Finding The Right Home

What words come to mind when you think about finding a new home? Exciting? Scary? Overwhelming? The truth is that finding a new home can be all of those things. The way you feel about finding a new home can depend on why you’re moving and how much time you have to find a home. Perhaps you’re just beginning to think about moving. Or maybe you’ve found yourself in the difficult situation of having to move quickly for reasons like needing to downsize or to relocate for work.

There are a few ways to think about finding a home that can make the process easier. Before hopping in the car, take a few minutes to write down your wish list. Okay, maybe not your “ultimate” wish list. Focus on the things you’d really like or the things you need most in a home and a neighborhood. Take out a piece of paper and create two columns – one column for “must-have” items and the other for “would like” items. For example — how many bedrooms and bathrooms do you need? What kind of storage space do you want? Would you like space to entertain – like an outdoor deck or large dining room? Do you want a large yard with lots of landscaping or would you prefer a small lot that requires less upkeep? Can you anticipate possible future needs such as renovating a room to serve as an apartment for an aging parent? Do you have the skills or savings to consider purchasing a fixer-upper?

Now think about the type of neighborhood you’d like to live in. Would you prefer to be in an area with predominantly young families or maybe in a community of single professionals? How long do you think you’ll live in your new home? It’s important to consider, because you might want different things if you’re planning to live in a home 5 years compared to 15 or 20 years. Are you willing to take on a longer commute or do you want to live close to work? If you have children, or are planning to, how are the local schools? How do the local property taxes compare across neighborhoods you’re considering? Once you’ve come up with your list, you’re better prepared to begin looking for that new home.

Before you begin looking for a house, go back and work through the issue of how much of a home can you afford and try to really think about how long you think you’ll live in the home. Putting down on paper what price range you want to stick to is an important discipline that will help you stay focused while looking for a home. Thinking about how long you might live in the home can help you weed out homes that might not meet your short-term or long-term needs.

Once you’ve established how much of a mortgage you can afford, and how long you plan on living in the home, the next two steps to take are determining where you want to live and what you’re looking for in a home.

When you’re buying a home, you’re deciding where you want to live. Not just what type of home you want to live in, but what type of community you want to be a part of. Sometimes you don’t have time or many real options about where you want to live, like if you have to move quickly for a job relocation or if your choices are limited by your finances. Even if you don’t feel like you have a lot of time or options, you should still ask yourself a few questions to learn as much as possible about your future neighborhood, such as:

  • What type of area would you prefer to live in? For example, are you interested in living in the city or an urban area? What about the suburbs or maybe something more rural?
  • How far do you want to be, or are willing to be, from work, schools, your place of worship?
  • Are you interested in a planned community? Planned communities are relatively new and usually offer several residential neighborhoods as well as centrally located shopping and services (such as doctor’s offices, gas stations, restaurants, etc.). Planned communities will almost always require a homeowners’ association fee, which can be several hundred dollars a year, to pay for community amenities and upkeep.
  • What type of neighbors would you like to have? Do you want to live in a community of mostly young professionals, or families with young children, or would you like a mix of neighbors?
  • How far is it from your, or your spouse’s, place of employment?
  • What are the local schools like? If you have, or are planning to have, children, you’ll want to know about your local school system. You can get reports on your community’s schools from your Realtor, the local school board, or through one of several online resources, including: The School Report Express; Homefair.com or through the National Association of Realtors’ website
  • What about public transportation? If you use public transportation regularly to get to work or to go shopping, it’s essential that you have easy access to public transportation routes and that the routes take you to where you need to go. Even if you don’t now regularly use public transportation, it can be very helpful to have the kind of flexibility public transportation offers.
  • What about community amenities? Are there parks, pools, libraries, etc. nearby?
  • What are the estimated taxes on the home? Every home listing should include information on estimated taxes for the area. You can get tax information from the homeowner, your Realtor, or from the county’s tax office.
  • What type of city, county, or private services does the home use? For example, does the home use city water and sewer systems? Does it have well water? Is it part of a homeowners’ association that provides trash pick-up and landscaping services?
  • Is it a safe neighborhood? Driving or walking around the neighborhood can give you any tip-offs about local crime activity, or ask your Realtor or stop by the local police station to get information on the local crime rate.
  • Are there proposals for major development nearby? Ask your Realtor or check with City Hall to see if there are any existing proposals to build major roads or developments near by such as shopping centers, public transportation hubs, etc.
  • How is the local traffic congestion?

