See the numbers behind how Americans rent, buy, sell and even think about home
Both renters and buyers face challenges in finding a place to call home, and the Consumer Housing Trends Report is a deep dive into understanding them.
They surveyed over 13,000 people to determine how Americans rent, buy, sell and think about real estate. Below, they break down some of the most surprising results.
More Americans are renting today than in recent decades — some by choice and some simply due to market conditions.
Thirty-seven percent of American households are renters — about 43.7 million homes — which is an increase of 6.9 million homes since 2005.
While part of this increase is due to the 8 million homes lost to foreclosure during the recession, renters today also prize the maintenance-free and flexible lifestyle renting offers.
Buying is tough in all markets. For most Americans, it’s the biggest purchase they’ll ever make and an investment they’ll tap into as part of retirement.
In particular cities, purchasing a home has become a competitive game, complete with bidding wars and offer negotiations. It makes sense that most buyers rely on agents to help them through the process.
Although some hot markets have favorable conditions for sellers, selling is still rarely an easy process.
Sellers have two main goals when they list their homes: sell their home in their preferred time frame and for their desired price. Balancing the two is a delicate dance, and most sellers are also buyers searching for a new home.
Owning a home is a lot of work. It’s also a great investment, especially in many of today’s markets where annual appreciation rates are higher than they’ve been in decades.
On Point Homevestments
With rents rising and wages stagnant, affording rent can be an insurmountable burden
While homelessness may not be viewed as a looming issue for those who are financially stable, it’s not as distant as some might think.
With rents rising faster than wages, the burden of affording rent is looming larger and larger for many Americans and, in, some cases becoming insurmountable.
According to the Consumer Housing Trends Report 2017, 79 percent of renters who moved in the last 12 months experienced an increase in their monthly rent before moving to a new place. And over half (57 percent) said that hike was a factor in pushing them out the door and into another rental. Only 21 percent of renter households didn’t report experiencing a rent increase.
Nearly a third (30 percent) of households nationwide, representing roughly 73 million adults, report they’re struggling or just getting by financially. And it’s no wonder; Americans spend on average a median of 29.1 percent of their income on rent, including many who spend a higher percentage but have lower incomes.
Increasingly, major metro areas are becoming out of reach for those who aren’t earning more than minimum wage, and this is becoming increasingly true even in markets that have historically been more affordable.
Take Houston, for instance, where the median low-income earner spends 65.1 percent of their income on the median bottom-tier rent. Then there’s notoriously expensive New York, where — along with San Francisco and Los Angeles markets — the median low-income wage will not even cover a low-end apartment. In New York alone, to afford apartments with median bottom-tier rents, renters need to shill out 111.8 percent of the median low-income wage.
With such large percentages of household incomes going toward rent, saving for the future is less of a priority — and a possibility. More than half (51 percent) of Americans say they don’t have enough money saved to support themselves for three months, according to a analysis of the Federal Reserve Board’s 2016 Survey of Household Economics and Decision-making.
Millions struggle to afford stable housing
According to the Report on Consumer Housing Trends 2017, today’s median household income for renters is $37,500, which equates to about $18 per hour — or 2.5 times the federal minimum wage of $7.25. Nationwide, in 2016, 2.2 million people lived off wages at or below the federal minimum wage, according to the U.S. Bureau of Labor Statistics.
When it comes to renting, there is no state where a 40-hour minimum wage is enough to afford a 2-bedroom apartment, according to the National Low Income Housing Coalition.
While renting is becoming increasingly more difficult, buying a home becomes a distant dream.“Honestly, if you’re making $37,500 per year and have no savings, it’s probably not feasible for you to buy in most markets,” Zillow Chief Economist Dr. Svenja Gudell says.
Across all states, the median renter can expect to pay $1,430 per month on rent. It’s no wonder many Americans are struggling financially — particularly in New York, Los Angeles, Washington D.C., and Seattle, where there’s also a stronger relationship between rising rents and an increase in the homeless population.
Homelessness by the numbers
Coast to coast, there are an estimated 550,000 homeless people, according to the U.S. Department of Housing and Urban Development.
But research used statistical modeling to estimate the uncounted homeless population, unsheltered homeless people often missed during the One Night Counts, to estimate the true number of homeless people, a number much higher than the official estimates. And as rents climb, the numbers will only grow, especially in large, tight metros, where the rent burden can become life-altering.
Take New York City, for example. The metro has the largest population of homeless people in the nation. Last year, there were an estimated 76,411 people experiencing homelessness, according to estimates. If rents were to rise 5 percent, an additional 2,982 people would be forced to the streets.
And Los Angeles doesn’t fare much better. Given the same rent hike, an additional 1,993 people would fall into homelessness. And a rent hike of 5 percent isn’t implausible, especially given that in L.A., rents rose 4.4 percent over the past year.
The geography of social mobility
Right now in L.A., renters dish out $2,707 per month for the median rent, which is almost twice the national median rent and amounts to nearly half of the median household income in the metro. With such a substantial chunk of money spent every month on rent, it’s no surprise the metro has an estimated 59,508 people without a home.
But rents haven’t always been so unaffordable. Just 17 years ago, three of the top 20 metros were rent-burdened, meaning renters paid more than 30 percent of their income on living expenses. Today, however, the number of cities that have become unaffordable have grown exponentially.
Currently, renters in nine of the same top 20 metros can expect to spend 30 percent or more of their income on rent. The biggest share spent on rent comes from Los Angeles, where renters pay nearly half (49 percent) of their income on rent.
“The places where social mobility — the ability to climb the income ladder — is the greatest are now in places that are unaffordable for most people,” said Gudell. “San Jose or the Bay Area in general, parts of Boston, for example — these places have gotten to be so expensive that a lot of people who have an income of $37,500 a year will not be able to buy a home or even afford a family-sized rental.”
The costs of housing instability go beyond financial
Unfortunately, for too many, lack of affordable housing can complicate other critical aspects of life, including health and future livelihoods.
Individuals living in shelters are more than twice as likely to have a disability compared to the general population. This includes serious mental illnesses, conditions related to chronic substance abuse, diabetes, heart disease and HIV/AIDS, according to the U.S. Department of Housing and Urban Development.
Gudell says people have better outcomes when they aren’t constantly moving from place to place.
“It’s been shown that you have better outcomes if you live in a stable environment with less frequent moves, which is easier to attain when you own versus rent,” Gudell said. “So, if you take stable environments away from people, their outcomes will most likely be worse than they are today, and that has an impact on education, on health and on income growth in the future.”
On Point Homevestments
Your parents' rite of passage may not make sense for you
When the Baby Boomer generation was venturing into adulthood, it was common to buy a “starter home” — a modest, small dwelling. As their families grew and careers advanced, they moved into bigger or better homes.
Now, many people struggle to come up with the down payment for a first home. They may wonder if it’s smarter to wait and save more money so they can buy a home that makes more long-term sense, or go the other route, buying a starter home and planning to stay in it for more years.
It’s a personal, practical and financial decision, but here are some pros and cons of buying a starter home.
Pro: Build stability quicker
Lots of lessons come from homeownership. It exposes you to a new set of decisions and circumstances.
One surprise benefit that strikes most people is the stability they feel when they become homeowners. They might feel more grounded, and a part of a larger community.
After making a few cosmetic changes to make a home “theirs,” many new homeowners find they enjoy nesting at home, having friends over, and enjoying their own space.
Con: Buying twice means moving twice
Think you’ll be ready to upgrade in just a few years? It might be more cost-effective to save and stretch for the larger house, so you can stay in it longer.
Although mortgage rates are low, there are costs associated with buying and selling a home: title insurance, inspections, brokerage commission, along with a handful of loan fees.
Plus packing up and moving twice can be expensive and exhausting. Some prefer to pick one house for the long haul. While staying put and continuing to rent may seem wasteful in the short term, it might be a more strategic move.
Pro: Build equity sooner
Although not the guarantee it was a generation ago, odds are good that when you get into your first home, you can realize some equity. If you can commit to at least five to seven years, there’s a chance you can come out well ahead.
By making improvements that add value, you can take the equity you’ve built and apply it as a down payment on the next home. In essence, the starter home might help you purchase your dream home.
Con: You may spend more than you planned
There are soft costs to home ownership. Property taxes and mortgage payments aren’t the only expenses to owning. You’ll need to furnish your new home, purchase window coverings, and pay for landscaping improvements.
You’ll likely want to paint, refinish the floors, or change the carpet before moving in. And, you’ll surely make mistakes along the way by hiring the wrong contractor, making a poor landscaping decision, or mistakenly waiting to install the new AC condenser.
Some parts of homeownership are trial and error. It adds up. You might be better off avoiding those expenses by renting and saving for your long-term home.
Pro: Start realizing the tax benefits
When you own a home, the interest portion of your monthly mortgage payment can be written off, dollar for dollar against your income. If you spend $1,000 per month on mortgage interest, at the end of the year, you can deduct $12,000 off your taxes.
When you pay rent, the money goes to your landlord, and that’s it. The sooner you own, in theory, the faster you can save some money — perhaps toward your next home.
Con: Homeownership isn’t a sure thing
The world moves at a faster pace today, and that affects home values. Just a generation ago, people stayed closer to home, got married earlier, stayed married forever, and kept the same job through retirement.
Today, people choose to stay single longer, and may even purchase their starter home solo. Divorce rates are higher, the global economy moves people all over the world for work, and we prefer to stay more mobile.
That means homeownership may not be part of the equation. What happens if you buy your starter home and then get a job transfer, divorce, or the opportunity of a lifetime to live abroad? You might be stuck being an accidental landlord or selling your home at a loss.
