7 Things to Never, Ever Do When Buying a Home

On July 31, 2017   /   Home Buying  
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home buying

By: Daniel Bortz

Buying a home is exciting and terrifying. After all, this is the biggest financial move most people ever make. As such, there’s a lot of room for error, and even tiny mistakes can translate to tens of thousands of dollars.

The lesson here: Even the most intrepid home buyer should get some guidance not only on what to do, but also what not to do. Look no further than this list, which highlights the most common mistakes buyers make so you can avoid the same fate.

  1. Don’t shop for homes without an agent

By all means, start out by looking online at pictures of pretty houses—the more the better. It’s a vastly useful way to get the lay of the land. But when it comes time to get serious about buying a house, you should find a professional to help you out.

Think of a buyer’s agent as a fairy godparent who’s here to turn your homeownership dreams into reality. This person will guide you through every step of the home-buying process—from finding the right property and writing a winning offer to negotiating home inspection repairs and sailing through to closing.

“You want an advocate who is going to look out for your best interests in the transaction,” says Bellevue, WA, real estate agent Holly Gray.

2. Don’t meet with just one mortgage lender

Once you’ve found a real estate agent, your next step should be to get pre-approved for a home loan. To do that, you’ll have to meet with a mortgage lender and provide a good amount of paperwork, including two years of W-2 forms, two years of tax returns, and proof of funds for the down payment (among other documents).

That mountain of forms is one of the things that prompts many to meet with only one lender, says Richard Redmond, a vice president at ACM Investor Services in Larkspur and author of “Mortgages: The Insider’s Guide.” That’s a potentially big mistake!

Redmond recommends getting at least three quotes from different lenders so that you can survey your options and find the best loan for you. One option you have when shopping around is to meet with a mortgage broker—basically an intermediary who presents you with options from a variety of lenders. No matter what, “you need to feel comfortable with the lender you choose,” says Redmond. “You want a lender who asks probing questions, listens to your answers, and presents you with intelligent options.”

3. Don’t understate your budget

It might sound strange, but a number of home buyers make the mistake of hiding their true budget from their real estate agent.

“Some people are afraid that their agent is going to make them buy the most expensive house that they can afford, so they understate their price range,” says Daniel Gyomory, a real estate agent in Northville, MI.

However, if you’re not upfront with your agent about your price range, you might miss out on a great house.

“If you tell me your budget is $300,000 maximum but you’re actuallywilling to pay $400,000, I may not send you listings that could actually be a good fit for you,” Gyomory explains.

4. Don’t hold out for the ‘perfect’ house

People throw around the words “dream home” a lot. (Heck, we’re guilty of it.) However, here’s the not-so-harsh truth: “There’s no such thing as a perfect house,” says Gyomory. And that’s why he has clients create a list of “musts” and “wants” to identify their criteria and focus on what really matters to them.

5. Don’t make ridiculously lowball offers

You obviously want to get a bargain, but you could lose out on a home that you love by making an absurdly low offer. In fact, a recent survey from Inman found that 15% of real estate agents say the third-largest mistake people make when buying a home is offering too little for a property (that’s behind not talking to a lender first and waiting too long to make an offer).

“When you overlook market data and make a lowball offer, you’re pretty much slapping the seller in the face,” says Gyomory. And if you offend the seller, the person might not even be willing to make you a counteroffer.

Bottom line: Trust your agent to help you assess the value of a house and write a winning offer, says Karen Elmir, a luxury real estate agent in Miami.

6. Don’t forget to budget for closing costs

The home seller will chip in some money at settlement; however, as the home buyer, you have the (unfortunate) pleasure of shouldering the lion’s share of the closing costs. Your mortgage lender should be able to give you a rough estimate of your closing costs once a seller accepts your offer, but as a rule you can estimate that 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.

7. Don’t make big purchases before you close

Once you have found the right house and get the seller to accept your offer, your loan still needs to go through underwriting in order for you to obtain the mortgage. One thing underwriters do is look at your credit score from the three major credit bureaus—Experian, Equifax, and TransUnion—to make sure your credit hasn’t changed since you were pre-approved.

Therefore, you’ll want to avoid taking on any new debt while you’re in the process of buying a house. Purchasing a car with an auto loan or maxing out your credit cards, for example, could hurt your credit score, which could potentially raise your loan’s interest rate or—in the worst case—get your mortgage application rejected. (In other words: Bye-bye, new house.)

 

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Cheat Sheet: Check These 9 Things to Prevent Home Buyer’s Remorse

On December 26, 2016   /   Home Buying  
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prevent buyers remorse

By: Jamie Wiebe

Any home buyer understands the generic “before you buy” to-do list: Check out the schools. Knock on your future neighbors’ doors. Get an inspection. Stop by at night.

