7 Things Financial Planners Wish You Knew About Buying a Home

buying a home

By: Daniel Bortz

Financial planners don’t just help people balance their budgets or plan for retirement; they also help their clients buy homes. After all, a house is very often the biggest financial investment you’ll ever make—so, it makes sense that these professionals would have some strong opinions on just how to go about it.

Curious what they want you to know? Read on for their top, no-nonsense tips.

  1. Buy only if you plan to stick around

When you purchase a house, you have to shell out a significant amount of cash for closing costs—fees paid to third parties that helped facilitate the sale. Closing costs can vary widely by location, but they typically total 2% to 7% of the home’s purchase price. So on a $250,000 home, your closing costs would amount to anywhere from $5,000 to $17,500. That’s a serious chunk of change!

Consequently, Craig Jaffe, a certified financial planner at United Capital in Boca Raton, FL, says it’s important to calculate your break-even point—i.e., how long it will take for you to recoup those costs.

“Typically, you want to own a home for at least three years in order to recoup the initial costs of buying the home,” says Jaffe. You can use realtor.com®’s rent or buy calculator to see whether purchasing a house makes financial sense for you.

2. Factor in the full costs of homeownership

When weighing whether it makes more sense to buy a house or continue to rent, don’t focus solely on your mortgage payments—you’ll also have to pay property taxes, interest, home insurance, utilities, and other expenses.

“A lot of people don’t budget for hidden costs” such as maintenance and repairs, says Jaffe.

You should also have an emergency fund set aside in case something goes wrong with the house.

“If your roof gets damaged or a major appliance breaks, you want to have cash on hand to pay for those costs,” Jaffe says. (If you don’t have a rainy day fund in place for those kinds of expenses, you could be forced to take on high-interest credit card debt.) Jaffe recommends building an emergency fund of 1% to 2% of your home’s value.

3. Try to make a 20% down payment

Unless you qualify for a Department of Veteran Affairs loan or Federal Housing Administration loan, you’re going to need to obtain a conventional home loan from a private mortgage lender.

When doing so, “you want to aim to make at least a 20% down payment,” says Jaffe. Why? Because if you put down less, you’ll have to pay private mortgage insurance, an additional monthly fee that protects the lender in case you default on the loan.

PMI can be pricey, amounting to about 1% of your whole loan—or $1,000 per year per $100,000. The good news? You can typically get PMI removed once you’ve gained at least 20% equity in your home.

4. Don’t raid your retirement funds

While it’s tempting to borrow from your IRA or 401(k) to amass a down payment on a home, “a retirement account is the last place you’d want to go for your down payment,” says Jaffe.

Indeed, if you borrow from either plan before age 59½, you’ll get slapped with a 10% excise tax on the amount you withdraw, on top of the regular income tax you pay on withdrawals from traditional defined contribution plans. Making early withdrawals also obviously prevents the money from accruing interest in these accounts, which could force you to delay retirement.

A better alternative? You could qualify for one of over 2,200 down payment assistance programs nationwide, which help out home buyers with low-interest loans, grants, and tax credits. Home buyers who use down payment assistance programs save an average of $17,766 over the life of their loan.

5. Make sure your credit score is up to snuff

You need to have solid credit—typically at least a 650 credit score—to qualify for a conventional home loan, and you need to have excellent credit (think 760 or above) to qualify for the lowest interest rates.

Hence, “you want to get pre-approved for a loan when your credit is at its strongest point,” says Jaffe.

To assess where you stand, pull a free copy of your credit report from each of the three major U.S. credit bureaus (Experian, Equifax, and TransUnion) using AnnualCreditReport.com. Your report doesn’t include your credit score—you’ll have to go to each company for that, and pay a small fee—but it shows your credit history, including any black marks (e.g., missed credit card payments, overdue medical bills).

If you notice errors on your report, contact the credit-reporting agency immediately, Jaffe says.

6. When buying a home, watch your spending carefully

In the months leading up to your home purchase, make sure you don’t take any actions that could hurt your credit score. These mistakes include closing old credit card accounts, opening a new credit card, maxing out your credit cards, and making a large purchase such as a new car, says Jeremy David Schachter, mortgage adviser and branch manager at Pinnacle Capital Mortgage in Phoenix.