It’s up to you
If you play your cards right, you can get into the starter home sooner rather than later and make a smart financial decision. If you buy the right first house, are open to building sweat equity, and plan to hang out there for five to seven years, there’s a good chance that you’ll have made a smart move.
This decision will enable you to get into a larger home, in a better neighborhood or school district, or maybe just your dream home.
Homeownership is a personal choice, and there is no one path to take. Stick within your comfort zone, and always go with your gut
On Point Homevestments
Many people are still wondering whether or not real estate is one of the best investment strategies for long-term wealth building. Is investing in homes still a smart investment for the average individual? Is a home still the best investment of a lifetime for most Americans? If so, why are some pessimists still questioning the rebound in the news?
Behind the Headlines
Real estate companies will always boast about the benefits of acquiring real estate because it is their job. That is, unless of course, they have gotten into the rental business and make their money by touting the benefits of renting instead. Let’s be honest; statistics can be found and twisted to support any point of view and argument. Entire years of real estate statistics have been revised in the past, new indexes have been created to restart the clock, and even the national GDP was revised. Most don’t even bother to tune into job and unemployment numbers anymore due to how skewed different data sets have become.
Even though the most conservative figures show housing rebounding, especially in hot areas like San Diego, there continue to be doubters. However, it doesn’t take much more than a little common sense to figure out real estate is still the best investment for most of the population. This applies to affluent individuals with top 1% income, as well as those that need to pinch pennies. Stocks have continued to demonstrate extreme volatility and risk. While UT San Diego reports local real estate is still 50% undervalued.
In the stock market, plenty of Americans have lost 6 figures, literally overnight. Direct investment in real estate isn’t that volatile, and nothing is ever lost until a property is sold. For example; some Southern California homeowners saw their home values rise and fall on paper during the last couple of decades, but if they don’t sell for a few more years when prices exceed their previous peak, they will come out handsomely.
Invest in Real Estate, Even if You Can’t Afford Your Dream Home
One of the top excuses for many not to buy a house is that they can afford their ideal dream homes yet. Of course, unless they invest in real estate in some way now, the odds are against them ever being able to afford that dream home. Incomes haven’t been going up, but rents and home prices have. Those wanting to buy a home should not invest any money in stocks or bonds, but should prefer cash. Of course, in reality, cash depreciates too. It can be at risk whether it is in the bank or under the mattress.
Investing in real estate is the best way to build up more wealth and cash to buy that dream home. Can’t find a home you’d live in even for a few years? Then buy a rental property.
Many Americans are sadly being seduced into the lifelong renter mindset without realizing the horrific consequences it could be dooming them to. Consider those paying 50% of income in rent right now. Rents have been going up 20% a year in many places. If rent goes up another 20%, many could be priced out of both buying a home and renting too! Then what?
With Americans living longer, and with company retirement plans evaporating, they also need to consider where they will live for 40 years of retirement on limited income? Even legendary billionaire investor Warren Buffett, with all of his endeavors into energy, insurance companies and holding sizable stakes in companies like Coke and Wells Fargo, still calls his own home his best investment ever.
On Point Homevestments
Everything you need to know about buying a home — on one index card.
A home is often the biggest financial investment you’ll make in your lifetime. In fact, a recent Zillow analysis reports that the typical American homeowner has 40 percent of their wealth tied up in their home.
1. Buy for the long run
A home is a significant investment, not to mention a linchpin of stability. According to the Zillow Group Consumer Housing Trends Report 2017, the majority of Americans who sold their homes last year had lived in their home for at least a decade before selling.
Some are even staying for the long haul. Almost half (46 percent) of all homeowners are living in the first home ever purchased. In short: Buy a home you want to live in for at least five years — one equipped (or ready to be equipped) with the features and space you need, both now and in the future.
2. Buy to improve your life, not speculate with money
Your home is more than a financial investment; it’s where you sleep, eat, host friends, raise your children — it’s where your life happens.
The housing market is too unpredictable to buy a (primary) home purely because you think it will net a big short-term financial return. You will most likely be living in this home for several years, regardless of how it appreciates, so your first priority should be finding a home that will meet your needs and help you build the life you want.
3. Focus on what’s important to you
Today’s housing market is short on inventory, with 10 percent fewer homes on the market in November 2017 than November 2016.
So, focus on finding a home you can afford that meets your needs — but don’t get distracted by shiny features that might break your budget. Nice-to-have features often drive up the price tag for things you don’t particularly value once the initial enjoyment wears off.
Make a list of your basic needs, both for your desired home and for your desired neighborhood. Stick to finding a home that meets these needs, without buying extra stuff that adds up.
4. Set a budget and stick to it
It’s important to set a budget early — ideally before you even start looking at homes. In today’s market, especially in the more competitive markets, it’s incredibly easy to go over budget — 29 percent of buyers who purchased last year did.
The most common culprit? Location. Zillow’s data indicates that urban buyers are significantly more likely to go over budget (42 percent) than suburban (25 percent) or rural (20 percent) buyers.
There’s nothing inherently wrong with that. Local schools matter, and psychologists tell us that a short commute improves your life. But be realistic about your local market and about yourself. Know what you’re willing to compromise on — be it less square footage, home repairs or a different neighborhood.
5. Aim for a 20 percent down payment
If you can afford it, a 20 percent down payment is ideal for three reasons:
6. Keep a six-month strategic reserve
While a down payment is a significant expense, it’s also important to build up a strategic reserve and keep it separate from your normal bank account.
This reserve should cover six months of living expenses in case you get sick, face an unexpected expense or lose your job. A strategic reserve will not only save you from financial hardship in an emergency but also provide peace of mind.
When we accumulated a strategic reserve, my wife and I finally felt ready to build for our future. Without it, we were living from paycheck to paycheck, anxiously managing our cash flow rather than saving or budgeting.
7. Get pre-approved, and stick with a fixed-rate mortgage
The pre-approval process requires organizing all your paperwork; documenting your income, debt and credit; and understanding all the loan options available to you. It’s a bit of a pain, but it saves time later. Getting pre-approved also shows sellers that you’re a reliable buyer with a strong financial footing. Most importantly, it helps you understand what you can afford.
There are a variety of mortgage types, and it’s important to evaluate all of them to see which is best for your family and financial situation. Those boring 30- and 15-year mortgages offer big advantages.
The biggest is locking in your mortgage rate. In short: A 30-year fixed mortgage has a specific fixed rate of interest that doesn’t change for 30 years. A 15-year fixed mortgage does the same.
These typically have lower rates but higher monthly payments, since you must pay it off in half the time. Conventional fixed-rate mortgages help you manage your household budgeting because you know precisely how much you’ll be paying every month for many years. They’re simple to understand, and current rates are low.
One final advantage is that they don’t tempt you with a low initial payment to buy more house than you can afford.
8. Comparison shop to get the best mortgage
Though a home is the biggest purchase many of us will ever make, most home buyers don’t shop around for a mortgage (52 percent consider only a single lender).
The difference of half a percentage point in your mortgage rate can add up to thousands of dollars over the lifetime of the loan. It’s important to evaluate all the available options to make sure you’re going with the lender who meets your needs — not just the first one you contact.
The three most important factors are that the lender offers a loan program that caters to their specific needs (76 percent), has the most competitive rates (74 percent) and has a history of closing on time (63 percent).
9. Spend no more than a third of your after-tax income
It’s better to regret spending too little on your home than spending too much. One-third of your after-tax income is a manageable amount. This isn’t always possible if you live in a place like San Francisco or New York, but it’s still a good yardstick for where to be.
10. Be willing to walk away
Buying a home is a time-consuming, stressful but ultimately rewarding endeavor — if you end up closing on a home that meets your needs. But it’s important to manage your expectations in case you don’t immediately find a home you can afford with the features you need.
Always be prepared to walk away if the sellers don’t accept your offer, the home doesn’t pass a rigorous inspection or the timing isn’t right. Hold fast to your list of must-haves, stick to what you can afford and don’t overreach or settle.
It’s no tragedy to miss out on any particular house. Remember that you’re playing the long game. You want to be happy 10 years from now.
On Point Homevestments
We shed some light on buying a home as a couple so you’re not in the dark when it’s time to sign on the dotted lines.
When couples start a new journey as homeowners, questions can linger as to whose name (or names) should be listed on the mortgage and title. Many couples want a 50/50 split, indicating equal ownership to the asset, but sometimes that isn’t the best financial decision. Plus, with more than one person on the loan, the legalities of who owns the home can get tricky. A home is often the largest purchase a couple or an individual will make in their lifetime, so ownership can have big financial implications for the future.
Title vs. mortgage
For starters, it’s important to note the difference between a mortgage and a title. A property title and a mortgage are not interchangeable terms.
In short, a mortgage is an agreement to pay back the loan amount borrowed to buy a home. A title refers to the rights of ownership to the property. Many people assume that as a couple, both names are listed on both documents as 50/50 owners, but they don’t have to be. Listing both names might not make the most sense for you.
Making sense of mortgages
For many, mortgages are a staple of homeownership. According to the Zillow Group Consumer Housing Trends Report 2017, more than three-quarters (76 percent) of American households who bought a home last year obtained a mortgage to do so.
When a couple applies jointly for a mortgage, lenders don’t use an average of both borrowers’ FICO scores. Instead, each borrower has three FICO scores from the three credit-reporting agencies, and lenders review those scores to acquire the mid-value for each borrower. Then, lenders use the lower score for the joint loan application. This is perhaps the biggest downside of a joint mortgage if you have stronger credit than your co-borrower.
So, if you or your partner has poor credit, consider applying alone to keep that low score from driving your interest rate up. However, a single income could cause you to qualify for a lower amount on the loan.