But in order to truly do your due diligence, you have to get even more proactive—and sometimes just a bit nosy. We know your pile of home-buying homework is huge, and you don’t want to add more to your to-do list. But the payoff of all this extra sniffing around can be truly substantial.Trust us on this one, OK?

Here are nine things that home buyers often forget to check that can cause massive headaches—and costly expenses—down the line.

1. Property lines

Skipping the property survey might seem like an easy decision. Surveys can be pricey and seemingly unnecessary—hey, the fence has stood for years, so it must be in the correct place. Right? But the thing about property line disputes is that they can crop up at the most inconvenient times—and you don’t want to be caught off guard when they do.

Maybe you loved the winding, tree-lined driveway. “But until you had a survey done, you had no idea the driveway crossed over the neighbor’s lawn,” says Lindy Gelb, a Realtor® with Berkshire Hathaway PenFed Realty in Bethesda, MD.

That means any improvements you want to make might be impossible, or you might end up in a drawn-out legal dispute with your neighbors. Pay for a survey beforehand to ensure none of your dream improvements will start a turf war.

2. Prior claims history

Previous owners might have ruined your chances of buying your dream home—and they might not even know it. A long history of insurance claims can render a home uninsurable, making it a risky purchase. (Or even an impossible one, depending on your lender.)

Even if previous claims aren’t severe enough to scare off the insurance agencies, your home’s history might indicate whether there will be repeated problems in the future, such as roof leaks, faulty plumbing, or flooding.

3. Pests

We’re not talking about annoying neighbors. And we’re not talking just about termites, either. Skipping the pest inspection when purchasing a home can come back to bite you in the bum. Literally.

“Even if the previous owners didn’t leave behind old furniture or mattresses, bedbugs can still survive in carpets or curtains,” says Alex Yakimavets, the owner of MattressVille in Ontario, Canada.

If you’re particularly concerned, you can make your offer conditional on an inspection, he adds. That way, you’re free to back out if any bloodsuckers pop up in the carpeting—or if you spot termites or carpenter ants chowing through your wood.

4. Detailed HOA information

If you’re a first-time home buyer, you might be terrified by the seemingly evil HOA. But a homeowners association isn’t necessarily all that scary—as long as you check it out first.

“Avoid known unknowns and do your homework,” says Robert Tankel, a lawyer who works with homeowners and condo associations in Dunedin, FL. “It will pay off by giving you comfort that there’s no huge due increase on the horizon.”

So how do you dig into your impenetrable HOA? Just ask! Try to acquire budgets, financial reports, and meeting minutes to get a full picture of your future association, Tankel recommends. Make sure your neighbors are paying their dues or that the HOA has enough funds for necessary upkeep and repairs. Otherwise, you might end up on the hook for a costly wake-up call after move-in.

5. Ghosts (and famous people)

Maybe it’s been years since the last time you Facebook-stalked an old high school fling—but it’s time to bring those skills back into use. Googling your potential address might seem obvious, but a deep dive into the results can turn up shocking surprises.

Like ghosts. Or celebrities. Or celebrity ghosts (even better)!

“See if the home has any history or fame behind it,” says Bianca Mitchell, a Realtor in Los Angeles. “Is it rumored to be haunted? Or did someone famous live there prior to you? This could save you the headache of tourists and fans visiting your home on a regular basis.”

6. Flood zones

Flood insurance can add thousands of dollars to your insurance bills, and flood plains aren’t always obvious to the untrained eye. Sure, there’s no creek in the backyard—but that doesn’t mean you’ll be dry when the rains come.

And if you’re on a tight budget, keep a close eye on the flood map. Typically, homeowners can’t elect to skip flood insurance if they’re in a hazard zone. Your insurance company (and possibly even your lender) might require it.

7. Master plan

If you’re buying in an older neighborhood stuffed with 50-year-old homes, what you see is probably what you’ll get. No new commercial areas planned, no new bus stops to expect. But for newer hoods, understanding the area’s master plan—the overview of nearby land use and future development—is key to determining if your home is a good deal or a terrible mistake. (Your city might also call this a “comprehensive plan.”)

“What if a new metro rail is planned to run across your front yard?” Gelb asks. “Before you ratify your contract to purchase, take time to know what is planned surrounding your neighborhood and your new home.”

8. Square footage

Take the home’s listed square footage with a grain of salt. It’s not that sellers are liars, but they might be basing the number from an off-base city assessment or a simple mathematical mistake.

“If your local MLS says a home is 2,000 square feet and it feels smaller to you, it might be in your best interest to get a second opinion,” Mitchell says.