7. Don’t bite off more house than you can chew

This one might sound obvious, but a lot of people make the mistake of buying a house that’s simply outside what they can comfortably afford.

“You don’t want to stretch yourself so thin that your housing expenses are going to stress you out each month or prevent you from saving for retirement,” says Jaffe. You can use realtor.com’s home affordability calculator to determine a price range that fits your budget.

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5 Surprisingly Smart Reasons to Buy a Home During the Holidays

holiday home buying

By: Cathie Ericson

Turkeys and tinsel, dreidels and pumpkin pie. Yes friends, the holidays are here again, and it’s the perfect time for … house hunting? OK, we know you’re busy enough planning family feasts and much-needed vacations while dealing with blustery weather, but hear us out. While it might seem counterintuitive to put a big-ticket item like a home on your holiday shopping list, it really does make sense.

Don’t believe us? Check out these surprisingly smart reasons to let everyone else hit the mall to buy half-off sweaters while you make the purchase of a lifetime: a new house to ring in the New Year.

1. Less competition from home buyers

Most buyers take the month off to celebrate the holidays, attend parties, host out-of-town guests and, quite frankly, avoid trudging around in inclement weather to look at houses. Or, maybe they’ve heard that this is a lousy time to buy a house. Whatever the reason, shopping for real estate at a time when fewer buyers are in the market can pay off big.

That’s because competing with multiple offers is one of the most stressful parts of the home-buying process, says Brian Wasson, a real estate broker with Center Coast Realty in Chicago.

2. Motivated (OK, desperate) home sellers

The December seller is likely to be serious and motivated—and therefore more open to negotiation. So what you might lack in choice of available homes could be balanced out by dealing with a more flexible seller.

Most sellers have a compelling reason for putting their house on the market during the holidays. (Let’s face it: It’s no holiday party for them to have strangers wandering through their house.) They might be facing a relocation and want to get their kids settled before the new term. Or they might just be feeling some stress if they listed their home in the fall and it’s still languishing post–Turkey Day, making them just a little more desperate and anxious to deal.

Many sellers might also want a contract in hand for tax advantages. If it’s a rental property on which they incurred a loss, they are likely to want to take the deduction this calendar year, Wasson says.

Another tax-related reason: If sellers are likely to make a hefty profit and have a salary raise set to kick in on Jan. 1, they might be subject to a higher capital gains tax on their home sale in the coming year. In this scenario, sellers may want to unload a property before the new year.

Sellers are exempt from paying capital gains tax on the first $250,000 in proceeds from a home sale for a single person, or $500,000 for a couple. After that, the capital gains tax kicks in, based on their income bracket.

3. Tax advantages

In case you weren’t aware, the tax benefits go both ways, notes Realtor® Al Cannistra with Texas Premier Realty in San Antonio. Buying now can help you save in April and beyond. Homeownership brings numerous tax perks, from deducting mortgage interest to property taxes. (Update: The House of Representatives just passed its version of the GOP proposed tax plan, which would cap the property tax deduction at $10,000. The House bill also would only allow homeowners to deduct the interest on mortgages up to $500,000, down from the current $1 million.)

Some states also might have a homeowner’s tax exemption, says Cannistra: “If your state does, closing the deal by Dec. 31 rather than waiting for the first week of the new year can make a year’s difference in whether or not you get that valuable tax savings.”

Also, many closing fees are tax-deductible if you itemize—although you should always double-check with your accountant about any tax questions.

4. A realistic picture of the house

What house doesn’t look amazing in the typical spring buying season, with newly planted flowers and plenty of sunlight streaming through the windows? Checking it out during the miserable winter season, on the other hand, might give you a more accurate idea of what you might be living with the rest of the year.

In addition to seeing the house, warts and all, you can check for issues that you’d notice only during cold weather.

“Maybe there’s a bedroom in the home that doesn’t get sufficient heat, or the front door gets jammed in icy conditions,” says Wasson. “Inspectors are less likely to catch these issues with the home when they check them out of season.”

Of course, don’t forget that issues that crop up more during summer will be less accessible—such as how well the air conditioning works or what the roof really looks like under all that snow and ice—so make sure that your home inspector does a thorough job on those fronts, too.

5. Greater accessibility to professionals

“Since December is usually a slower month all around, you will have easier access to movers, inspectors, and mortgage brokers,” says Jennifer Sommers with Sotheby’s International Realty in Boca Raton, FL.