Before committing to co-borrowing, think about doing some scenario evaluation with a lender to figure out which would make more financial sense for you and your family.
If you decide only one name on the mortgage makes the most sense, but you’re concerned about your share of ownership of the home, don’t worry. Both names can be on the title of the home without being on the mortgage. Generally, it’s best to add a spouse or partner to the title of the home at the time of closing if you want to avoid extra steps and potential hassle. Your lender could refuse to allow you to add another person — many mortgages have a clause requiring a mortgage to be paid in full if you want to make changes. On the bright side, some lenders may waive it to add a family member.
In the event you opt for two names on the title and only one on the mortgage, both of you are owners.
The person who signed the mortgage, however, is the one obligated to pay off the loan. If you’re not on the mortgage, you aren’t held responsible by the lending institution for ensuring the loan is paid.
Not on mortgage or title
Not being on either the mortgage or the title can put you in quite the predicament regarding homeownership rights. Legally, you have no ownership of the home if you aren’t listed on the title. If things go sour with the relationship, you have no rights to the home or any equity.
To be safe, the general rule of homeownership comes down to whose names are listed on the title of the home, not the mortgage.
On Point Homevestments
Do your homework to get the best deal on a brand-new home.
If you’re in the market for a brand-new home, you’ve got a ton of options. Sales of new homes surged to an eight-year high in 2015, according to data from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau, and single-family production is estimated to reach 840,000 units in 2016, an 18 percent increase over 2015, according to the National Association of Home Builders (NAHB).
Unfortunately for home buyers, new residential construction is coming at a steeper price: Last year the average price of a new home jumped to $351,000, up $100,000 from 2009, reports the NAHB.
Nonetheless, there are still ways you can save when buying a new home. It’s like shopping for a new car: You need the right strategy to nab the best deal.
Ask prospective builders these six questions in order to find the right home at the right price.
“What financial incentives do you offer for using your preferred lender and title company?”
The bad news: Production builders are often reluctant to set a precedent for negotiating sales prices. (Custom builders tend to be more flexible.)
“If a new home is listed for $370,000 and it sells for $360,000, the next buyer in the development is going to want to pay that lower amount,” says Craig Reger, a real estate broker at Keller Williams Realty in Portland, OR. However, many offer handsome incentives to buyers who use their preferred lender and title company.
Some may even knock off up to $10,000 in closing costs, says Peggy Yee, a supervising broker at Frankly Real Estate in Vienna, VA. Others will sweeten the deal by negotiating prices on finishes, such as upgrading carpet to hardwood floors.
You should still shop around and get quotes from at least two other lenders before making your decision. But don’t just pay attention to the interest rates. “You need to compare each loan estimate’s terms to make sure you’re getting an apples-to-apples comparison,” says Chris Dossman, a real estate agent with Century 21 Scheetz in Indianapolis.
“Which are the standard finishes?”
When you tour a development’s model home, keep in mind that you’re previewing a high-end version of the standard home. “The model has all the bells and whistles,” says Dossman. Therefore, you need to find out from the builder which options are standard, which options are upgrades, and what each upgrade costs.
One way to cut costs: Move into the home without an upgrade, then hire a contractor to do the work. “Builders charge a huge markup on certain finishes and products,” says Reger. “The builder might charge $4,000 to $6,000 for a high-performance air conditioner, but you may be able to get another company to install that same unit for as low as $2,500.”
Granted, opting for the latter means you’ll probably need to pay the contractor in cash. “For some people, the benefit of paying the builder to do upgrades is that they can roll the costs into their loan amount,” Reger points out.
“What are your long-term plans for the community?”
Depending on the size of the land, the builder might be planning several subdivisions. This could impact your decision to buy.
For example, let’s assume that only a few homes have been built and sold. If the developer plans to construct an additional 50 homes and you’re one of the first people to move into the neighborhood, you may have to deal with loud construction crews for several months.
There’s also the risk that the builder loses funding and another company takes over the development. Dossman advises proceeding with caution: “If the builder changes and a lower-quality builder takes over, that could affect the value of your home.”
“What are the homeowners association rules and regulations?”
Each homeowners association (HOA) has its own Declaration of Covenants, Conditions, and Restrictions (CC&Rs) and bylaws. Get these from the builder and review them carefully.
“I’ve seen HOAs that don’t allow storage sheds in the backyard, solar panels, or private fences,” says Reger.
In most cases, the HOA can assess a homeowner penalties for infractions, and some associations are more restrictive than others.
Also, look into when you’re required to start paying HOA dues. Many builders cover the costs until at least 50 percent of the homes in the development are sold, says Yee.
“What warranties do you provide?”
Most builders offer a one-year workmanship warranty and a 10-year structural warranty, says Reger. Make sure the warranties you receive explicitly state what is and isn’t covered, and what the limitations are for damages.
You should also receive manufacturer’s warranties on the washer and dryer, hot water heater, air conditioner, kitchen appliances, and roof.
“Can you connect me with some of your past clients?”
Always check references when vetting home builders, says Dossman. Ask past clients questions such as, “How responsive was the developer when you expressed concerns?” and “Would you use the builder again?”
Caveat: Most builders will only provide glowing references, so you should still scout out some past customers on your own. You can find these people through reviews on Angie’s List, or knock on doors of homes in the neighborhood that have already been built.
Wondering if new construction is right for you? Search new construction listings, and get more home-buying tips and resources to help you decide.
On Point Homevestments
When you've got to buy a house from across the country, start with a winning strategy
Searching for a house locally is not without its difficulties. Add hundreds or even thousands of miles to the equation, and it becomes infinitely more complicated.
Though long-distance house hunting has its unique challenges, it’s not impossible. In fact, with the right agent and the convenience of modern technology, it’s never been easier to buy a house remotely.
Here are a few critical factors to keep in mind when you find yourself in a home search from afar.
Do your homework
When it comes to long-distance home shopping, “the Internet is your friend,” remarks Meghann Shike of Synergy Realty in Nashville. “You know the neighborhoods you live around, but you know nothing about your new one. You don’t know where the mall is, the [grocery store], or the schools.”
Though nothing can substitute checking out the neighborhood in person, Shike recommends looking up commute times to work, crime rates in the area, and, most importantly, how the schools rank. Even if you don’t have children or don’t plan to have children, it’s still good to know the quality of the schools for resale purposes.
One of the biggest pieces of the long-distance house-hunting puzzle, however, is to make sure you’re researching who the best local real estate agents are. It’s always crucial to hire an agent you trust, but with a long-distance search the agent can make or break the experience.
“You’re going to want someone local on the ground — someone who is very familiar with the city, neighborhood, and prices,” Shike says. “You need to get a feel for how that person operates. Are they available to talk to you? You’re going to have more questions than you realize, and your agent is going to need to be there to answer them.”
Have a travel budget
When Kyle and Samantha Steele found out they were going to be moving from Oklahoma City to Columbus, OH for Kyle’s new job, the couple looked at listings online, got in touch with real estate agents, and picked an upcoming weekend to house hunt in person.
The Steeles’ agent showed them multiple houses, but nothing was quite right. Then they found out that many of the older neighborhoods in the area didn’t have great access to high-speed Internet. That’s when they decided to build.
Their agent was instrumental in guiding them on their short house-hunting weekend, and in finding a builder. “[Our agent] basically helped us with everything, every step of the way,” Kyle states. “When we couldn’t find anything, she helped us find model homes in the area we’re building in, and showed us three different model homes. She answered questions, and helped us find the building company. She even helped us find a hotel for the weekend.”
Inevitably, unexpected appointments came up during the building process that required one of the Steeles to be present. “We had to make an appointment to meet with the design studio to pick out the floors and the carpet,” Samantha remarks. “So far, I’ve been to Ohio twice.”
The couple advises long-distance house hunters to prepare and plan ahead, especially for last-minute travel. “Be flexible,” Kyle says. “Make sure you have a few thousand dollars in reserve that you can spend on plane tickets and a hotel — because you will have to go back and forth.”
From the agent perspective, Shike recommends planning a house-hunting trip that’s at least four to five days long, so you’re not cramming in tons of showings that you won’t remember at the end of the day.
Know what you want
When you’re in the market for a home, you should always have a running list of features you want, but it’s especially crucial when you’re buying from a distance.
“I like to tell my clients to do a ‘top five.'” Shike says. “What’s your non-negotiable? Is it being able to step out the front door to walk your dogs? Do you want to walk your kids to school?”
Knowing exactly what you want out of a house and location allows your agent to help you narrow down neighborhoods and homes more easily, and assist you in making an offer quickly, which is especially important in a fast-moving market.
“Buyers need to get over the fear of writing an offer when they haven’t seen the house in person,” remarks Shike. “I can video chat our way through the house, but I can’t get you on a plane [to get here] in the same time the local people can who are shopping.”
Overcome remote home-buyer jitters
For those buyers who are nervous about making an offer sight unseen, Shike says there is the possibility of adding a clause in the contract that the sale is contingent on the buyer seeing it.
Of course, there is also always the option of renting first before you take the plunge. “You could rent for the short term or get a six-month lease, which is enough time to get settled in your job or routine,” recommends Shike. “That can be nice for buyers who are a little more anxious about the process — to relieve that anxiety.”
Overall, buying a house from a distance shouldn’t necessarily be looked at as a negative experience. In fact, Shike believes it can give many shoppers new opportunities, and buyers are often more excited when purchasing long distance.
“It can be a nice change of pace for people,” Shike adds. “Another benefit to moving long distance is a fresh start: a new neighborhood, new culture, new people, and new experiences everywhere.”
On Point Homevestments
What if your dream home just happens to have ancient wiring and a cracked foundation?