That’s because inaccurate measurements aren’t just annoying. Square footage errors may also cause issues with your appraisal. Even if it’s off by only about 150 square feet, in a small space that could mean a big difference in price.

9. Crime

Don’t let pretty porches and well-kept lawns fool you: Checking out crime in the area is a must-do—and you should always dig deep.

For detailed criminal statistics, CrimeReports.com and SpotCrime provide extensive information on burglaries, auto thefts, and violent assaults that have occurred nearby. Check the National Sex Offender Database (or Family Watchdog) to see who’s living nearby.

One thing to keep in mind: Even the safest neighborhoods may have the occasional theft or aggravated assault. Make sure to consider results in aggregate.

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5 Ways to Score a Lower Mortgage Payment

On November 21, 2016   /   Home Buying  
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score a lower mortgage payment

By: Cathie Ericson

Has your mortgage left you so short on cash, you plan to eat Kraft mac ‘n’ cheese every night for the next 30 years? We feel your pain. That’s why most lenders scrutinize your financials and will only loan you as much as you can afford. But here’s the problem: Circumstances change. Layoffs happen, roofs need repairs, cars get into accidents, people get sick, and an endless number of other unforeseen setbacks can take a bite out of your budget. So if you’re scraping by every month, you may want to consider these totally legit tactics to score a lower mortgage payment so you don’t have to suffer.

Refinance

This one’s a no-brainer.  Haven’t you heard? Interest rates are at an all-time low, and lower interest means lower monthly mortgage payments! Let’s say you took out a 30-year fixed-rate mortgage for $250,000  in January 2014 at 4.43% (the going rate at the time, according to Freddie Mac).

If you refinanced today at 3.5%, you would save approximately $48,141 over the term of the loan (assuming closing costs of approximately $3,000). Or, to really make you run out and refinance, let’s call it about $125 extra in your pocket per month right this minute. It’s like getting a raise without even having to work harder.

If you switch to a 20-year mortgage, on the other hand, your monthly payment would more or less stay the same, but you’d be paying for 10 fewer years, saving you almost $120,000 in interest over the life of the loan. That’s a nice chunk of change!

Ditch your mortgage insurance

If your down payment totaled less than 20% of your home’s value, most lenders will require that you pay mortgage insurance. That will cost you around $225 a month on a $250,000 house if you only put down 5%. To eliminate this extra burden, you can always try scrounging together enough money to reach that 20% threshold, but there’s another (far easier) way as well: If your property has appreciated 20% and it’s been two or more years since you bought it, you can have the mortgage insurance removed without having to refinance. “In our current economy, it’s probable that within two years, you should be in position to have 20% equity,” says Frank Fuentes, vice president of multicultural lending for New American Funding.

Combine the two above for max savings

The recent home value increases, combined with today’s lower interest rates, can give borrowers a double whammy in terms of savings, says Joe Tishkoff of Skyline Home Loans.

For example, if a home was purchased for $350,000 with 5% down, the borrower would have gotten a mortgage for $332,500.

A year and a half ago, interest rates were approximately 1% higher than they are now… plus, let’s say the home has appreciated in value and is now worth $385,000. A borrower would save approximately $350 to $375 a month by refinancing at today’s rates and by reducing or eliminating mortgage insurance commensurate with the home’s higher value. “That amounts to an 18% payment reduction, which buyers haven’t seen in the last decade,” Tishkoff points out.

Look for an interest-only loan

With this type of loan, the borrower has the flexibility to only pay interest for the first 10 years of the 30-year loan, which makes the monthly payment substantially lower than if you were paying principal and interest. These loans are ideal for borrowers whose income may be sporadic, since they can make lower payments each month, yet make additional payments in months when they have better cash flow, says Daniel Vaturi, a mortgage loan originator with FM Home Loans.

For example, with a 3.5% rate on a $250,000 loan, a standard 30-year fixed rate loan with principal and interest would come to $1,122.61 per month But with an interest-only loan, the mandatory payment would fall to $729.17 monthly for the first 10 years. Of course, after that period, you will have to make higher payments—how much is something you will negotiate—but if you anticipate that your job situation will stabilize and/or you will be making a better income by then, this tradeoff could very well be worth it.