In addition, motivated real estate agents will bend over backward to provide service with fewer client demands and will share your desire to get it done and in the books before the new year rolls around.  Ditto on your mortgage broker, who is bound to speed your closing through.

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The Pet Lover’s Guide to Buying a Home: 6 Things You Might Miss

pet lovers guide

By: Audrey Ference

If you have dogs, cats, or other pets in your family, you’ll want to take their needs into account when you’re looking to buy a house. Yes, really. Your furry roommates might seem easygoing, but certain homes—and neighborhoods—are more pet-friendly than others.

Here are six questions to ask that often get overlooked; keep them in mind to find a place where you and your pets can live in peace.

1. What are the local pet laws?

Even if you own a piece of property, it’s not guaranteed that your pets will be welcome there. Depending on the number and the breed, there can be restrictions within an HOA, condo development, or even the city or state at large.

“Check your city and state for breed-specific laws and limits on the number of animals per home,” advises Amy Ference, a Realtor® in Bozeman, MT, and owner of two pit bull mixes. “For example, Bozeman requires a kennel license if you have more than two dogs.”

Some considerations:

  • Some HOAs or condo developments restrict the number or type of pets you can have, or spell out how your pet must be restrained in common areas.
  • In condo developments, there is often a limit on the number of dogs allowed per unit, or even per floor. “It’s important not to assume dogs are allowed because you saw one during your tour,” explains Ference. “Sometimes they are only allowed on the first floor, or in end units.”
  • If you have a breed that tends to bark a lot (ruh-roh), find out if your HOA or city enforces any noise ordinances.

2. What’s up with the yard and fencing?

Having a yard where pets can roam is amazing, of course, but keep in mind that if you want to keep your pets in (or other critters out), you’ll have to have a fence—or build one. Yet again, check your HOA or condo covenants on this front.

“I’ve seen covenants that only allow underground electric fencing, restrictions on the size or materials allowed for outdoor kennels or dog runs, and most neighborhood covenants outlaw animals running at large, so if you’re looking for a country setting where Fido can run free, it pays to give those a careful read,” says Ference.

3. Is the neighborhood good for pets to roam?

With dogs, finding a location that’s good for walks is key. That might mean being close to a park, dog run, trail, or other green space. But even if your pup doesn’t mind the commute, think about the sidewalk situation for everyday bathroom walks.

“You want to find a place where you’re happy to walk,” says Ference. “In snowy climates, that also means places with sidewalks, or you’re stuck walking in the roadway—which is super dangerous—or trudging through snow, which is exhausting.”

Be careful about choosing a location right on a busy road or highway; for dogs that get out frequently (or cats that like to roam), car traffic is a danger. Cat owners should also think about the local wildlife. In some areas, proximity to a green space means being closer to coyotes and foxes, which like to snack on smaller critters.

4. Does the house have pet-friendly floors?

Pet-friendly flooring is a big issue. Flooring expert Debbie Gartner recommends solid hardwood since it can be refinished when it’s scratched, and suggests looking for very light or very dark wood, and triple-sealing it with high-grade polyurethane (use a water-based poly for light floors, and oil-based for dark).

If you’re putting in new flooring anyway, consider reclaimed or distressed wood so that the scratches just add more character. Other good flooring options include poured concrete, tile, luxury vinyl, or laminate.

So what’s not so great? Wall-to-wall carpet. “Carpeting is not great for resale value,” says Ference. Cats will claw it, dogs track in mud and dirt. Carpet also traps smells from accidents, stains easily, and collects pet hair. If your dog or cat (or hey, human family members) needs something softer underfoot, go with an area or throw rug, which can be cleaned or replaced.

5. Does the house have a pet-friendly floor plan?

Consider the size and layout of the home if you have a large dog, or several dogs.

“You’ll be pretty sick of your house in short order if you’re always tripping over the dog—trust me on this one,” Ference says.

Is the space big enough for your dog’s breed? Is there enough room for a cozy dog bed or cat tree? If you’re downsizing, you should take into account how a tighter space will stress your pet.

6. Can your pet handle the stairs?

If you’re looking at a multilevel home, consider whether your dogs will be OK with the stairs, particularly as they age.