So you’ve set your sights on a home that, to put it mildly, needs a little repair work. The stairs are creaky, and you’ve noticed a leak (or three).
Still, your mind is made up. What’s a love-struck home buyer to do?
If your heart is set on a fixer-upper, this advice from real estate experts can help you make that “needs-work” house a home.
Check the zoning
“Any municipality has zoning districts, and you need to know what uses are permitted,” says George Vanderploeg, a luxury real estate broker with Douglas Elliman in New York. Knowing the zone is important because it will tell you what you can and cannot do to the home.
For instance, when interiors photographer Josh Gibson decided to renovate his 19th-century cottage in Beaufort, SC, he had to contend with the historic district landmarks commission, which required hours of research and visits downtown. Among the many requirements he had to adhere to were installing single-pane windows and maintaining the home’s unique brick-pier structure.
To research your prospective home’s zoning requirements, you can visit its municipality’s website, or arrange to meet with a staff member, who can walk you through the legalities.
Bring in a home inspector
Once you’ve made a verbal agreement to buy the house and are waiting for the contract to be drawn up, you’ll want to hire a home inspector.
A home inspector will look for structural issues and advise you on things that may or may not need to be replaced, such as plumbing, electricity, and roofing.
Your broker can refer you to an inspector, but it’s important that this person not be biased, as you’ll need an objective opinion. With this in mind, Vanderploeg advises finding someone who will work for you — not for the broker or seller.
Be sure to set aside about an hour or two to walk through the building with the inspector and ask questions. “This allows the buyer to get to know the house really well before they buy it,” Vanderploeg says.
Home buyers tend to ask questions about asbestos and termites, but Hal Einhorn, the principal inspection consultant for Old House Inspection in New York, says it’s equally important to ask about the “general age of certain systems,” as those will indicate when they’re nearing replacement. A 26-year-old boiler, for instance, is likely to go kaput soon, whereas a newly-installed air conditioning unit probably won’t be a problem for the next 20 years.
Depending on the home’s location, you may also want to ask about issues specific to its region, Einhorn says. In New York City, for instance, where the water mains tend to be dated, you’ll want to clarify that the one in your coveted home isn’t made out of lead.
And with today’s families using more electricity than ever, you’ll need to find out if the amount of power coming to the house is suitable, or needs an upgrade. Doing a little research online can be helpful.
Another important topic to bring up is any work you’re preparing to do, like upgrading the bathroom or turning a one-bedroom home into a two-bedroom, Einhorn says.
Find out the agency requirements, and if the home is in a landmarked district, make sure you know the ramifications. Will your project require filing documents, and if so, what is the process?
Hire an architect and/or contractor
Hiring an architect is important because you’ll want their take on what you can do from a design perspective, says Vanderploeg.
The architect will also be able to point out the home’s load-bearing walls, which will determine whether they can be moved around or not, says Scott Oyler, a broker with Coldwell Banker in Cincinnati.
When hiring a contractor, be sure to do your homework so you find someone you can trust. “I’ve heard of horror stories where contractors left in the middle of the job and never came back,” Oyler says — so make sure your crew has good references.
Also be sure to recruit more than one, he adds, as you can never have too many opinions.
Research tax incentives
Depending on where you live, you may eligible for a tax abatement, a tax credit for homeowners who improve their property’s value, Oyler says.
Philadelphia offers one; Cincinnati does, too. Check to see what’s available in your area.
If you decide to buy and improve a fixer-upper, have patience. Once the sawdust clears, you may just find the home of your dreams.
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Find out if teaming up to buy a second home is right for you and your pals
Given the current strength of the dollar abroad and the fast-moving real estate market at home, you may be thinking about buying a second home at your family’s tried-and-true vacation spot, on a sunny beach, or near your favorite ski destination. But what can your budget realistically get you?
If what your vacation-home fund allows is more fixer-upper than dream home, going in on a purchase with friends or family could be a great way to get much more home for your money. If you’re considering going this route, here’s how to get started.
1. Decide if it’s right for you
“The number-one reason to consider buying a house with friends is that it lowers your investment amount,” advises Bryant McClain, director of sales and marketing at Itz’ana Resort & Residences. “Unlike timeshares or fractional ownership opportunities, when people go in together and buy a property at market price, they enjoy the equity gains of the traditional real estate market.”
McClain also points out that the best candidates for shared property are those who want to use the home a few weeks a year, then rent out the home the rest of the time. (Just be sure you’re correctly set up to do so.)
Owners also have to be comfortable sharing ongoing expenses, like property management fees, utilities, insurance, and repairs.
2. Lay the legal groundwork
To protect all owners when the unexpected happens, and to avoid hurt feelings and strained friendships, McClain recommends hiring an attorney to set up an LLC, then purchasing the home through that company.
“Owning a property with friends or family is all fun and exciting on the front end, but what happens three years later when somebody wants out?” says Bryant.
Your attorney can draft an operating agreement that clears up expectations on everything from how utilities are shared to how a buyout would work if one owner wanted to sell and the others didn’t.
3. Start searching
Keep in mind that the vacation-home market moves quickly, and with multiple stakeholders needing to agree that a property is the one, it’s best to decide on your shared criteria before you start looking.
This is especially important if you’re searching from afar or if one person will be doing most of the home touring on behalf of the group. That way, when you find the right home, you can put an offer together quickly.
“Treat the whole transaction like a business,” suggests Bryant. “Make a spreadsheet with potential homes, list pros and cons, and ask everyone to vote — that’s where having an odd number of owners comes in handy.”
You should also enlist a local real estate professional with expertise in the destination where you’d like to buy. That person is best qualified to help you identify homes that are a good value, that will perform well in the local vacation rental market, and that are in locations likely to appreciate.
There’s plenty of legwork between “Hey, maybe we should buy a home together” and signing on the dotted line, but if you find the right people to partner with, approach it like a business transaction, and act quickly when you find the perfect home, you’ll be sitting back and enjoying your dream home before you know it.
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Follow these 10 tips to make the home-buying process a happy one.
The arrival of spring means it’s time to start fresh. Along with pulling out your warm-weather wardrobe and tackling spring cleaning, you may have a bigger project on your to-do list: buying a new home.
Before you start on your home-shopping journey, check out these 10 home buying tips to save you both time and money.
Find the right agent
Real estate expert Joe Manausa says the key to happy spring home buying is finding the most qualified agent to guide you through the process.
With reviews available at your fingertips, finding a real estate agent you trust can be easy — provided you take the time to do some research.
Check for agents with the best reviews, and give them a call. They’ll relieve some of the pressures of home buying, and walk you through all the necessary steps.
Sure, the three things that matter most in real estate are “location, location, and location.” Nonetheless, some buyers end up purchasing a home in a location that’s not right for them, simply because they make their choice for all the wrong reasons.
“They’re looking at a house in the wrong area or the wrong school district, but they buy it because they like the kitchen,” Manausa says.
Use the new open house
The internet has completely changed the home-buying process, making it easier to choose which homes to go see in person.
With 3-D tours available on the web, buyers can tour a home from their mobile device or a computer. Home buyers use online resources during their home search.
Buy a home, not a project
Buyers who purchase a fixer-upper can end up spending the same (if not more) than they would on a new home.
“When buying a home, pay close attention to the ‘bones’ … and avoid getting caught up in the cosmetic features,” advises Dan Schaeffer, owner of Five Star Painting of Austin.
If the kitchen cabinets are in good shape, but you want the space to be brighter, adding a fresh coat of paint is easier and less expensive than replacing all the cabinets.
Ka-ching! Be a cash buyer
Sellers are more likely to choose the buyer who already has money in hand over an offer that’s contingent on a mortgage loan.
But if you can’t pay cash, getting pre-qualified for a loan can help the seller feel more confident that you’ll be able to secure financing.
Avoid disaster — get a warranty
The last thing you want after buying a home is for something to go wrong. You protect your car, so why not your home? Manausa recommends purchasing a home warranty: “[They’re] very affordable, and cover all the things that go wrong.” Your wallet will thank you.
Make inspection time count
Small problems eventually turn into big problems. The wood could rot, drains could leak, or the electrical panel may not be up to code. “Hire experts, and always get your home inspected,” adds Nathanael Toms, owner of Mr. Electric of Southwest Missouri.
If the inspection reveals issues, be sure to deal with them effectively. For example, “it’s very important that a licensed electrician makes sure all circuits work properly,” say Dana Philpot, owner of Mr. Electric of Central Kentucky.
Put safety first
No matter the neighborhood or the home, your family’s safety should always be the number one priority after purchasing a home.
“Even if the previous owner promised to return the copy of every key, it’s always a good idea to change the locks throughout the exterior of the home,” says J.B. Sassano, president of Mr. Handyman. “If the house has an alarm system, remember to change the code — and don’t forget the garage door.”
Fix common repairs
Repairs may come in the form of patching up small nail holes or weatherproofing electrical outlets. Whatever the need, Schaeffer recommends fixing the repairs before moving in your belongings. “An empty house is easier to maneuver and clean,” he says.
For bigger jobs, find a professional to complete the repairs. Sites such as Neighborly can help you find home services providers.
Add the finishing touches
The best part about buying a new house is making it a home. Change the color of the walls, update the lighting, or add a more personal touch with a photo gallery wall.
“It’s important to find the right gallery layout by measuring the wall space, which determines the size of photos you can use,” Sassano says. “Lightweight frames are the safest option, especially when hanging on drywall.”
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Once you've got the basics, it's time to do a little more digging.
Nearly every home search starts online these days. Sorting through listings, photos, floor plans and descriptions is a great way to feel out the market for those who are in the earliest stages of the home search.