 

Benefits Of Using A Realtor

One of the first impulses most people have when thinking about buying a home is finding a Realtor®. But who exactly is a Realtor? And is a Realtor (capital R) the same as an agent? And what about a broker? Who exactly can help me?

Real estate professionals can be very helpful in the home buying process. But before you sign with the first professional you meet, take a few minutes to know how they work, how they’re paid, and how you can benefit from working with one.

First, let’s review the field of real estate professionals you may choose to use:

Agents. No, we’re not talking 007 here. An agent is a real estate professional that works for a larger real estate firm, called a broker firm. Most likely you will work with a selling agent. A selling agent helps buyers find a house, makes the appointments to show buyers homes, and handles the sales contract and negotiations on behalf of the buyer.Brokers. A broker is someone who is licensed to start up and run his/her own real estate business. The head of a brokerage firm is the principal broker. A buyer’s broker solely represents the buyer. He/she will provide you with a listing of homes, make appointments, present and negotiate a contract on your behalf. Most often the seller at closing pays the fee for a buyer’s broker’s services.

Realtors. Realtors (with a capital “R” and the trademark ®) are brokers or agents who belong to your local Board of Realtors, which is a member of theNational Association of Realtors. They are required to complete coursework and pass a state-licensing exam, and to practice according to a code of ethics established by the Association.

Some of the benefits of using an agent, broker, or Realtor® include:

  • They can explain different financing options and refer you to a lender that they’ve worked with who can help pre-qualify you for a loan.
  • They typically have access to the Multiple Listing System (MLS). The MLS is the electronic listing of all homes being represented by an agent. Being able to access the MLS through your agent gives you a complete picture of homes available in your price range and the area you’re looking to buy.
  • They may also know about homes that are available in the area, but are not being actively marketed. They can also get referrals on homes in your price range from their large network of colleagues.
  • They have time to research the local market, make appointments for you to see homes…. all the things that you might not have time to do or want to do for yourself!
  • They will prepare and handle all the paperwork related to the home sale.
  • They act as your agent serving as a go-between during negotiations. Negotiations are a delicate matter – it’s not just about negotiating price, but also about contingencies/terms, move-in dates, etc. It can be helpful to have an outside third-party when presenting an offer and handling counteroffers.
  • They can help you determine how much the home is really worth based on recent home sales in the area. That can help you determine how much to offer, how long to hold out if negotiations get difficult, etc.

Now here’s the part you might like. The home seller pays your agent’s commission. That’s right…it’s pretty much assumed that the seller will pay your agent’s sales commission (typically three percent of the home sale price) as part of the closing.

Many people, 80 percent of all homebuyers in fact, choose to use a Realtor®, agent, or broker when buying a home. If you’re thinking of using a professional, know that they’ll likely ask you to sign a contract with them saying that you will be represented by them for a certain period of time, usually between 30 -90 days. That’s because they make their fee, or earnings, off of the sale price of your home. In other words, if you don’t buy a home while you’re under contract with them, they don’t get paid.

But beware that not all professionals are alike. Buying a home is one of the largest financial commitments you will likely ever make. You’re not going to trust that much money and that large of a decision to someone you don’t know well or don’t trust. You’ll want to do a little homework to determine which real estate professional you want to use or if you want to use a professional at all.

Some questions you’ll want to consider asking…

  • What is your commission – how do you get paid? What services do you provide for your fee?
  • What are your accreditations?
  • Do you require that I sign a contract saying that you’ll be my exclusive agent? If so, for how long?
  • How long have you been selling real estate?
  • Do you work full-time or part-time? Real estate is an attractive field for people wanting part-time work. If your agent works part-time make sure you’re comfortable with his/her accessibility.
  • How many buyers did you help buy homes last year?
  • If he/she is also a listing agent, how many homes did they sell last year?
  • Do you show buyers “For Sale by Owners” properties?
  • Do you have access to MLS? Almost all agents will, but it’s good to double-check.
  • How easy is it for me to get in touch with you? Do you give clients your home and cell phone numbers? If I need to reach you, is there someone else in your office that I can talk with?
  • Can I get a list of references that I can call?