“When dogs get older, they can get joint problems that make it difficult for them to do steps,” explains Gartner. Just like their owners!

If you do choose a multilevel home, look for a place that has a carpet runner on the stairs, or be ready to install one. “It’s the No. 1 request for people with dogs,” says Gartner.

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Real Estate Counteroffers: Is There a Limit to How Long This Can Go On

real estate offers

By: Julie Ryan Evans

Is there a limit on the number of real estate counteroffers home buyers and sellers can make? You might be wondering this if you’re in the throes of negotiating a real estate deal. You offer X, the seller counteroffers with Y, you volley back and hope it’s over; yet on and on it goes, like a never-ending tennis match. Exactly how long can this last? Is there a limit to real estate counteroffers?

Alas, there is not.

“Unfortunately, there’s no legal limit to how many counteroffers buyers and sellers can make,” says Michele Lerner, author of “Homebuying: Tough Times, First Time, Any Time.” “Counteroffers can be made as part of the negotiating process until there’s a signed agreement between the buyer and seller, or the seller decides to take their home off the market.”

Real estate counteroffers, explained: Why won’t they stop?

In some cases, a stream of counteroffers might be a stalling tactic on the part of sellers who are really hoping a better offer rolls in. That makes sense for them, but it’s plenty frustrating if you’re trying to buy the property.

“One way to get past your frustration and perhaps move negotiations forward is to mentally put yourself in the seller’s position,” Lerner says. “If you owned this home, you might want to hold out for the highest possible offer, too.”

If you really want this home—and suspect sellers are holding out for more money—then one thing you can do to safeguard your deal is to include an escalation clause, which basically says, “I will pay a certain price for this home, but if the seller receives another offer that’s higher than mine, I’m willing to increase my offer.”

Kathryn Bishop, a Realtor® in Studio City, CA, says if you do include such a clause, you should make sure to get in writing that the escalation applies only to a verified offer. “Verification includes a copy of the highest offer to the buyer’s agent and a copy of the proof of funds or pre-approval so these can be verified.”

How to end a real estate counteroffer stalemate

In some cases, it’s really not about money. Your Realtor should be able to find out from the listing agent what the sellers really want and if there are other interested buyers.

“If the sellers are looking for flexibility on the closing date or want you to waive the home inspection contingency, you may be able to win their signature on a contract without offering more money,” Lerner says. “You should still have a home inspection for information purposes so you know what you are buying. You can also offer to have the sellers live in the home rent-free for a period of time if they need to find their next home.”

Sean Keene of the Keene Group in Oregon says he’s seen as many as six counteroffers in a deal—which is too many.

“After the first couple, people are getting petty over little things,” he says. “The agents should be on the phone talking it out way before that point and get it done.”

Sometimes, however, the deal is just not meant to be.

“Unfortunately, you may also find you simply cannot compete, and the sellers will accept another buyer’s offer,” Lerner says. “In that case, you’ll need to move on and look for a home in the same area or another neighborhood that meets your requirements.”

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Don’t Budge: 7 Compromises You Should Never Make When Buying a Home

7 compromises on home buying

By: Wendy Helfenbaum

Every successful home search begins with a wish list. Armed with your inventory of must-haves, you’ll know how to focus your search and recognize a potential home that isn’t worth your time.

Still, there’s a strange thing that seems to happen when you’re deep in the trenches of house hunting: The more you look, the longer that wish list seems to grow. But sooner or later, you have to own up to the fact that you can’t have everything—it’s inevitable that you’ll make some compromises somewhere.

And, in these days of tight inventory and cutthroat competition from other buyers, you might feel forced to waver far afield from your hallowed wish list in order to land a home.

That’s OK—it’s important to be flexible. But there are a few times when you absolutely should draw the line. Here are seven areas where you’ll want to dig in your heels.

1. Buying a fixer-upper when you really want turnkey

You have never swung a hammer, have a phobia of power tools, and always pictured yourself in something new and shiny. But that doesn’t mean you won’t fall in love with a charming, century-old farmhouse that needs a ton of work. Now’s when you have to decide: Are you up to the financial and emotional challenges of taking on major renovations?

It’s an option you should seriously consider (with the help of an experienced general contractor) if you’re in a highly competitive market. But if you don’t think your bank account or your marriage could survive many months of upheaval, stick to your guns and insist on a turnkey home, says Mike Kessler, a broker with TSG Residential, in Davidson, NC.