When you find a home you’re ready to bid on, it’s incredible how much background information you can find online. The Internet is full of data on past home sales, recorded sales prices, and the history of each sale, plus information that may not be as obvious — such as the safety of the neighborhood you’re considering buying into.
Here are three ways to use online tools and real estate mobile apps to get more details about the home you want.
Check building records
Nearly all public information and documentation is now available online, and most municipalities provide web access to building permit history. Although the law requires most sellers to disclose previous work done on the property, there may be a history of earlier work the seller didn’t know about.
For example, if there is a newer bathroom or kitchen but no history of a permit for the work, there is a chance someone did the work without a permit — and potentially not to health or safety code. And if you become the owner, this unpermitted work becomes your responsibility.
To begin your search, type “building records,” plus your city’s name into your favorite search engine. Example: “building records Seattle.”
Use Google Street View
Researching an address using Google’s Street View can be one of the most revealing options available. Street View provides a snapshot of a property at a particular moment in time, which can provide insight into the recent history of the property or neighborhood.
Be aware, however, that the image you see may not accurately reflect the home’s current state. For example, I helped a homeowner list and sell a home in San Francisco’s Lower Haight neighborhood a few years back. We planted a beautiful garden area to create a buffer between the sidewalk and the windows. But a search for the property on Google Street View revealed the windows with bars on them, and no garden. The previous owner had bars on the window, and someone had removed the bars to make the property look more inviting.
Seeing the windows with bars on them in Google Street View could raise questions for potential buyers: Is the neighborhood unsafe? Was there a history of crime in the community or on the property? Are the street-level windows safe?
Consult a neighborhood crime app
A variety of crime reporting apps for mobile devices show on a map recent crimes that have been reported, including assault, theft, robbery, homicide, vehicle theft, sex offenders, and quality of life (which often means noise complaints). It’s an easy way to get a quick overview of how safe or unsafe a neighborhood is.
So much information is available to buyers these days. You don’t need to rely solely on the seller’s or the real estate agent’s disclosures. Use online resources to find out as much background information on a property as you can, either before making an offer or during your contingency period. It is best to do as much research as possible, in order to make an informed final decision.
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Throughout the approval process, push yourself to maintain your credit while lenders pull it.
Navigating the purchase of a home can be overwhelming for first-time buyers. Lenders require documentation of seemingly every detail of your life before granting a loan. And of course, they will require a credit check.
A question many buyers have is whether a lender pulls your credit more than once during the purchase process. The answer is yes. Lenders pull borrowers’ credit in the beginning of the approval process, and then again just prior to closing.
Initial credit check for preapproval
In the first phase of acquiring a loan, pre-qualification, you’ll self-report financial information. Lenders want to know details such as your credit score, social security number, marital status, history of your residence, employment and income, account balances, debt payments and balances, confirmation of any foreclosures or bankruptcies in the last seven years and sourcing of a down payment. This is only a portion of the total information needed for your mortgage application.
Once you’re ready to get preapproved for a loan, lenders will verify your financial information. During this phase, lenders require documentation to confirm the information in your application and pull your credit history for the first time. You may be required to submit a letter of explanation for each credit inquiry in recent years, such as opening a new credit card, and for any derogatory information in your history, like a missed payment.
Once you find a home within budget and make an offer, additional or updated documentation may be required. Underwriters then analyze the risk of offering you a loan based on the information in your application, credit history and the property’s value.
Second credit check at closing
It can take time for your offer to be accepted, and for your loan to pass underwriting. During this period from the initial credit check to closing, new credit incidents may occur on your history. Many lenders pull borrowers’ credit a second time just prior to closing to verify your credit score remains the same, and therefore the risk to the lender hasn’t changed. If you were late on a payment and were sent to collections, it can affect your loan. Or, if you acquired any new loans or lines of credit and used those credit lines, your debt-to-income ratio would change, which can also affect your loan eligibility.
If the second credit check results match the first, closing should occur on schedule. If the new report is lower or concerning to the lender, you could lose the loan. Alternatively, the lender may send your application back through underwriting for a second review.
It’s important for buyers to be aware that most lenders run a final credit check before closing, so the home-buying window is a time to prudently mind your credit.
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Home buying hurdles exist — but research, creativity and flexibility will help you clear them.
Home buyers today face tough challenges — housing prices have soared, a dollar doesn’t go as far as it once did and rent is more expensive than the past.
How are people today making such a large purchase despite these hurdles? With more flexibility and a bit of financing creativity, today’s buyers are finding ways to achieve homeownership.
Know your options (and credit score)
To even begin the home buying process, it’s important to know what resources are available.
According to a 2017 Fannie Mae working paper, many Americans don’t have a strong, or even basic, understanding of what it takes financially to buy a home, nor if they meet the criteria.
The first step to knowing if you can afford a home is figuring out what financing options are available to you, including what mortgages you’re eligible for and how much you need/can afford to put down upfront.
Fannie Mae discovered that most buyers don’t know the minimum FICO score required by lenders and that 49 percent of buyers don’t even know what their credit score is.
Home shoppers also aren’t sure how much they have to put down on a home, and about 40 percent are unsure of the lender-required minimum down payment. Plus, three-quarters of buyers don’t know about programs available to help with down payments, like FHA loans.
Before buyers even start thinking about saving for a home, they should know what their financial resources are and if they’re eligible to buy.
Make enough money to save
With fewer resources to pull from than their older, wealthier counterparts, renters wanting to buy face tough financial headwinds.
According to the Consumer Housing Trends Report 2017, renter households typically earn a median income of $37,500 annually, which is $50,000 less than the median household income netted by households who recently bought a home (of whom the median household income is $87,500 annually).
While there are ways to enter into homeownership without making $87,500 in household income, it’s hard to afford to buy if you make significantly less. “If you’re making $37,500 per year, it’s probably not feasible for you to buy in almost any market,” says Chief Economist Dr. Svenja Gudell.
Only 29 percent of Americans make $87,500 or more, per U.S. Census Bureau data. For perspective, only one of the top 10 most common jobs in the United States carries a salary above $37,500, meaning the jobs that the majority of Americans hold bring in less money than the median renter household.
While households purchasing homes are more likely to have two incomes than renter households (and thus a higher median household income combined), even two-income households struggle to afford to buy in competitive markets.
Save enough cash (but not as much as you think)
One of the most daunting parts of home buying? The down payment. In fact, two-thirds of renters cite saving for a down payment as the biggest hurdle to buying a home, according to the Housing Aspirations Report.
Per findings from the Consumer Housing Trends Report 2017, almost one-third (29 percent) of buyers active in the market express difficulty saving for the down payment.
For people buying the national median home valued at $201,900, with the traditional 20 percent down payment, that’s $40,380 upfront — just to move in.
“The down payment remains a hurdle for a lot of people,” says Gudell. “But they should know they don’t have to put 20 percent down.”
Although putting down less than 20 percent means additional considerations, such as the cost for private mortgage insurance (PMI), some find it worth the hassle. In fact, only one-quarter of buyers (24 percent) put 20 percent down, and just over half of buyers (55 percent) put less than the traditional 20 percent down.
Buyers are also getting creative about piecing together a down payment from multiple sources. According to the report findings, nearly 1 in 4 buyers (24 percent) build a down payment from two or more sources, including saving, gifts, loans, the sale of a previous home, stocks, retirement funds and other resources.
Know your deal breakers, but be flexible
To get into a home — even if it’s not the home of their dreams — some of today’s buyers are considering homes and locations outside of their initial wish list and getting increasingly flexible when it comes to neighborhood, house condition and even home type.
Although single-family homes remain a dream for most home seekers, buyers today consider and buy condos and townhouses to secure a home in their ideal location. Buyers with household incomes under $50,000 are more likely to consider homes outside of the traditional single-family residence (40 percent), compared to those with incomes of $50,000 or above (24 percent).
“I do think people get discouraged when they look in their target neighborhood and they see homes around $170,000 when they’re looking for a $110,000 home,” Gudell says.
Affordably priced homes do, in fact, exist. But in popular areas, where people most often want to live, it’s going to be harder to find that cheaper home, Gudell says.
“If you’re willing to take a longer commute and make a couple trade-offs, you might be able to find a home that is farther out that might be cheaper,” Gudell explains. “You have to leave the paved path before you can find cheaper choices.”
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Being a first time home buyer is as much of a skill as it is a privilege. Not unlike every other skill you have managed to acquire up to this point, buying your first home should be met with an acute attention to detail and a mind for due diligence. If for nothing else, home buying skills can be honed to the point that the scales will tip in favor of those that are the most prepared. That said, there are absolutely things you can do and learn to make the home buying process a positive one. If that sounds like something you could get behind, here are some first time home buyer tips you can’t afford to ignore.
First Time Home Buyer Tips You’d Be Foolish To Ignore
Here are some of our favorite first time home buyer tips we feel everyone would be better off sticking to:
We want to make it abundantly clear: first time home buyer tips can range from the utterly useless to the invaluable. Those we hit on above lean towards the latter, but they are far from the only tips you should take to heart. Buying a home is a complex process that is made easier by understanding as much as you can. So in addition to what I spoke of above, do your best to educate yourself on the process.
Common First Time Home Buyer Mistakes To Avoid
Here are some of the most common first time home buyer mistakes, and how to avoid making them yourself:
First Time Home Buyer Qualifications
First Time Home Buyer Credit Score
The first time home buyer credit score is one of the most important indicators lenders use to gauge a borrower’s trustworthiness. It is the credit score, after all, that best defines a person’s history with borrowing. That said, it’s in the best interest of first time home buyers to have a credit score that meets the minimum requirements of today’s lenders.
First time home buyers should have a credit score of at least 620 if they hope to receive a conventional loan, and a minimum credit score of 500 if they intend to qualify for an FHA loan.
