My Offer Was Accepted—Now What?

On March 15, 2015   /   Home Buying  
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offer accepted

By: Craig Donofrio

Having your offer accepted feels great—but for most home buyers, it’s just the beginning. There is still a lot more to be done before you’re over the front threshold. Here’s a rundown of what comes next.

1. Apply for a loan

Unless you’re paying in cash, you’ll need to apply for a mortgage loan (if you’re already pre-approved, good for you). If you’re not pre-approved, meet with at least two or three lenders and compare their loan options. Be prepared to ask questions, and be completely open with the lenders about your finances.

2. Home appraisal and inspection

The next step is getting your home appraised and inspected.

Your lender will require your house be appraised by a professional, who is usually provided by the lender. The appraisal gives you a detailed report on the value of the home. If the home’s appraised value is less than the purchase price, you will need to either make a greater down payment or negotiate with the seller to lower the price. A lender won’t give you a loan for more than the appraised value.

A home inspection tells you if the home has any issues. Inspections aren’t always required, but you should absolutely get one even if you’re not getting a loan. Go over the inspection report in detail with the inspector to make sure you’re familiar with any problems, their severity, and the estimated cost to fix them. Additionally, you may also want to get your home checked for radon and pests, which are additional costs.

If the inspector finds problems, you may be able to get the seller to pay for necessary repairs or lower the price to adjust for the cost.

3. Get your funds ready

Make sure the funds you need for closing and in reserves are both accessible. If you need to pull money from an investment, do it right away. Keep the paperwork for the transaction to show your lender you liquidated funds to get your down payment.

4. Find homeowners insurance

In most cases, buyers are expected to pay for homeowners insurance upfront, before closing. Depending on where you live, you might need extra insurance, like flood coverage. Shop around at several different insurance companies for the best rate. Your lender will need proof of insurance before approving your mortgage. 

5. Final walk-through

You will be allowed to do a final walk-through of your new home 48 hours before closing.

This allows you to make sure any items that should be there, as per your contract, remain. It also lets you check the condition of the home to make sure no extra damages have occurred. If you find anything different from what you agreed upon, you may postpone the closing to give the seller time to fix the problem.

It’s important that you catch every issue during the final walk-through. If you spot them after closing, they’re going to be your problem.

6. Closing

This is the day when you sign the mortgage documents and officially gain ownership of the property. Most likely your Realtor® will be there, as well as the seller, the seller’s Realtor, the closing officer, and perhaps the mortgage broker.

You will need to bring ID and a cashier’s check to pay closing costs, which you will know in advance (and if they look different, don’t be afraid to walk away). Your spouse will also need photo ID. (In some states, spouses are required to attend and sign papers even if they aren’t on the mortgage.) Check with your Realtor about the details of your closing.

Updated from an earlier version by Laura Sherman

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Buying a Home That Was a Rental

On March 2, 2015   /   Home Buying  
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purchasing a rental

By: Anne Miller

A home that used to house tenants can be a great deal for a home buyer—they often sell for less than owner-occupied homes. But there are reasons why these homes may command less than top dollar.

There are several things to weigh when considering buying a home that the owner didn’t occupy.

Why sell, why now
The reasons may be fairly innocuous, such as the owner became burned out from managing the property as a rental, dealing with the off-hour phone calls, and responding to tenant demands.

The owner might be moving or perhaps the market has risen, and now seems like the right time to cash in.

Sometimes the issue is cash flow. If a tenant hasn’t paid the rent, the owner may struggle to cover the mortgage. Sometimes the owner cannot afford to make the repairs the house requires.

If the owner has rented out the house for many years, he or she might not have any depreciation left for a tax deduction and could be eager to do a 1031 Exchange for another property. Taking its name from Section 1031 of the Internal Revenue Code, a 1031 allows a taxpayer to sell income, investment, or business property and replace it with a “like-kind” property, without having to pay capital gains taxes.

Why does the reasoning matter? Because it could indicate how well the property was cared for and whether or not the owner is motivated and willing to negotiate.

A cash-strapped owner may be less inclined to maintain the property. And since the owner hasn’t lived there, he or she may not even be aware of any problems.

Wear and tear
Even if the owner has done regular maintenance and made frequent visits to the property, the tenants may not have cared for the property like an owner would. You’ll want to make sure you complete a thorough property inspection. You should request past inspection reports, too.

You’ll likely want to investigate any history of insurance claims. Talk to your insurance agent or discuss a CLUE (Comprehensive Loss Underwriting Exchange) report with your Realtor, for a five-year claim history on the property.

If the house shows signs of extra wear and tear, factor fixes into your budget. Ask the seller for repairs or credit you money toward closing costs. It’s not a deal if you’ll have to spend more on repairs than you’d pay for another, similar home in better shape.

Vet the neighborhood
Drive through the area at various times of day. Speak with the neighbors and learn more about the other houses on the street.

Some factors to consider:

Are there families in the area?
Are there multirental units with student renters?
What’s the average selling price?
Have home prices decreased or increased lately?
These factors may affect the resale value of the property, especially when it comes to the overall curb appeal of a neighborhood, when other rental properties may not be kept up as well as yours.

