While your opinions on the type of home you want to own may change during the homebuying process, use this easy checklist to help you set your priorities and make the shopping process less time consuming.
What neighborhoods would you prefer?
What school systems do you want to be near?
How close do you need to be to:
(a) public transportation
(e) neighborhood shopping
What architectural style(s) of homes do you prefer?
Do you want a one story or two-story house?
How old a home would you consider?
How much repair or renovation would you be willing to do?
Do you have special facilities or needs that your home must meet?
Do you require a fenced yard or other amenities for your pets?
Prioritize each of these options into Must have Would Prefer
Yard (at least_________)
Formal living room
Formal dining room
Spa in bath
1. A real estate transaction is complicated. In most cases, buying or selling a home requires disclosure forms, inspection reports, mortgage documents, insurance policies, deeds, and multi-page government-mandated settlement statements. A knowledgeable guide through this complexity can help you avoid delays or costly mistakes.
2. Selling or buying a home is time consuming. Even in a strong market, homes in our area stay on the market for an average of ____ days. And it usually takes another 60 days or so for the transaction to close after an offer is accepted.
3. Real estate has its own language. If you don’t know a CMA from a PUD, you can understand why it’s important to work with someone who speaks that language.
4. REALTORS® have done it before. Most people buy and sell only a few homes in a lifetime, usually with quite a few years in between each purchase. And even if you’ve done it before, laws and regulations change. That’s why having an expert on your side is critical.
5. REALTORS® provide objectivity. Since a home often symbolizes family, rest, and security, not just four walls and roof, home selling or buying is often a very emotional undertaking. And for most people, a home is the biggest purchase they’ll every make. Having a concerned, but objective, third party helps you keep focused on both the business and emotional issues most important to you.
1. Decide how much home you can afford. Generally, you can afford a home equal in value to between 2 and 3 times your gross income.
2. Develop a wish list of what you’d like your home to have. Then prioritize the features on your list.
3. Select three or four neighborhoods you’d like to live in. Consider items such as schools, recreational facilities, area expansion plans, and safety.
4. Determine if you have enough saved to cover your down payment and closing costs. Closing costs, including taxes, attorney’s fee, and transfer fees average between 2 and 7 percent of the home price.
5. Get your credit in order. Obtain a copy of your credit report.
6. Determine how large a mortgage you can qualify for. Also explore different loans options and decide what’s best for you.
7. Organize all the documentation a lender will need to pre-approve you for a loan.
8. Do research to determine if you qualify for any special mortgage or down payment assistance programs.
9. Calculate the costs of homeownership, including property taxes, insurance, maintenance, and association fees, if applicable.
10. Find an experienced REALTOR® who can help you through the process.
1. Find a real estate agent that’s simpatico. Homebuying is not only a big financial commitment, but also an emotional one. It’s critical that the agent you chose is both skilled and a good fit with your personality.
2. Remember, there’s no “right” time to buy, any more than there’s a right time to sell. If you find a home now, don’t try to second-guess the interest rates or the housing market by waiting. Changes don’t usually occur fast enough to make that much difference in price, and a good home won’t stay on the market long.
3. Don’t ask for too many opinions. It’s natural to want reassurance for such a big decision, but too many ideas will make it much harder to make a decision.
4. Accept that no house is ever perfect. Focus in on the things that are most important to you and let the minor ones go.
5. Don’t try to be a killer negotiator. Negotiation is definitely a part of the real estate process, but trying to “win” by getting an extra-low price may lose you the home you love.
6. Remember your home doesn’t exist in a vacuum. Don’t get so caught up in the physical aspects of the house itself—room size, kitchen—that you forget such issues as amenities, noise level, etc., that have a big impact on what it’s like to live in your new home.
7. Don’t wait until you’ve found a home and made an offer to get approved for a mortgage, investigate insurance availability, and consider a schedule for moving. Presenting an offer contingent on a lot of unresolved issues will make your bid much less attractive to sellers.
8. Factor in maintenance and repair costs in your post-home buying budget. Even if you buy a new home, there will be some costs. Don’t leave yourself short and let your home deteriorate.