First Time Home Buyer Down Payment
The first time home buyer down payment will depend largely on the type of loan in question. FHA loans, for example, require a down payment of at least 3.5% for those with a credit score of 580 or higher. If, however, you apply for an FHA loan with a credit score between 500 and 579, you will be required to pay at least 10% down. Conventional loans, on the other hand, will require a downpayment somewhere in the neighborhood of 5% and 20%, as long as you meet the minimum credit score requirement: 620. It is worth noting, however, that most lenders will require borrowers that pay less than 20% down to pay what is known as private mortgage insurance (PMI) — it’s the lender’s method of protecting themselves from defaulting borrowers. According to BankRate, “PMI fees vary from around 0.3 percent to about 1.5 percent of the original loan amount per year, depending on the size of the down payment and the borrower’s credit score.”
First Time Home Buyer Loans And Grants
Here are some of the most common first time home buyer loans and grants:
Not surprisingly, these are a few of the most common loans made available to today’s first time buyers. That said, there are more loans out there if you don’t see the one you like.
First Time Home Buyer Mortgage Calculator
Mortgage rates are constantly changing, which makes calculating your future mortgage a bit more challenging. Fortunately, there are several dependable sites that provide their own first time home buyer mortgage calculator for your convenience. Zillow, for example, has a simple, easy to use first time home buyer mortgage calculator that will help you identify your own payments. Of course, it’s worth pointing out that Zillow’s mortgage calculator (and all others) should only be used by those looking for a ballpark estimate. For a better idea of what you could expect your own mortgage to be, you should consult the bank you intend to borrow from. Only they will be able to give you the exact number you are looking for.
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A conventional mortgage is reserved for today’s “best” borrowers, or those traditional lending institutions view as less of a risk to default on a loan. It is worth noting, however, that conventional mortgages exist to help their originators as much as the borrowers, if not more so. You see, conventional mortgages are inherently risky for banks to approve, so it only makes sense that they’d only accept the best applicants, but what’s that mean for everyone else? It is about time you learn the ins and outs of a conventional mortgage, and exactly what it means for you.
The Basics: What Is A Conventional Mortgage?
Conventional mortgages are typically reserved for those borrowers with more than encouraging financial profiles. They are best suited for prospective borrowers with no blemishes on their credit reports and scores of at least 680. In other words, conventional mortgages are intended to service the least risky population of borrowers, and for good reason: conventional mortgages actually pose the most risk to lenders, as they aren’t backed by the government. Unlike their Federal Housing Administration (FHA) loan counterparts, conventional mortgages aren’t insured by the government, so lenders offering conventional mortgages are less inclined to take unnecessary risks.
In addition to being reserved for those borrowers that represent the least risk, conventional mortgages will typically require a down payment somewhere in the neighborhood of three to 20% depending on the product being offered. It is worth noting, however, that those who don’t put down at least 20% will be required to pay what those in the business call private mortgage insurance (PMI). In attempt to make their investment even less risky, PMI will help offset the risk of so-called “safe” borrowers from defaulting on their loans.
To be perfectly clear, a conventional mortgage is a risky move for most lenders because their “products” are not insured by the government. However, the risk of offering a loan that isn’t backed by the government is offset by strict underwriting; namely, higher credit scores, larger down payments and private mortgage insurance. Therefore, if you hope to qualify for a conventional mortgage, you should expect to be required to meet relatively strict requirements.
As we already alluded to, a conventional mortgage is a home loan that’s not insured by the government. Whereas FHA loans are insured by the federal government, conventional mortgages are not. More specifically, “the federal government insures loans for FHA-approved lenders in order to reduce their risk of loss if a borrower defaults on their mortgage payments,” according to Zillow. Conventional mortgages, on the other hand, are not awarded the same luxury. Banks offering conventional mortgages are going to take more precautions when lending to borrowers since their loans aren’t insured.
A conventional mortgage is essentially a way for banks to offset the risk associated with offering loans that aren’t backed by the government. “Conventional mortgages present the most risk for lenders since they are not insured by the federal government,” according to Investopedia. As a result, conventional mortgages are reserved for today’s best borrowers; those least likely to default on their mortgages.
Conventional Mortgage Calculator
While a conventional mortgage calculator can certainly be useful to those with all the required information, those without the supplemental data will find their calculations falling short. In other words, a good conventional mortgage calculator will account for everything from private mortgage insurance, property taxes, homeowners insurance, HOA dues, and other costs. Only once you have every variable will a mortgage calculation be helpful. That said, The Mortgage Reports has a conventional mortgage calculator that will account for everything you need to know now, and in the future.
Conventional Mortgage Down Payment
Due, in large part, to their “riskier” nature, conventional mortgages typically coincide with a larger down payment. It is not uncommon for the down payment on a conventional mortgage to rest somewhere between three and 20%
It is worth noting, however, that the downpayment for a conventional mortgage comes with a significant caveat: whereas most people put down anywhere between three and 20%, those that don’t manage to put down at least 20% will be required to pay private mortgage insurance. That’s because the less a borrower puts down, the more of a risk they pose to the lender. Therefore, PMI is levied on anyone that doesn’t put down enough money at the start of a mortgage. The private mortgage insurance, as you may have already guessed, is intended to lessen the risk of borrowers that may default. Borrowers required to pay private mortgage insurance will continue to do so until their loan-to-value ratio reaches 80%.
Conventional Loan Rates
Conventional loan rates are far from universal, and tend to vary depending on three important factors: the amount put down, the loan originator and the market’s current conditions. According to Bankrate, however, “the average 30-year fixed mortgage rate is 4.70%, up from 4.64% last week. 15-year fixed mortgage rates increased to 4.16% from 4.07% this week.”
A conventional mortgage is a great option for borrowers with a pristine credit history, but there’s a lot more to these traditional loans than most people realize. Traditional loans, most notably, represent a risk to lenders, but they target the best borrowers to offset said risks. Perhaps even more importantly, those that qualify for them stand to receive great terms.
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Should I rent or buy? A simple question, but nonetheless one that nearly everyone will ponder at one point or another. The rent vs buy debate wouldn’t be much of a debate if the question wasn’t so divisive, right? The only real way to develop your own objective opinion, for that matter, is to listen to the facts as they present themselves in the form of real world data. The real answer to the rent vs buy question is entirely dependent on each person’s unique situation.
Before you jump to any conclusions, be sure to take everything you are about to read into consideration. With any luck, your own rent vs buy debate will correspond with a definitive answer by the time you are done reading this.
Rent Vs Buy Analysis From A Pro
The rent vs buy debate rages on to this day, and for good reason: each side has made some compelling arguments of their own that, at the very least, warrant your consideration. Owners, for example, will quickly point out the single greatest benefit of ownership: equity. Those that actually make purchases of their own build equity in a property with each and every payment made. That way, when it comes time to sell, there are profits to be made. It is worth noting, however, that the same equity argument posed by owners comes with a caveat: you must be willing to live in a property long enough for it to build equity, and even then, equity isn’t guaranteed. Proponents of renting are, therefore, quick to point out the disadvantage of living in the same home for a prolonged period of time. What’s more, there are some renters that think paying down a mortgage is a fool’s errand, in that a large percentage of owners never actually finish paying off their mortgage.
To be perfectly clear, there are obvious advantages to each, and drawbacks, for that matter. As I already alluded to, homeownership awards owners the ability to build an equitable share in a valuable asset. In fact, equity is both an asset and considered to contribute to one’s own net worth. That said, equity isn’t a liquid asset. According to Investopedia, “it cannot quickly be converted into cash.” Moreover, “value fluctuates over time as payments are made on the mortgage and market forces play on the current value of that property.”
We are a huge proponent of homeownership, but that doesn’t mean it’s for everyone. Of course, there’s the cost. While equity is great, it comes at a price. Homeownership isn’t cheap and usually requires a large down payment; one a lot of people can’t afford earlier in their lives. That, and the commitment that follows. Homeownership isn’t the result of a fleeting feeling; it’s a conscious decision to settle down and stay in the same place for what will most likely be a prolonged period of time. And while the idea of living in the same place suits a lot of people, there is a large contingent that hates the idea of being stuck in the same place for too long.
Many of the same renters that covet the idea of being able to move at the end of a lease are strongly in favor of the price of renting. Renting, for example, doesn’t coincide with the same down payment as buying. Therefore, renting is more “accessible” to more people.
In the end, the rent vs buy debate can only be settled once you take into account each person’s personal situation. Sometimes buying makes more sense for people, and sometimes renting makes more sense. It may not be the answer you wanted to hear, but it’s nonetheless an answer. The fact remains: whether or not you will benefit from buying or renting will depend entirely on your own situation.
Rent Vs Buy Calculator
There’s no simple answer to this simple question. As NerdWallet points out, “This is a decision with many moving parts, and things change: Your down payment savings grow, you consider moving to a cheaper or more expensive area, you’re curious what happens if you spend less on a home, or more.”
As it turns out, those “moving parts” are as follows:
Using these indicators, you can roughly estimate which decision is right for your situation, but if you would rather plug the numbers into a rent vs buy calculator, NerdWallet has something you might be interested in.
Renting A Home Pros
Again, there is a large contingent of people that are convinced renting is better than buying. The reasons many of them use to support their claim are primarily founded in the four bullet points above, and for good reason: there’s no doubt they represent poignant issues in favor of renting. For starters, the barrier to entry is considerably lower than homeownership. Whereas those looking to buy will need to put down 20% in order to avoid paying private mortgage insurance (PMI), most renters will only need a security deposit and maybe the first months rent in advance. A 20% down payment on a $300,000 home will set buyers back $60,000 right off the bat. There’s no question about it: it’s a lot more affordable to start renting than buying a home. Of course, those numbers start to change once you have been renting for a prolonged period of time, but we’ll get into that later.
