- They don’t ask enough questions of their lender and end up missing out on the best deal.
- They don’t act quickly enough to make a decision and someone else buys the house.
- They don’t find the right agent who’s willing to help them through the homebuying process.
- They don’t do enough to make their offer look appealing to a seller.
- They don’t think about resale before they buy. The average first-time buyer only stays in a home for four years.
Source: Real Estate Checklists and Systems, www.realestatechecklists.com.
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□ W-2 forms — or business tax return forms if you’re self-employed — for the last two or three years for every
person signing the loan.
□ Copies of at least one pay stub for each person signing the loan.
□ Account numbers of all your credit cards and the amounts for any outstanding balances.
□ Copies of two to four months of bank or credit union statements for both checking and savings
□ Lender, loan number, and amount owed on other installment loans, such as student loans and
□ Addresses where you’ve lived for the last five to seven years, with names of landlords if
□ Copies of brokerage account statements for two to four months, as well as a list of any other major assets of
value, such as a boat, RV, or stocks or bonds not held in a brokerage account.
□ Copies of your most recent 401(k) or other retirement account statement.
□ Documentation to verify additional income, such as child support or a pension.
□ Copies of personal tax forms for the last two to three years.
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In high-priced housing markets, it can be difficult to afford a home. That’s why a growing number of home buyers are forgoing traditional fixed-rate mortgages and standard adjustable-rate mortgages and instead opting for a specialty mortgage that lets them “stretch” their income so they can qualify for a larger loan.
But before you choose one of these mortgages, make sure you understand the risks and how they work.
Specialty mortgages often begin with a low introductory interest rate or payment plan — a “teaser”— but the monthly mortgage payments are likely to increase a lot in the future. Some are “low documentation” mortgages that come with easier standards for qualifying, but also higher interest rates or higher fees. Some lenders will loan you 100 percent or more of the home’s value, but these mortgages can present a big financial risk if the value of the house drops.
Specialty Mortgages Can:
- Pose a greater risk that you won’t be able to afford the mortgage payment in the future, compared to fixed rate mortgages and traditional adjustable rate mortgages.
- Have monthly payments that increase by as much as 50 percent or more when the introductory period ends.
- Cause your loan balance(the amount you still owe) to get larger each month instead of smaller.
Common Types of Specialty Mortgages:
- Interest-Only Mortgages: Your monthly mortgage payment only covers the interest you owe on the loan for the first 5 to 10 years of the loan, and you pay nothing to reduce the total amount you borrowed (this is called the “principal”). After the interest-only period, you start paying higher monthly payments that cover both the interest and principal that must be repaid over the remaining term of the loan.
- Negative Amortization Mortgages: Your monthly payment is less than the amount of interest you owe on the loan. The unpaid interest gets added to the loan’s principal amount, causing the total amount you owe to increase each month instead of getting smaller.
- Option Payment ARM Mortgages: You have the option to make different types of monthly payments with this mortgage. For example, you may make a minimum payment that is less than the amount needed to cover the interest and increases the total amount of your loan; an interest-only payment, or payments calculated to pay off the loan over either 30 years or 15 years.
40-Year Mortgages: You pay off your loan over 40 years, instead of the usual 30 years. While this reduces your monthly payment and helps you qualify to buy a home, you pay off the balance of your loan much more slowly and end up paying much more interest.
Questions to Consider Before Choosing a Specialty Mortgage:
- How much can my monthly payments increase and how soon can these increases happen?
- Do I expect my income to increase or do I expect to move before my payments go up?
- Will I be able to afford the mortgage when the payments increase?* Am I paying down my loan balance each month, or is it staying the same or even increasing?
- Will I have to pay a penalty if I refinance my mortgage or sell my house?
- What is my goal in buying this property? Am I considering a riskier mortgage to buy a more expensive house than I can realistically afford?
Be sure you work with a REALTOR® and lender who can discuss different options and address your questions and concerns!
Learn about the NATIONAL ASSOCIATION OF REALTORS® Housing Opportunity Program at www.REALTOR.org/housingopportunity. For more information on predatory mortgage lending practices, visit the Center for Responsible Lending at www.responsiblelending.org.
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Credit scores range between 200 and 800, with scores above 620 considered desirable for obtaining a mortgage. The following factors affect your score:
- Your payment history. Did you pay your credit card obligations on time? If they were late, then how late? Bankruptcy filing, liens, and collection activity also impact your history.
- How much you owe. If you owe a great deal of money on numerous accounts, it can indicate that you are overextended. However, it’s a good thing if you have a good proportion of balances to total credit limits.
- The length of your credit history. In general, the longer you have had accounts opened, the better. The average consumer’s oldest obligation is 14 years old, indicating that he or she has been managing credit for some time, according to Fair Isaac Corp., and only one in 20 consumers have credit histories shorter than 2 years.
- How much new credit you have. New credit, either installment payments or new credit cards, are considered more risky, even if you pay them promptly.
- The types of credit you use. Generally, it’s desirable to have more than one type of credit — installment loans, credit cards, and a mortgage, for example.