 

How Much Can You Afford

How much home can I afford?

Buying a home is typically the largest financial commitment most people make. It can also seem like one of the most confusing and overwhelming processes you’ve ever navigated. A great way to begin the process is to answer the question “How much home can I afford?”.

Whether you’re looking to buy your first home; a new, larger home; or if you’re thinking about downsizing into something smaller or less expensive, one way to determine how much mortgage you can afford is to get prequalified or preapproved by a lender. So what exactly does it mean to get prequalified or preapproved? What is the difference?

Prequalification: Getting prequalified is really just getting a ballpark estimate of how large a mortgage you qualify for. You can prequalify either online or by going through a local lender. You don’t have to sign any papers or commit to taking out a mortgage with that lender. You shouldn’t have to pay a fee for the prequalification and you can usually do it over the phone or online.

Preapproval is the formal process of applying for a loan. You’ll have to supply more information, fill out some paperwork or online application papers, and will likely have to pay a fee (although it shouldn’t be more than $50 – $100 max!). Being preapproved means that the bank guarantees to make you a mortgage loan. Being preapproved can make the home buying process easier in two ways:

  1. It can make it house hunting easier. If you know how much home you can afford, you can stick to your guns about the homes you really want to see instead of feeling pressured to look at bigger homes (and larger mortgages!)
  2. It can speed the process up because you already have a bank saying that they’ll loan you the money for a mortgage. Both realtors and sellers like knowing that you’ve done some homework up front and that you have a bank committed to financing your loan if your offer is accepted.

Now it’s important to realize that a lender will tell you the maximum amount that you’ll qualify for. As enticing as it can be to see that large number on paper, you need to decide how much debt you really want to take on. You may want to buy a home less than what the bank says you could afford. Maybe you want to give yourself some financial flexibility to be able to quit your job and stay at home when you start a family, or to be able to take a paycut if you’re thinking about going back to school or starting a career in a new field or in case you have unexpected financial challenges. If you buy a home based on your combined current incomes or even just your current income, it will be difficult to keep making that mortgage payment when your income is reduced. If you’re downsizing, it’s even more critical to try and stay within a price range you can afford.

Remember too that the amount quoted by the lender does not factor in how much you’ll owe in property tax and homeowner’s insurance. Ask your lender or Realtor to give you an estimate on tax and insurance on homes in your area. You can estimate that your property tax will be roughly between 1 and 4 percent of the mortgage amount.

Most people cite “being able to stay in my home” as one of their top financial priorities. If your finances are tight, you might want to do a little math to figure out how your current monthly mortgage compares to your current income. If you’re not sure what your monthly mortgage is (perhaps because you’re not the one who pays the bills), it’s a good idea to contact the bank that holds your mortgage to find out. Ask for a mortgage loan officer. Explain that you’re working on your finances and you need to find out from them: (a) how much your monthly mortgage payment is; (b) when the payment is due; (c) and how much you currently own on your loan. If you can’t find payment book, ask if they can send you a new book so that you can keep current on your mortgage.

Once you know how much your monthly mortgage payment is, you’ll need to determine how much income you have and how much your current monthly expenses come to. Read on for simple steps to get an accurate picture of your personal finances.