9. Accept that a little buyer’s remorse is inevitable and will probably pass. Buying a home, especially for the first time, is a big commitment, but it also yields big benefits.
10. Choose a home first because you love it; then think about appreciation. While U.S. homes have appreciated an average of 5.4 percent annually over from 1998 to 2002, a home’s most important role is as a comfortable, safe place to live.
Be sure you find a loan that fits your needs with these comprehensive questions.
1. What are the most popular mortgage loans you make? Why?
2. Which type of mortgage plan do you think would best for us? Why?
3. Are your rates, terms, fees, and closing costs negotiable?
4. Will I have to buy private mortgage insurance? If so how much will it cost and how long will it be required? NOTE: Private mortgage insurance is usually required if you make less than a 20-percent downpayment, but most lenders will let you discontinue the policy when you’ve acquired a certain amount of equity by paying down the loan.
5. Who will service the loan? Your bank or another company?
6. What escrow requirements do you have?
7. How long is your loan lock-in period (the time that the quoted interest rate will be honored)? Will I be able to obtain a lower rate if they drop during this period?
8. How long will the loan approval process take?
9. How long will it take to close the loan?
10. Are there any charges or penalties for prepaying the loan?
Fixed or adjustable interest rates
Slight variations in interest rates, loan amounts, and terms can significantly affect your monthly payment.
For help in determining how much your monthly payment will be for various loan amounts, use Fannie Mae’s online mortgage calculators.
1. Look for exclusions to coverage. For example, most insurance policies do not cover flood or earthquake damage as a standard item. These coverages must be bought separately.
2. Look for dollar limitations on claims. Even if you are covered for a risk, there may a limit on how much the insurer will pay. For example, many policies limit the amount paid for stolen jewelry unless items are insured separately.
3. Understand replacement cost. If your home is destroyed you’ll receive money to replace it only to the maximum of your coverage, so be sure your insurance is sufficient. This means that if your home is insured for $150,000 and it costs $180,000 to replace it, you’ll only receive $150,000.
4. Understand actual cash value. If you chose not to replace your home when it’s destroyed, you’ll receive replacement cost, less depreciation. This is called actual cash value.
5. Understand liability. Generally your homeowners insurance covers you for accidents that happen to other people on your property, including medical care, court costs, and awards by the court. However, there is usually an upper limit to the amount of coverage provided. Be sure that it’s sufficient if you have significant assets.
1. Raise your deductible. If you can afford to pay more toward a loss that occurs, your premiums will be lower.
2. Buy your homeowners and auto policies from the same company and you’ll usually qualify for a discount. But make sure that the savings really yields the lowest price.
3. Make your home less susceptible to damage. Keep roofs and drains in good repair. Retrofit your house to protect against natural disasters common to your area.
4. Keep your home safer. Install smoke detectors, burglar alarms, and dead-bolt locks. All of these will usually qualify for a discount.
5. Be sure you insure your house for the correct amount. Remember, you’re covering replacement cost, not market value.
6. Ask about other discounts. For example, retirees who are home more than working people may qualify for a discount on theft insurance.
7. Stay with the same insurer. Especially in today’s tight insurance market, your current vendor is more likely to give you a good price.
8. See if you belong to any groups—associations, alumni groups—that offer lower insurance rates.
9. Review your policy limits and the value of your home and possessions annually. Some items depreciate and may not need as much coverage.
10. See if there’s a government-backed insurance plan. In some high-risk areas, such as coasts, federal or state government may back plans to lower rates. Ask your agent.
1. It protects your ownership right to your home both from fraudulent claims against your ownership and from mistakes made in earlier sales, such a mistake in the spelling of a person’s name or an inaccurate description of the property.
2. It’s a one-time cost usually based on the price of the property.
3. It’s usually paid for by the sellers.
4. There are both lender title policies, which protect the lender, and owner title policies, which protect you. The lender will probably require a lender policy.