This also plays to your own peace of mind. If you have young children, a busy street with a large apartment complex may raise safety concerns. If you have to park on the street, this too could make life troublesome sometimes.

Look alone
Make sure you tour the house without the tenants present. If they still live in the house, they may not like the idea of being ousted from their home and could try to sabotage the sale by exaggerating minor issues or making up problems with the house. Or, they may discourage you from opening closets or looking in cabinets.

As a potential buyer, you should be able to ask a Realtor questions, discuss what you see, and make your own observations without pressure from tenants or the owner. This is why homeowners are usually scarce during open houses. Buying a rental home should be no different in this regard.

Based on an original story by Cina Coren

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Do You Have What It Takes to Win a Home Seller’s Heart?

On February 15, 2015   /   Home Buying  
Tags:
win sellers heart

By: Craig Donofrio

In romantic movies, the girl goes for the pompous jerk with millions of dollars while the sweet, caring guy does all the little things right. Winning over a seller can be like that common rom-com trope. But in this case, you don’t necessarily have to have the most money. And you don’t have to send roses or plan a meet-cute to get to closing day.

So how do you woo the seller of your dream home? We consulted several Realtors® and industry professionals to figure out the best ways to win a seller’s heart without throwing in more cash.

Write a (sincere) letter

Writing a letter can be effective, but you can’t crank out a generic form letter. As more and more buyers use letters to ingratiate themselves with sellers, you don’t want to sound exactly like everyone else.

“The use of these letters has become so widespread that it is hard to tell if they come from the heart or are just a manipulative ploy,” says Ron Rovtar, an associate broker at Cherry Creek Properties in Boulder, CO.

Instead, point out specific things you like about the home in the letter and add details about yourself and your family. If you plan to keep the house the same, that could be a clincher for some nostalgic sellers.

“I recently had a case where buyers won in a multiple-bid situation because they were going to restore the home opposed to modernize it,” says Craig McCullough, a Realtor at Evers & Co. in Washington, DC.

If you do plan to modernize, you probably don’t want to go into detail about how many walls you want to destroy for a new, chic master bathroom.

Get personal

Your letter could also use a personal touch. Try adding a photo or video.

“I recommend my clients be fully expressed in a ‘buyer letter,’ because a seller who is going to choose based on the total package is making an emotional decision,” says Collin Bray, vice president of sales and co-owner of Century 21 Cityside in Boston, MA. “If you have a family, show a photo of your family. If you have a lovable puppy, share a photo of you and your dog. Be yourself, not what you think a seller will want.”

Get pre-approved

If you haven’t been pre-approved yet, you should consider it. Since getting pre-approved isn’t something every prospective buyer does, having that pre-approval letter can make you look like a more attractive, serious candidate.

“It’s a way to show sellers that you’re not just window-shopping,” says Dave Fry, a Realtor and co-owner of the Fry Group in Minnesota.

Be cordial

Just because you aren’t dealing with the seller directly doesn’t mean you should forget about manners. When you’re looking to get a seller’s attention, you should be on your best behavior and communicating your interest and sincerity through your Realtor.

“Saying ‘Thank you’ or ‘We appreciate what you did’ goes a long way,” says Jane Terrell, a broker and Realtor at Century 21 Four Seasons Realty in Gatlinburg, TN.

If a seller isn’t available one day because she or he has a previous engagement, Terrell advises communicating your understanding and appreciation of the situation.

“Set the stage for a cooperative negotiation and closing,” says Terrell.

Find a solid Realtor

One of the best ways to make sure buyer-seller communication flows well is to find the right Realtor.

“Realtors know each other, and working with someone who has a solid track record and good reputation can make all the difference. If the seller’s Realtor knows that your Realtor is reliable, honest, and professional, the sale will go a lot more smoothly for you both,” says Fry.

Talk to neighbors, family, and friends for recommendations for a good Realtor. You may need to interview multiple Realtors and go on a few home-search excursions to find one who feels right for the job.

It can take some extra time, but it may mean the difference between an unhappy missed connection or a pleasing long-term relationship with the home you love.

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How to Approach Homeownership Based on Age

On December 8, 2014   /   Home Buying  
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homeownership based on age

By: Jonathan Smoke

Homeownership is a crucial component of building wealth, as seen in recent research, but it means different things for different age groups.

For example, seniors who are in the best financial situation to handle expenses after retirement are homeowners who have no remaining mortgage—they have the value of their home as a cushion in their household wealth, and they spend less on housing than seniors who rent.

Although owning a home can benefit consumers of all ages, specific homeownership strategies should differ based on your stage of life.

Here’s a summary of guidelines for approaching homeownership applied to today’s biggest generations.

Millennials

Understand the advantages of owning a home. Save for your down payment. Work on your credit score. See what you can afford to buy. Seek the advice of a local REALTOR® to advise on local demand and supply to ensure you can get a home that fits your needs at an appropriate market price. Time is on your side.