Get an ARM vs fixed rate mortgage

While the vast majority of people select a 30-year fixed rate loan, in reality, few people hold a mortgage that long, says Bruce Ailion, Realtor and attorney for RE/Max Town and Country in Atlanta. A short-term adjustable rate mortgage (ARM), which is fixed for 3, 5, 7 or 10 years and then adjusts, will have a lower starting rate, so you will save money in the early years. “If you are planning to stay less than 10 years, there’s no reason to pay a premium to have a rate locked in for the time you will not have the loan,” Ailion points out. However, he cautions that choosing an ARM requires some projected clarity of your future plans, and a willingness to accept the consequences if you guessed wrong. “Most people opt for certainty; they sleep better at night knowing their payment does not change,” says Ailion. “Still, they could likely save serious money with an ARM.”

Want to see how much your mortgage payments will change with these strategies? Plug your numbers into realtor.com’s mortgage calculator to find out how much you’ll save.

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5 Things to Consider When Shopping for a Refinance Deal (It’s Not as Scary as It Sounds!)

On October 24, 2016   /   Home Buying, Selling a Home  
Tags: , ,
refinance mortgage

By: Cathie Ericson

Shopping for a mortgage can be about as much fun as going to the dentist. And after going through it once, the thought of doing it all over again with a mortgage refinance might feel more akin, in fact, to getting a root canal. A long, complicated root canal.

We know it’s not the kind of thing anybody wants to do. But refinancing can be lucrative; we’re talking major cash—right in your pocket. In fact, American homeowners are missing out on at least $13 billion a year by not refinancing their mortgages. And, just like when you did it the first time, it pays to shop around. Sure, your current lender might be the best bet. But if you don’t look at other options, you could be leaving money on the table.

Here are some things to consider when shopping for a mortgage refinance—and some tips to make it as painless as possible. (You’re on your own with the root canals, however.)

  1. Do you really need a mortgage refinance?

Of course this is the first question to answer. And it’s likely you do, since mortgage rates are currently hovering around all-time lows.

We’ve got a handy calculator that can show how much money you can save if you lower your rate by even as little as half a percentage point. Say, for example, you’ve got a $300,000 mortgage. With a 3.5% rate, you’d be paying roughly $1,450 each month. Lower that rate by a mere half percentage point, to 3.0%, and your payment dips to $1,387. Of course, you would gladly accept an extra $100 a month, plus you’d pay about $22,000 less in interest over the life of the loan.

  1. Should you stay with your current lender?

You already have a mortgage, and it seems so easy to just stick with that provider. And that can be a great option, says Bob Melone, loan officer at Radius Financial Group in Boston, provided you’re happy with their service.

“Often I find that people think about refinancing because they get a letter in the mail or hear a radio ad, and their ears perk up at the amazing rates that are quoted,” Melone says. “But what borrowers fail to realize is that getting those quoted rates might require something crazy like 50% equity in the home and a near-perfect credit score. By starting the conversation with your existing lender, you can sort through conflicting information with someone who is giving it to you straight.”

  1. Should you find someone new?

Maybe you feel that your current lender isn’t doing enough to woo you. And perhaps there’s someone else out there who could give you what you want—which is, in most cases, a lower rate.

This is especially true if you’re currently working with a big bank.

“A consumer would be smart to consider a direct lender who services their own loans,” says Luis Hernandez, branch manager and loan originator for New American Funding in Chicago.

That means that whoever is processing your refinance is also going to work with you through the life of your loan. In addition, he adds, direct lenders might be able to offer a zero-closing cost refinance, since they’re interested in developing long-term relationships with clients.

Worried about the deluge of paperwork that a new lender might require? The stack of paperwork is likely to be similar even if you stay with your existing lender.

  1. How do you find the right lender for a refinance?

With so many lender options available, how do you know where to begin? Melone recommends talking to a local real estate agent whom you trust.

“They not only know whose rates may be the most competitive, but also who the better mortgage loan officers are—those who will take the time to talk you through the details of the loan you are considering,” he says.

And although we’re advising you to shop around, beware of casting too wide a net. Limit your search to two to three lenders to avoid becoming overwhelmed.

“If you get a good feeling from them, I would stop there, because they are giving you enough of an overview of what’s out there without completely confusing you,” he says.

  1. What should you look for in a mortgage refinance?

“Most lenders will provide you with a detailed report so you can see what the fees are and can compare apples to apples,” Hernandez says. Here’s what you should pay attention to:

  • Rates:Since rates fluctuate daily, you should ideally make your queries to various lenders on the same day.
  • Closing costs: Compare the fees with what you’ll save, to make sure you’re at least breaking even. For example, if closing costs are $3,000, and you’re saving $100 a month, it will take 30 months to break even.
  • Closing time: You want to make sure that your rate is “locked” (meaning that it can’t go up) for a sufficient amount of time between application and closing—probably around 45 days. “Your rate lock is even more important on a refinance than a purchase,” Melone notes. When you purchase a home, you’re liable to buy it even if rates tick up, but with a refinance, a higher rate could mean that it no longer makes sense.
  • APR: Everyone talks about interest rates, but fewer people talk about APR, or annual percentage rate. But this can be a more accurate way to compare the total cost of loans. APR combines the interest rate with the closing costs to create the total cost of a loan, expressed as a percentage. While not every closing cost is captured in this number—the credit report, appraisal, title insurance and inspection fees might be extra—it will include such biggies as origination fees and mortgage insurance.
  • Terms: Make sure the lender outlines the terms and what will happen if it sells your loan. “Terms are unlikely to change even if they sell it, but it’s wise to ask,” Melone says.