5. Discounts on premiums are sometimes available if the home has been bought within only a few years since not as much work is required to check the title. Ask the title company if this discount is available.
The lender must disclose a good faith estimate of all settlement costs. A check to cover your closing costs will probably have to be a cashier’s check. The title company or other entity conducting the closing will tell you the required amount for:
A Note About Prorations. Because such costs are usually paid on either a monthly or yearly basis, you might have to pay a bill for services used by the sellers before they moved. Proration is a way for the sellers to pay you back or for you to pay them for bills they may have paid in advance. For example, the gas company usually sends a bill each month for the gas used during the previous month. But assume you buy the home on the 6th of the month. You would owe the gas company for only the days from the 6th to the end for the month. The seller would owe for the first 5 days. The bill would be prorated for the number of days in the month, and then each person would be responsible for the days of his or her ownership.
1. Plan ahead by organizing and budgeting. Develop a master “to do” list so you won’t forget something critical. To estimate moving costs, use a moving calculator.
2. Sort and get rid of things you no longer want or need. Have a garage sale, donate to a charity, or recycle.
3. But don’t throw out everything. If your inclination is to just toss it, you’re probably right. However, it’s possible to go overboard in the heat of the moment. Ask yourself how frequently you use an item and how you’d feel if you no longer had it. That will eliminate regrets after the move.
4. Pack like items together. Put toys with toys, kitchen utensils with kitchen utensils. It will make your life easier when it’s time to unpack.
5. Decide what, if anything, you plan to move yourself. Precious items such as family photos, valuable breakables, or must-haves during the move should probably stay with you. Don’t forget to keep a “necessities” bag with tissues, snacks, and other items you’ll need that day.
6. Use the right box for the item. Loose items are prone to breakage.
7. Put heavy items in small boxes so they’re easier to lift. Keep weight of each box under 50 pounds, if possible.
8. Don’t over-pack boxes. That will increase the chances that items inside the box will break.
9. Wrap every fragile item separately and pad bottom and sides of boxes.
10. Label every box on all sides. You never know how they’ll be stacked and you don’t want to have to move other boxes aside to find out what’s there.
11. Use color-coded labels to indicate which room each item should go in. Color-code a floor plan for your new house to help movers.
12. Keep your moving documents together in a file. Including important phone numbers, driver’s name, and moving van number. Also keep your address book handy.
13. Back up your computer files before moving your computer.
14. Inspect each box and all furniture for damage as soon as it arrives.
15. Remember, most movers won’t take plants. If you don’t want to leave them behind, you should plan on moving them yourself.
By Elizabeth Weintraub, About.com Guide
If you’re like most first-time home buyers, you’ve probably listened to friends’, family’s and coworkers’ advice, many of whom are encouraging you to buy a home. However, you may still wonder if buying a home is the right thing to do. Relax. Having reservations is normal. The more you know about why you should buy a home, the less scary the entire process will appear to you. Here are eight good reasons why you should buy a home.
Pride of Ownership
Pride of ownership is the number one reason why people yearn to own their home. It means you can paint the walls any color you desire, turn up the volume on your CD player, attach permanent fixtures and decorate your home according to your own taste. Home ownership gives you and your family a sense of stability and security. It’s making an investment in your future.
Although real estate moves in cycles, sometimes up, sometimes down, over the years, real estate has consistently appreciated. The Office of Federal Housing Enterprise Oversight tracks the movements of single family home values across the country. Its House Price Index breaks down the changes by region and metropolitan area. Many people view their home investment as a hedge against inflation.
Mortgage Interest Deductions
Home ownership is a superb tax shelter and our tax rates favor homeowners. As long as your mortgage balance is smaller than the price of your home, mortgage interest is fully deductible on your tax return. Interest is the largest component of your mortgage payment.
Property Tax Deductions
IRS Publication 530 contains tax information for first-time home buyers. Real estate property taxes paid for a first home and a vacation home are fully deductible for income tax purposes. In California, the passage of Proposition 13 in 1978 established the amount of assessed value after property changes hands and limited property tax increases to 2% per year or the rate of inflation, whichever is less.