More importantly, it’s not just the money that redirects most people away from homeownership towards renting, but the underwriting as well. You see, owning a home coincides with receiving loan approval — not something everyone can get. There are a lot of underwriting regulations that must be addressed in order to even qualify for a mortgage. With that in mind, there’s a lot of people that not only don’t want to own, but also that can’t own. Renting is literally the only option they can choose.
In addition to the initial cost, most rental proponents will be quick to point out the benefits of variable lease options. Renters are typically allowed to choose how long they intend to rent for, granting a degree of flexibility made unavailable to homeowners. Renters are, therefore, not locked into 15- or 30-year mortgages like their owner counterparts. As a result, most renters have the freedom to pick up and move more frequently. You would be surprised at how high renters value their freedom to switch homes at the end of a lease.
Renting A Home Cons
There are two sides to every coin, and renting a home is no exception. That said, there are plenty of drawbacks that coincide with renting. Namely, the largest qualm most owners have with renting is the inability to build equity in a home you are simply renting. As a renter, your monthly rent checks are given directly to the respective owner. As a result, the person that owns the home is making money off of the renter’s payments, whereas the renter is simply trading money for a place to live — their money isn’t doing anything for them beyond that. Homeowners, on the other hand, build equity with each payment — renters will never see their cash again.
What’s more, the amount renters are expected to pay can fluctuate from lease to lease. It is within the rights of landlords to raise rents, as long as they aren’t in a rent controlled zone. That means it’s entirely possible for rent to be increased at the end every lease. Leases can vary significantly in length; they can last from a single month to several years. Those with shorter leases, therefore, run the risk of their rents increasing more frequently.
Finally, those inclined to rent limit the amount they can personalize their living space. Most lease agreements will prevent tenants from making changes to the property, even if it’s something as simple as painting a wall. If you are someone that appreciates a more personal touch, renting may not be the best option.
Buying A Home Pros
Of all the potential options awarded to those looking for a place to live, I maintain that homeownership is the best way to go. There’s one simple reason I covet homeownership more than renting: equity. As I already alluded to, renters can’t build equity in a property; their money is traded for a place to live. However, the money homeowners pay towards their mortgage builds an equitable interest in a tangible asset. In other words, equity is both an asset and considered to contribute to one’s own net worth. The more an owner is able to pay down their mortgage, the more equity they can build. Once the principal is paid off, along with the interest, a homeowner will own the home free and clear. That means they will be able to live in the home without making payments to their mortgage provider. Of course, there are other costs, like maintenance and property taxes, but the mortgage is no longer detracting from their ability to save. In addition to that, the homeowner now has a valuable asset in their corner.
If that wasn’t enough, the tax benefits that coincide with homeownership are equally as impressive. Most notably, homeowners are able to deduct the amount they pay in mortgage interest each year from their taxable income — that’s no small amount of change. Considering interest rates for the average 30-year fixed-rate mortgage are somewhere in the neighborhood of 4.5%, the interest one could expect to pay on a home could be significant. The tax deductions alone could trump the cost of renting for some.
It is worth pointing out, however, that while the upfront cost of homeownership is a lot higher than renting, the scale starts to tip in favor of buying eventually. If for nothing else, there is usually a point when buying actually becomes cheaper than renting in the long run.
Buying A Home Cons
While I am in favor of owning a home, buying a property is not without significant caveats; namely, the barrier to entry. First and foremost, buying a home is not cheap. There’s a good chance buying a house is the single most expensive cost most people will encounter over the course of their entire lives. The down payment alone can be enough to keep people from transitioning to homeownership, and that doesn’t even include the rest of the purchase price or interest on the loan. Put simply, owning a home has become synonymous with a much more expensive upfront cost. Again, owning can turn out to be cheaper in the long-run, but certainly not at the time of purchase.
If the upfront cost wasn’t enough, there are also rules and regulations one must abide by to make the dream of homeownership a reality. Unfortunately, however, there are those that don’t qualify for a loan. Whether it’s a low credit score or a lack of available funds, there are several obstacles standing in the way of many prospective buyers that have no other choice but to rent.
The rent vs buy debate continues to rage on, and for good reason: both sides have valid arguments. Truth be told, however, there is no universal answer. Whether or not you should rent vs buy is completely dependent on your own situation and what you want out of a property. It is worth noting, however, that owning a home has come synonymous with significant benefits, not the least of which renting could hold a candle to. Homeowners are awarded the opportunity to build equity and reduce their taxable obligations. Perhaps even more importantly, home ownership could eventually become cheaper than renting in the long term. Long story short: buying a home is worth it for those that can afford to do so, but not everyone can take the leap.
On Point Homevestments
The concept of the FHA loan was introduced in the 1930s when the United States was reeling from what would turn out to be the worst depression in American history. As the stock market crashed and the economy took a turn for the worst, defaults and foreclosures ran rampant. In response, the powers that be (the federal government) saw fit to provide lenders with peace of mind by insuring subsequent home loans. The resulting Federal Housing Administration (FHA) loans did their best to reduce lender risk and stimulate a struggling housing market, and their legacy lives on today. Not surprisingly, FHA loans are designed to promote homeownership amidst low-to-moderate income borrowers. And while we may not be facing the same financial crisis we were in the 30s, or even just a decade ago, borrowers should take solace in the fact that FHA loans are here to help.
What Is An FHA Loan?
The name says it all: an FHA loan is a mortgage issued by federally qualified lenders. Perhaps even more importantly, however, FHA loans are subsequently backed by the department of Housing and Urban Development (HUD). In other words, FHA loans are insured by the government, which begs the question: What does that really mean? Why is the federal government intent on insuring more loans?
According to Investopedia, “the government created federally insured loans that gave mortgage lenders peace of mind, reduced lender risk and stimulated the housing market.” More specifically, government backed loans awarded lenders the ability to underwrite more mortgages for buyers that were previously ignored by lenders because of the risk of default they posed. You see, once the government decided to insure FHA loans, low-to-moderate income borrowers (or those with a less than attractive financial profile) could finally get the loan they needed to buy a home without making a significant down payment. More people could transition to homeownership and, in turn, help stimulate the economy.
It is important to note, however, that FHA loans are insured for the lender, not the borrower. That’s an important distinction to make, as the FHA will assume responsibility for protecting the lender if the borrower neglects to keep their mortgage payments current. In the event a borrower does default on their mortgage, they are still at risk of a foreclosure, but the lender can rest assured, knowing full-well that the loan was insured by the government.
FHA Loan Requirements
FHA loan requirements stray from those of their conventional counterparts because they are insured by the federal government. As a result, FHA loans a specifically tailored to help those with less than perfect financial profiles. That said, FHA loan requirements are not as strict as those that have become synonymous with conventional loans. Credit scores, for example, don’t need to be perfect to qualify for an FHA loan, but instead can be as low as 500. Of course, a borrower’s credit score will impact the amount they are expected to “put down” at the signing. Those with a credit score between 500-579 can obtain an FHA loan with a down payment of 10%. Those with a slightly better score (at least 580) could get away with a down payment as little as 3.5%. In addition to credit scores and down payments, FHA loan borrowers will need to demonstrate some level of financial competency; namely, that they are at least a couple of years removed from bankruptcy and three years removed from any foreclosures.
These aren’t the only requirements to meet if you want to qualify for an FHA loan. For more information, please refer to the U.S. Department of Housing and Urban Development’s page on FHA loans.
How To Apply For An FHA Loan
What First-Time Buyers Need To Know About Their FHA Loan
An FHA loan is the perfect solution for buyers with less than perfect financial profiles. More importantly, an FHA home loan awards prospective buyers the ability to make the transition to ownership, as they significantly lessen the burden of the dreaded down payment. That said, nobody is simply going to give you an FHA loan; you need to do the work yourself and make things happen. If you are interested in applying for an FHA loan, mind due diligence and learn everything you can about them; only then can I recommend moving forward.
On Point Homevestments
When you buy a house or an apartment, there are several steps: You decide how much money you can spend; find a property you like; make an offer; negotiate an acceptance; sign a contract; line up your financing, and then close on the property.
So, in some sense closing is what you’re working towards. It’s the point where you sign the papers that make the home legally yours, and it’s usually when you get the keys. (Note that it’s often not when you move in; that usually comes hours, or even days, later.)
The exchange of “money for keys” is very similar to what happens when you rent. However, there are a couple of big differences when you’re buying instead of rent, and there’s more opportunity for things to go wrong.
Let’s take a look at some of them, so they don’t happen to you:
What’s Supposed to Happen: A representative from your lending bank shows up with the money for your mortgage loan.
What Could Go Wrong: In your “commitment letter,” the lending bank outlines certain conditions in order for your closing to happen (for example, you can’t close until you buy homeowner’s insurance.) You could forget to fulfill or violate one of the conditions (for example, by changing jobs between the time your commitment is issued and the time you close.)
How to Prevent It: When your commitment letter comes, read it carefully to make sure that you are doing everything you’re supposed to do. Often there’s a list involved, so if the letter says, “your commitment is conditional on your doing A, B, and C,” go ahead and do A, B, and C. Also read the letter to see if there is a list of what violates your commitment. A common commitment breaker is a changing financial status, so don’t change jobs or make a major purchase between commitment and closing. As Michigan mortgage banker David Hall puts it, “Wait and sit on the milk crates for the first few weeks in the new home.”
What’s Supposed to Happen: When you finish signing the paperwork, your broker is supposed to put a full set of keys in your hand, including keys to the front door, the mailbox, and the bike shed.