    1. Identify your income.
      Don’t overlook all your potential sources of income:

      • Paycheck from your full-time job
      • Part-time income
      • Social security benefits, pension benefits, life insurance benefits
      • Child support or alimony
      • Interest earned on investments
    2. If you’ve recently lost your spouse or your job, remember to find all possible sources of income, including:

      • Funds offered by relief agencies such as the Red Cross
      • Social Security survivor benefits
      • State unemployment compensation
      • Your spouse’s personal and company life insurance policy proceeds
      • Pension and compensation benefits from your or your spouse’s and past employers.
    1. Bottom-line your basic expenses. Take some time to really think through things you spend money on daily, weekly, and monthly. Some of them, like rent or mortgage payment, come to mind immediately. But others, like figuring out how much you spend on lunches at work, or for kids’ school or sports expenses, might take a little bit of work. Here are some likely regular expenses. Use this as a start, and add any other regular expenses you incur:
      • Mortgage or rent
      • Car payment
      • Food
      • Utilities (gas, electric, water, etc.)
      • Phone bill (home and cell phone)
      • TV/cable bill
      • Gas
      • Car insurance
      • Student loan payments
    1. Subtract expenses from income. This is how much you have to save on a monthly basis or how much you’ll need every month just to pay your bills and break even.

If your income meets or exceeds your expenses, you should be able to afford your current mortgage and remain in your home. If your expenses are greater than your income – meaning that you do not have enough money to cover your basic expenses – look to see how big the gap is. Could you afford to keep your home by giving up or cutting back on a few things? You may be able to make up the difference with some lifestyle changes and be able to stay in your home.

However, if after working through your current financial situation you decide that you may need to look at finding a more affordable house, you can use the “28/36” housing ratio to determine how much of a mortgage loan you can qualify for.

What comes to mind when you see the numbers 28/36? The age you wish you were versus the age you are? Some ideal dress measurements? Well, mortgage lenders see that equation as the key to how much they’re willing to lend you when buying a home. What does it represent?

28 is the front end, or housing ratio. It means that a lender will typically want to limit your monthly housing expense (including mortgage payment, property tax and homeowners insurance) to 28% of your gross monthly income.

36 is the back end, or overall debt ratio. It means that a lender will want your monthly housing expenses PLUS your overall monthly debt expenses (i.e. car payment, student loan payment, credit card payments, etc.) to no more than 36% of your monthly income.
A good rule of thumb is that lenders will typically estimate you can afford a house that costs up to two and a half times your annual gross income to figure out your housing ratio:
Multiply your gross monthly income by 28% (.28). This figure is the maximum monthly mortgage payment you can afford.

Multiply your gross monthly income by 36% (.36) to determine the total monthly debt your lender will allow.

Total up the current amount of monthly debt you’re carrying (i.e. credit card debt, car loan payments, student loan payments, etc.).

Subtract your current monthly debt from the amount in line 2 (the 36% total monthly debt ratio that lenders will allow). This number is the total monthly mortgage payment you can afford. It’s a wise idea to stay within this limit, or if you do go over this limit, to not go too far over, because you don’t want to end up with little disposable income, or just barely enough income to meet your other expenses because your money is tied up in paying off your mortgage – a condition known as being “house poor.”

Things To Consider Before Buying A Home

Want to become a homeowner? Wonder what it will take to get there? Check out our new series on “Home Buying 101” – a step-by-step guide to turning the dream of homeownership into a reality. Each month we’ll provide easy to understand articles and helpful hints. Topics we’ll address will include:

How to decide if you really want to own a home

Own your own home. It’s the American dream. But maybe you feel like that’s all it will ever be – a dream. The good news is that with some time, and a little work, you may very well be able to turn that dream into reality.

Buying a home is not a one-time event. It’s really a process. Consider this month, before the beginning of the new year, as a kickoff to your “home buying process.” To help you become a homeowner we’re kicking off a series that breaks down the home buying process into manageable steps. Each month this section will offer:

  • An article on one or more important topics related to home buying
  • “Homework” – simple step-by-step assistance to consider when you’re thinking about buying a home
  • “Home Buying Help” — Internet sites and resources to help you in your search

This goal of this series is to “demystify” the mortgage process for you. We’ll help you answer important questions, do the right research, collect the necessary documents, and plan financially to make the best decision possible for you and your family. By educating yourself on the basics of buying a home before you go house hunting you can save yourself an enormous amount of time, money, and aggravation.

So let’s get started. This month we’re going to talk about how to decide whether or not you really want to be a homeowner and help you check on your credit history.