Capital Gain Exclusion
As long as you have lived in your home for two of the past five years, you can exclude up to $250,000 for an individual or $500,000 for a married couple of profit from capital gains. You do not have to buy a replacement home or move up. There is no age restriction, and the “over-55” rule does not apply. You can exclude the above thresholds from taxes every 24 months, which means you could sell every two years and pocket your profit–subject to limitation–free from taxation.
Preferential Tax Treatment
If you receive more profit than the allowable exclusion upon sale of your home, that profit will be considered a capital asset as long as you owned your home for more than one year. Capital assets receive preferential tax treatment.
Morgage Reduction Builds Equity
Each month, part of your monthly payment is applied to the principal balance of your loan, which reduces your obligation. The way amortization works, the principal portion of your principal and interest payment increases slightly every month. It is lowest on your first payment and highest on your last payment. On average, each $100,000 of a mortgage will reduce in balance the first year by about $500 in principal, bringing that balance at the end of your first 12 months to $99,500.
Consumers who carry credit card balances cannot deduct the interest paid, which can cost as much as 18% to 22%. Equity loan interest is often much less and it is deductible. For many home owners, it makes sense to pay off this kind of debt with a home equity loan. Consumers can borrow against a home’s equity for a variety of reasons such as home improvement, college, medical or starting a new business. Some state laws restrict home equity loans.
By Elizabeth Weintraub, About.com Guide
Buyers pursue short sales to get a good deal. So when you see a price listed for a home that you think is too low for the neighborhood, before you jump on that price like hot fudge on a sundae, ask your agent to call the listing agent to find out if the home is a short sale.
Because you might want to think twice about making an offer on a pre-foreclosure, short sale home. It’s not as simple as you may believe, and very few can close in 30 days or less.
Many home buyers have waited 4 to 6 months to close on a short sale, sometimes longer.
What is a Short Sale?
A short sale means the seller’s lender is accepting a discounted payoff to release an existing mortgage. Just because a property is listed with short sale terms does not mean the lender will accept your offer, even if the seller accepts it.
Be aware that the seller need not be in default — to have stopped making mortgage payments — before a lender will consider a short sale. A lender may consider a short sale if the seller is current but the value has fallen. The seller may have over-encumbered, owe more than the home is worth, so a discounted price might bring the price in line with market value, not below it.
Check the Public Records
Do your research before making an offer to purchase. Your agent can find out who is in title, whether a foreclosure notice has been filed and how much is owed to the lender(s).
If there are two loans, you could have a problem. The first mortgage lender’s position is protected by the second lender, unless the second lender does not want to foreclose. If a seller owes $160,000 on the first and $40,000 on the second, offering $160,000 leaves nothing for the second. The first will need to give something to the second to gain its cooperation.
Hire an Agent with Short Sale Experience
It’s one strike against you if the listing agent has never handled a short sale, but it’s even worse if your own agent has no experience in that arena. You need an experienced short sale agent.
An agent with experience in short sales will help to expedite your transaction and protect your interests. You don’t want to miss any important detail due to inexperience or find out your transaction is not going to close on time because no one has followed up in a timely manner.
Submit Documentation and Purchase Offer to Lender
Once the seller has accepted your offer, it will be sent to the lender for approval. You do not have a deal until the lender accepts. Also, a copy of your earnest money deposit should be included with the contract.
In addition, the lender will want to see that you have your own loan available and you are preapproved. Thus, a preapproval letter should accompany the contract to the lender.
Give the Short Sale Lender Time to Respond
Make your offer contingent upon the lender’s acceptance. Give the lender a time frame in which to respond, after which, you will be free to cancel.
Reserve the Right to Conduct Inspections
Generally, the lender will not pay for customary items that a seller would pay. These include home protection plans for the buyer, buyer credits of any kind and pest / termite inspections. A buyer will be asked to purchase the property “as is,” which means no repairs.
It is extremely important that a buyer obtain a home inspection. Do not waive your right to obtain these inspections and make your offer contingent on approving them.