Forecasts for the economy and housing are positive, but even if there are down years in the future, your investment should outpace inflation and help you build wealth—in addition to enjoying your own home while avoiding ever-escalating rents.

To benefit most from the compounding gains of homeownership, it is best to start sooner rather than later, assuming you can afford to buy today and qualify for a mortgage.

Gen X-ers

Ensure you have a game plan to pay off your mortgage by the time you intend to retire. If you refinance to lock in lower rates, make sure you get a shorter term than 30 years.

If you were a victim of the foreclosure crisis, work on your game plan for re-entering the property ladder. You also still have time to reap the longer-term benefits—plus you are approaching your peak earning years such that shorter-term mortgages like a 15-year or 20-year loan would work. Shorter-term mortgages would enable you to retire while owning your home free and clear.

Boomers

Think about your plans for retirement and if that aligns with the remaining term on any mortgages you hold. You may also be considering retirement homes and second homes. Buying sooner rather than later will help you lock in today’s lower prices and mortgage rates while enabling you to enjoy your dream home sooner.

Plus, those young millennials you raised, taught, coached and now manage may want to buy your existing home: It’s a great time to sell.

 Jonathan Smoke is realtor.com®’s chief economist.

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5 Real Estate Mistakes Retirees Make

On November 23, 2014   /   Home Buying  
Tags:
mortgage rates

By: Amy Hoak

Most people heading into retirement inevitably make some sort of real estate decision—whether they downsize, relocate to a different community or make renovations to an existing home that makes the place more accessible to live in as they get older.

So, not surprisingly, there are numerous real estate mistakes people in this group make.

“Real estate is usually one of the biggest assets retirees have, but it’s the area with the most emotional attachment—and a place where it’s very easy to mess up,” said Larry Luxenberg, managing partner with Lexington Avenue Capital Management, a financial advisory firm in New City, N.Y.

Below are five common retiree real estate stumbles.

Not downsizing soon enough

Big homes come with big energy bills and large lawns to mow—not to mention sizable real estate taxes and homeowner-insurance premiums. The longer you delay a move to a place that better fits your current needs, the more savings you’re missing out on.

“You don’t necessarily need to wait until the last [child] gets out of college to pull the trigger,” said Thomas Scanlon, an adviser with Raymond James in Manchester, Conn. “Lots of folks wait until post-college, and then children boomerang into the basement—it could be an eight- to 10-year run of having more home than you need.”

Not investing the downsizing proceeds

When downsizing, not everyone walks away with cash at closing—some people buy a smaller home, but it doesn’t come with a less expensive price tag. If, however, you are able to purchase a home and bank some cash at the same time, it’s crucial to invest that windfall, Luxenberg said.

“People have a tendency to look at that as found money,” finding a way to spend it quickly, he said.

Individual circumstances will determine exactly what to do with the cash, said Scott Bishop, director of financial planning with STA Wealth Advisors, in Houston. In some situations, it might be best to live on the home equity money first, which would allow you to leave retirement funds untouched for a while, allowing them to grow for a longer period. (Doing so might also enable you to wait longer to claim Social Security, thus entitling you to larger benefits.) Also consider the tax implications when deciding which pot of money to tap for expenses first, he said.

Not researching an area before relocating

Those with dreams of relocating to a sunny locale need to research the place before moving—and early, Bishop said. Know how your taxes will be affected, the cost of the living in the new area, and generally how you’ll fill your days there.

But also be mindful about your health-care options, Bishop said. Research doctors and make sure the ones you’d choose are accepting new patients—and that they’d be in your insurance network. Those with specific health concerns should make sure there are specialists in areas they need.

“As you age, even if you’re healthy now, you may need to visit hospitals more frequently,” Bishop said. That might not be top of mind for people when they’re moving, say, in their 50s and 60s.

Maintaining two homes

Maybe you’re a snowbird, who likes living part-time in two locations. Maybe you’ve purchased a second home with the intent to retire there someday, thinking that you’d save money by buying at today’s prices. Either way, maintaining two homes is a drain on your finances, Scanlon said.

If you’re a snowbird, make sure both homes are small, with manageable running costs, Scanlon said. And if you’re buying now to live in later, reconsider, Luxenberg said. Buying now may end up not being that much of a savings, after factoring in the cost of running two homes—and may even cost more in the long run, he said.

“My own experience owning a house is that everything costs more than anticipated beforehand,” Luxenberg said.

Having a mortgage in retirement

Yes, mortgage rates are favorable, and owners can deduct mortgage interest when filing their income taxes. But most retirees live on Social Security, IRA distributions, their savings and portfolio, and for many, the tax deduction isn’t very significant, Scanlon said. Also, not having a mortgage can keep expenses down, perhaps allowing a retiree to delay taking Social Security distributions early, he said. When you wait until full retirement age, Social Security distributions are larger.

Scanlon also advises against taking out a mortgage if you downsize to a new home—despite low rates. “If someone is 50 years old, he’d have the mortgage until he’s 80,” he said.

This article was originally published Oct. 22, 2014, on MarketWatch.com.

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