearance.
Wash the windows. We've all heard the expression, "I don't do windows"...and that's exactly how potential visitors may feel should your windows appear grimy or full of smeared fingerprints. Clean both the inside and outside of your windows and remove any debris that may clutter the view.
Stay Tidy. It's important to present a "tidy" appearance to potential buyers, both on the inside and out. Try to keep your yard and entrance way free from obstacles, such as hoses, bicycles, etc. Remember to put everything in its place. You never know when a potential buyer might drive by your house.
When in doubt, ask your agent to recommend ideas for increasing your curb appeal. The key is to balance curb appeal with cost. You don't want to take risks when selling your home, but you also don't want to go overboard trying to pretty it up. Remember, you're trying to keep as much money from the sale of your home as possible.
Getting a buyer to fall in love with the exterior of your home is the first challenge...once you get them through the door, you'll want to be sure that the inside is just as attractive as the outside.