“There have been times when I’ve said to clients, ‘after being with you for a week, I really think we need to look at new construction,'” Kessler says. Many of those clients, he adds, were later grateful for the course correction, saying, “We would never have been able to enjoy ourselves in [an older] house.”

2. A good school district

Even if you don’t have children, you should make sure the house you’re eyeing has desirable schools nearby, says Tina Maraj, a Realtor® with Re/Max North Orange County in Fullerton, CA.

Does it matter if you’re not looking to have a few kids? Well, things can always change. But even if they don’t, good schools typically translate to a higher resale value—potential buyers with families will want to be in the right district.

Just make sure to do your research and determine where the home sits in relation to the school district boundaries.

“Often agents will advertise a property as being near such-and-such school area, but not necessarily specify the district, which can be very confusing,” Maraj explains. “It can be a real eye-opener if a buyer closes and they’re on one side of a main street that is the dividing line between the top-rated and the lowest-rated high schools.”

Go to the school district’s website to get a map of the district boundaries.

3. The floor plan

Does the home fit your minimum criteria in terms of number of rooms and the flow of the main living areas? If not, cross it off your list, says Sarah Garza, a Realtor and military relocation specialist with Trident Homes Realty in Arnold, MD.

Garza can share some personal cautionary tales: A military spouse, she’s moved 12 times in the past 20 years, buying and selling nine homes in the process.

“I regret that I compromised on layout in the past,” she says. “When I really needed four bedrooms, I’ve gone to three and then wished I hadn’t.”

Sure, you can add on. But don’t use that option as a fallback, Maraj warns.

“You can change a layout to make it an open floor plan, but it’s a lot more difficult to change the bedroom and bathroom count,” she says. “In the long run, you could end up having a lot of problems and taking on a really big financial undertaking.”

4. The neighbors

During your search, don’t just focus on the house you’re interested in—check out the neighboring homes as well, Maraj says. Are the properties well-kept, or candidates for an episode of “Hoarders”?

The condition of the properties around you can affect your future resale value. And they can just plain drive you crazy. Make sure you look—and listen—any time you visit your prospective home.

“You can’t change the house in front of you or to the side of you,” Maraj cautions. “And if there’s a barking dog every time you’re viewing the property, that’s another thing that you absolutely cannot change.”

5. Your budget

You’ve probably already determined how much you’re willing to pay for a home—and you shouldn’t budge on that number. But you should also dig in your heels on the additional costs beyond the sticker price. That means setting a budget for your monthly payments, HOA dues, utility costs, and real estate taxes—and sticking to it. (Hint: You want to do this before you start looking at homes, and definitely before you start making offers.)

Yes, a lender will give you a pre-approval and tell you how much house you can afford. But this is just one piece of the puzzle, and the costs of homeownership can still land you in a mountain of debt if you’re not careful, Kessler points out.

“I try to do a lot of pre-planning with clients about what can they really afford, as opposed to what the bank tells you,” Kessler says. “You never want to be house poor.”

6. Commute time

If you’ve already determined that you’re willing to take on a 30-minute commute, don’t allow yourself to be swayed into anything longer, Garza says.

“Sometimes buyers fall in love with all the shiny bells and whistles of a house that’s an hour away from work, and want to compromise on what they’ve told me from the beginning,” she notes. “I tell them, ‘I know it doesn’t matter right now because you really love this house, but that’s two hours every day that you’ll be sitting in the car and not enjoying your house. Is that worth it to you?’”

She adds: Until you’ve actually driven the route to and from your potential home and your office, at the times you’ll be commuting, you should never consider compromising.

In some large cities, being just a few miles from the highway can tack on an additional hour of commuting. Could you handle that after a long day in the office? Think carefully before making the sacrifice.

7. Parking

Speaking of your car, if you own one (or two), you absolutely want a guaranteed spot to park, whether that means an enclosed garage, a driveway, or assigned parking.

“There are many communities that now restrict outside parking, guest spaces, and overnight parking, which could be a real homeowner nightmare if you have to fend for yourself,” Maraj says.

To avoid frustration after you’ve closed a deal, stick to your guns about the things that are most important to you while making your choice, and ignore the rest of the noise.

 

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