Like what you see? Ask for a “loan estimate,” the official document that binds a lender to the terms for 10 days.

And with that, your shopping is done. All that’s left is to decide is how you’ll spend that “raise” you’ve earned.

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What Are Comps? A Way to Pin the Right Price on a Home

On October 17, 2016   /   Home Buying  
Tags: ,
comps

By: Julie Ryan Evans

Homes are unlike the majority of other things people buy in that the price isn’t set in stone. Sure, the listing might include an “asking price,” but as this term suggests, that’s just a request rather than a hard, unwavering demand. And that’s why comps are so important. So what exactly are comps?

Short for housing “comparables,” comps are a way to help you figure out what a home is worth based on the recent sales prices of similar properties in the area. Home sellers (and their real estate agents) use comps to help them come up with their asking price, while buyers can use comps to come up with how much to offer. As such, it’s an important concept for both buyers and sellers to master.

Here are the basics on how to find comps and wield them to your advantage.

What are comps?

With housing comps, you ideally want to compare apples to apples—not apples to kiwi (which is, let’s face it, a strikingly unappealing fruit). In other words, it’s important for comps to be as similar to your own property as possible. While what constitutes a comp for a home will depend on each particular market, here are some ballpark parameters:

  • Same location: According to John Lyons, a real estate broker with Baird & Warner in Chicago, a comp is usually considered a property located within a half-mile radius of the home in question.
  • Same size: If the house in question is 5,000 square feet, you’ll ideally want to look at other houses hovering around 5,000 square feet.
  • Number of bedrooms/bathrooms: When push comes to shove, this matters more than square footage. “While size is important, utility is a better gauge for comparability,” says Christine Lutz, director of residential brokerage for Kinzie Brokerage in Chicago. “You can have a three-bedroom, three-bath unit that’s 2,000 square feet, or you can have that same square footage in a one-bedroom/one-bath. Bedroom and bathroom counts need to be similar in order to be considered actually comparable.”
  • Recent sales price: Since housing prices change from month to month, your comps should ideally be homes that were sold within the past six months to a year tops.
  • Style, view, and other details: Units in the same high-rise may have different views—one of a lake, the other of a parking lot. So although they’re similar in terms of bedrooms and square footage, the lake view should be taken into account, too, and compared with other properties with lake views in the area. Meanwhile if you’re looking at attached dwellings such as townhouses or co-op apartments, end units typically fetch a higher price than interior units with homes on each side due to the added noise issues and/or fewer windows.

How to find comps and use them during negotiations

To find comps, you can start by looking for recent listings in your area on realtor.com®. But for a full, deep dive into the numbers, you’ll want to enlist the help of your real estate agent or other professional. The reason: Listings typically feature the asking price, but not the final sales price (which could be higher or lower and is a more accurate gauge of a home’s market value).

Luckily, your real estate agent will have access to databases with more detail like the multiple listing service. Realtors will also know how to synthesize all this information into an asking price (or offer) you can justify and stand by, which is important once the negotiations on a home get rolling.

For instance, let’s say you’re selling your home for $200,000 and some buyer lowballs you with $170,000. Comps will allow you (or rather your agent) to go back to the buyer and say, “Another three-bedroom with about the same square footage a block away just sold last month for $190,000! So, we’re fairly confident we can find a buyer who’ll pay at least that much. Care to raise your offer to $185,000 at least?”

Or else, let’s say you fall in love with a home with the asking price of $400,000. You’re tempted to pay what’s asked, but then you find out that the comps are going for only $350,000—which means you’d be overpaying by $50,000! This is an instance where you and your agent could inform the home seller, “Hey, we found comps in your area going for $350,000. So that’s why we’re offering you $360,000 and think it’s a fair offer.”

Keep in mind, though, that comps are more of an art than a science, which is why different professionals may come to different conclusions. Nonetheless, comps add oomph to back up whatever you’re asking for (or offering), strengthening your negotiation position and saving you tens of thousands of dollars. In other words, it pays, literally, to have comps in your corner.

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