What Could Go Wrong: The seller could forget to bring keys to closing (sometimes that’s a mental block because he or she doesn’t want to let go of the property) or you find out that the side door key has been lost since 2005.
How to Prevent It: Have your real estate agent contact the seller to make sure that all the locks in the house are in good working order and to remind her to bring a full set of keys to closing. If you are doing your walk-through of the property right before closing, that’s a good time to remind the seller, too.
What’s Supposed to Happen: If you’re getting a mortgage, the bank is supposed to itemize its charges on a form called the HUD-1 Settlement Statement, which indicates money going between the seller and the buyer.
What Could Go Wrong: Although you’re supposed to be able to examine the HUD-1 in advance, often the charges on it are actually worked out at closing by the buyer’s, seller’s and bank’s attorney. So, you may see it late, not understand it, and leave without a copy of it (which you’ll need later when you file your income taxes.)
How to Prevent It: About.com has a blank HUD-1 on its homebuying site. Take a look at the form before your closing so you have some idea of what it looks like. At closing, take a few minutes to read the form and make sure that everything looks like you expect it to. Also, ask your lawyer to make a copy of the form for you since your accountant will need it come tax time.
On Point Homevestments
Real estate agents often suggest that sellers either accept the first offer or at least give it serious consideration.
Real estate agents around the world generally go by the same mantra when discussing the first offer that a seller receives on their home:
“The first offer is always your best offer.”
Of course, this isn’t true in every situation, but there are reasons why agents believe this, and why they often suggest that sellers either accept the first offer or at least give it serious consideration.
Get in the buyer’s head
To understand why the first offer is usually the one you should accept, consider the buyer and the journey he or she’s on.
Buyers in the real estate market usually start by dipping their feet into the water. This may be before they even engage a real estate agent. They generally go to a few open houses, check out prices online, and start to do their homework. They may even make first contact with an agent to assess what the agent thinks about the state of the local market.
From there, buyers begin to get more serious. They may start going on private, second or third showings with their agent. They really start to get engaged in the process. They become “the real dealer” — a buyer who is completely in the game, approved for a mortgage, and actively engaged with their mortgage lender or broker. Maybe they’ve even written an offer or two. They’ve narrowed down their search parameters, spent months learning the market, pricing and checking the comparables. (To learn more about the three types of homebuyers, read “Seller’s Guide to Understanding Today’s Buyer.”)
Real dealers are often the ones who write the first offer a seller receives on a property. And that’s why their offers should be taken seriously.
Real dealers will likely get an email notification about your listing within hours of it going online. Or, since they are so engaged with their agent at this point, the agent may spot it first and send them a text or email.
This buyer will want to get in and see the property ASAP. Since they’re so familiar with the market, they’ll be able to tell once they step foot inside if it will work for them, if it’s priced right, if it shows well, and if it’s in line with present or past comparable sales. If the property meets their criteria, the real dealer, armed with all their knowledge and motivation, will make an offer.
The real dealer
Their offer may not come in within days of a property going on the market. But it will come from an informed buyer who is knowledgeable of the market. If a home is priced too high and a month or two goes by without an offer, it will be the real deal buyer who has been watching the listing and waiting to see how the market responds. If they note that there aren’t any offers on it and there is no activity after some time, the real dealer will come in with a low offer, which actually may be a good offer, on the seller’s home.
While you may see it as an insulting “low ball” offer coming out of left field, you should still look closely at this offer. Who is the buyer? How long have they been looking? Have they written other offers nearby? Are they working with a good local agent? Does the offer come with a pre-approval letter? Is this offer actually a number that is close to the number your real estate agent initially suggested?
As hard as it may seem to contemplate an offer much lower than your asking price, serious sellers should look at all the signs leading up to it and consider if this is the offer to accept. Trust your agent. And even better, trust the phrase, “The first offer is always your best offer.”
On Point Homevestments
A pocket listing is an unofficial, off-market listing
Over the past year or so, “pocket listings” have become a more mainstream option for quietly marketing a home. If you haven’t heard this real estate term before, you probably will. Here is what today’s homebuyers and sellers need to know about pocket listings.
Also known as a “quiet” or “off-market” listing, a pocket listing is a property that an agent keeps tucked away in his or her “pocket.” Though the seller has a signed listing agreement with a real estate agent, the property for sale isn’t officially listed in the MLS. Other traditional forms of marketing may be downplayed, too.
Pocket listings started many years ago as a way for high-profile people or expensive homes to be quietly marketed. They were seen as exclusive because they were listed under the radar of mainstream agents, buyers and even the press.
Pocket listings are growing in popularity
As the real estate market has become more challenging, pocket listings have become more mainstream.
In many markets, there are few good properties and low inventories, coupled with buyers who are motivated to see more homes. You’d think that would be a perfect reason to push homes on to the market.
And yet, there are sellers who have been interested in selling but aren’t comfortable with current home values. These sellers may sit on the sidelines and will only sell if they can get the price they want.
As soon as a home is listed in the MLS, the infamous “days on market” clock starts ticking. The longer your home sits on the market, the more “stale” it becomes and the less money you’re likely to be offered. Buyers, seeing that a home has been for sale for 30 or 60 days or even longer, will inevitably make low-ball offers. And so, instead of going on the market, a seller who wants a certain price may engage their real estate agent and put the listing out there as a “pocket” listing.
Pocket listings let sellers test the market
With a pocket listing, a seller and their agent can quietly test the market without adding it to the MLS. They can gauge reaction to the price they’re asking and see what kind of traffic they get and how the market receives the property without the MLS clock ticking.
The agent can get the word out about the home using various marketing methods except the MLS — maybe even holding a small open house, doing a private broker’s tour, and stimulating word of mouth with other agents.
Sometimes, pocket listings eventually get entered into the MLS. But in other cases they’re sold without ever making it into the database.
Pocket listings have become a secondary home market
In some markets, there are entire websites devoted to pocket listings or networking opportunities with other agents about upcoming listings and properties. What started as a way to get the word out about future listings has turned into a secondary market of homes for sale for well-connected real estate agents.
While sellers may agree to a pocket listing and dictate how the information about their home is disseminated, many boards of Realtors have procedures and rules for how listings are to be input into the local MLS. Those rules include fines for agents who don’t input their listing within a certain time period.
Time will tell if pocket listings are here to stay or just a direct result of our current real estate market.
What pocket listings mean for sellers and buyers
If you’re a seller, you should consider testing the waters with a pocket listing, even if it’s just for a week or two. You’ve got nothing to lose.
For buyers, it’s important to work with a local agent who has established relationships with other agents in the community. That way, you can be certain that you’ll be made aware of all potential homes for sale.
On Point Homevestments
Get those rainy day funds in order — you're going to need them.
You’re excited because you just found the perfect home. The neighborhood is great, the house is charming and the price is right.
But if you’re a first-time home buyer, you might find out that the price is pretty far from perfect.
If you’re shopping for your first home, prepare for additional — and often unexpected — home-buying costs. They catch many home buyers unaware and can quickly leave you underwater on your new home.
Expect the unexpected
For almost every person who buys a home, the spending doesn’t stop with the down payment. Homeowners insurance and closing costs, like appraisal and lender fees, are typically easy to plan for because they’re lumped into the home-buying process, but most costs beyond those vary.
The previous owners of your home are the biggest factor affecting your move-in costs. If they take the refrigerator when they move out, you’ll have to buy one to replace it. The same goes for any large appliance.
And while these may seem like a small purchase compared to buying a home, appliances quickly add up — especially if you just spent most of your cash on a down payment.
You’ll also be on the hook for any immediate improvements the home needs, unless you negotiate them as part of your home purchase agreement.
Unfortunately, these costs are the least hidden of those you may encounter.
When purchasing a home, definitely hire a home inspector (this costs money too!) to ensure the home isn’t going to collapse the next time it rains. Inspectors look for bad electrical wiring, weak foundations, wood rot and other hidden problems you may not find on your own.
Worse still, these problems are rarely covered by home insurance. If an inspector discovers a serious problem, you’ll then have to decide if you still want to purchase the home. Either way, you’ll be out the cost of hiring the inspector.
Consider the creature comforts
Another cost is your own comfort. It’s easy to not think fully about what you’re expecting from your new home until after you move in.
Are you used to having cable? If so, is your new home wired for cable? It’s much harder to watch a technician crawling around punching holes in your walls when you own those walls.
And if you’re moving from the world of renting to the world of homeownership, you’ll probably be faced with much higher utility bills. Further, you could find yourself paying for utilities once covered by a landlord, like water and garbage pickup.
The only ways to face the unknown and unexpected are research and planning. This starts with budgeting both before house hunting and throughout your search.
Look at homes in your budget that need improvements, and then research how much those improvements could cost. Nothing is worse than buying a home thinking you can fix the yard for a few hundred dollars and then realizing it will cost thousands.
There’s really no limit to how prepared you can be. Say you find a nice home that’s priced lower than others in the area because of its age. You may save money on the list price, but with an older house, you could be slapped with a much higher home insurance payment, making the house more expensive in the long run.
This is where preparation comes in. Research home insurance and property prices in the areas you’re considering to make more educated decisions before you ever make that first offer.
Clearly define how much you intend to put toward your down payment, and then look at how much cash that leaves for improvements and minor costs, like changing the locks. That way, when you find a house at the high end of your range, you’ll know to walk away if it requires a new washer and dryer or HVAC system upgrade.
Establish a rough estimate for as many costs as you can think of, and be extremely critical of homes at the top of your budget — otherwise, you could easily end up being house poor.
Know your budget and plan ahead. Buying a home is a lot less scary when you know what you’re getting into.
On Point Homevestments