Benefits of Homeownership

It seems obvious but the first place to start is to decide whether or not you really want to own a home. No doubt, there are definite benefits to homeownership, including:

  • Tax benefits. You can deduct the mortgage interest from your taxable income. By deducting your mortgage interest payments that lowers your taxable income, which means that, you’ll end up paying LESS tax on your income each year.
  • Creating an investment. Your mortgage payments are actually a way of creating an investment in real estate. By paying off the mortgage loan you are building upequity as compared to renters who never own the place where they live.
  • Real estate is typically a solid investment value. If you stay in your home long enough, the value of your home typically rises. That means that if you stay in a home for typically 5+ years, your house will rise in value enough to offset some of the initial expenses you’ll incur and you’ll earn money when you sell your home. Before you buy a home you’ll have to determine if you need to do some renovations, and factor the costs of those renovations into the overall financial commitment you’re about to make. Typically most renovations will pay off, meaning that you’ll recoup the costs of renovations when it comes time to sell because you’ll be able to set a higher sale price for the home than if you had not done the work on your home.

But owning a home is also a huge commitment. Before you start looking under “Realtor” in the phone book, ask yourself these questions:

  1. Do you want to commit to staying in one area for a longer period of time? Ideally you’ll want to stay in your home for at least 5 years to realize some of the financial benefits of homeownership.
  2. Do you want the responsibilities that come with homeownership? Once you own a home, there’s no landlord to call when something breaks. You’re responsible for all maintenance and upkeep, landscaping, etc.
  3. Are you financially in a position where you think you can make a monthly mortgage given your current job situation? Once you buy a home, you are obligated to make your monthly mortgage payment regardless of your financial situation or the bank can foreclose on you.
  4. Do you have enough accumulated cash for all of the costs associated with buying a home? In addition to a down payment of typically up to 20 percent of the cost of the home, there are additional costs such as closing costs that can add up to an additional 3-6% of the mortgage cost, moving costs, and other costs such as furniture, home renovations, equipment to maintain a home like a washer/dryer, lawn mower, etc.

Review Your Credit

When you apply for a home mortgage the bank will look at several pieces of information, including something called your credit report. A credit report is sort of like a report card on your spending and bill paying habits. Every time you accept a credit card offer, take on a student loan, or sign up for a utility like electrical or phone services, those accounts are recorded by three of the major credit reporting companies: TransUnion, Equifax, and Experian.

Your credit habits – good and bad — are then reported by the credit card companies, utilities, etc. to these three companies. So if you regularly pay your credit card bills on time or if you default on your student loan or if you pay the minimum amount of your credit card every month, all of that is recorded by the credit reporting companies. Even things like how often you move, change jobs, whether or not you own a home are all tracked on your credit report.

Why is that important to know? Because when you go to apply for a home mortgage the bank will get a copy of your credit report and use it as part of how they decide whether or not to approve you for a loan.

So here’s your homework: Request and obtain a copy of your credit report from EACH of the three major credit bureaus. Some offer a free first report, others may charge between $8 – $15 to obtain a copy of the report. You can call or click on their websites to request a report:

  • Experian (formerly TRW) @ 800.682.7654 or http://www.experian.com
  • Equifax @ 800.685.1111 or http://www.equifax.com
  • Trans Union Corporation @ 800.888.4213 or http://www.tuc.com

When you get your credit reports you want to make sure:

  1. That you are aware of your outstanding debt and open accounts. If you have an open credit account (say, for example, with a local department store) that you have not used and have no current need for, then cancel the card. Cut it up and write a note both to the credit bureau and the credit card company asking them to close the account. The fewer lines of credit you have open when applying for a home loan, the better.
  2. That there are no mistakes. If there are, write to the credit bureau (and keep a copy of the letter on file) asking them to correct the problem. Ask them to send you a copy of your corrected report to verify that the change(s) has been made.
  3. If you have a history of late payments it is helpful to write an explanation (particularly if you or your spouse was unemployed or in job transition, experiencing a financial setback or health crisis, etc.) and send it in to the credit bureaus. They are required to provide such explanation to anyone who requests a copy of your credit report.