For more on evaluating and understanding your credit score, visit www.myfico.com.
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- What is the assessed value of the property? Note that assessed value is generally less than market value. Ask to see a recent copy of the seller’s tax bill to help you determine this information.
- How often are properties reassessed, and when was the last reassessment done? In general, taxes jump most significantly when a property is reassessed.
- Will the sale of the property trigger a tax increase? The assessed value of the property may increase based on the amount you pay for the property. And in some areas, such as California, taxes may be frozen until resale.
- Is the amount of taxes paid comparable to other properties in the area? If not, it might be possible to appeal the tax assessment and lower the rate.
- Does the current tax bill reflect any special exemptions that I might not qualify for? For example, many tax districts offer reductions to those 65 or over.
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- Investigate local, state, and national down payment assistance programs. These programs give qualified applicants loans or grants to cover all or part of your required down payment. National programs include the Nehemiah program, www.getdownpayment.com, and the American Dream Down Payment Fund from the Department of Housing and Urban Development, www.hud.gov.
- Explore seller financing. In some cases, sellers may be willing to finance all or part of the purchase price of the home and let you repay them gradually, just as you would do with a mortgage.
- Consider a shared-appreciation or shared-equity arrangement. Under this arrangement, your family, friends, or even a third-party may buy a portion of the home and share in any appreciation when the home is sold. The owner/occupant usually pays the mortgage, property taxes, and maintenance costs, but all the investors’ names are usually on the mortgage. Companies are available that can help you find such an investor, if your family can’t participate.
- Ask your family for help. Perhaps a family member will loan you money for the down payment or act as a co-signer for the mortgage. Lenders often like to have a co-signer if you have little credit history.
- Lease with the option to buy. Renting the home for a year or more will give you the chance to save more toward your down payment. And in many cases, owners will apply some of the rental amount toward the purchase price. You usually have to pay a small, nonrefundable option fee to the owner.
- Consider a short-term second mortgage. If you can qualify for a short-term second mortgage, this would give you money to make a larger down payment. This may be possible if you’re in good financial standing, with a strong income and little other debt.
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- Research before you look. Decide what features you most want to have in a home, what neighborhoods you prefer, and how much you’d be willing to spend each month for housing.
- Be realistic. It’s OK to be picky, but don’t be unrealistic with your expectations. There’s no such thing as a perfect home. Use your list of priorities as a guide to evaluate each property.
- Get your finances in order. Review your credit report and be sure you have enough money to cover your down payment and closing costs. Then, talk to a lender and get prequalified for a mortgage. This will save you the heartache later of falling in love with a house you can’t afford.
- Don’t ask too many people for opinions. It will drive you crazy. Select one or two people to turn to if you feel you need a second opinion, but be ready to make the final decision on your own.
- Decide your moving timeline. When is your lease up? Are you allowed to sublet? How tight is the rental market in your area? All of these factors will help you determine when you should move.
- Think long term. Are you looking for a starter house with plans to move up in a few years, or do you hope to stay in this home for a longer period? This decision may dictate what type of home you’ll buy as well as the type of mortgage terms that will best suit you.
- Insist on a home inspection. If possible, get a warranty from the seller to cover defects for one year.
- Get help from a REALTOR®. Hire a real estate professional who specializes in buyer representation. Unlike a listing agent, whose first duty is to the seller, a buyer’s representative is working only for you. Buyer’s reps are usually paid out of the seller’s commission payment.
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- What are the most popular mortgages you offer? Why are they so popular?
- Which type of mortgage plan do you think would be best for me? Why?
- Are your rates, terms, fees, and closing costs negotiable?
- 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 your down payment is less than 20 percent. However, most lenders will let you discontinue PMI when you’ve acquired a certain amount of equity by paying down the loan.)
- Who will service the loan — your bank or another company?
- What escrow requirements do you have?
- How long will this loan be in a lock-in period (in other words, the time that the quoted interest rate will be honored)? Will I be able to obtain a lower rate if it drops during this period?
- How long will the loan approval process take?
- How long will it take to close the loan?
- Are there any charges or penalties for prepaying the loan?
Used with permission from Real Estate Checklists & Systems, www.realestatechecklists.com.
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The first step in getting yourself in financial shape to buy a home is to know exactly how much money comes in and how much goes out. Use this worksheet to list your income and expenses below.
Take Home Pay (all family members) __________________________________
Child Support/Alimony __________________________________
Pension/Social Security __________________________________
Disability/Other Insurance __________________________________
Total Income __________________________________
Rent/Mortgage (include taxes, principal, and insurance) __________________________________
Homeowner’s or Other Insurance __________________________________
Car Payments __________________________________
Other Loan Payments __________________________________
Savings/Pension Contribution __________________________________
Utilities (gas, water, electric, phone) __________________________________
Credit Card Payments __________________________________
Car Upkeep (gas, maintenance, etc.) __________________________________
Personal Care Products (shampoo, cologne, etc.) __________________________________
Food Outside the Home (restaurant meals and carryout) __________________________________
Household Goods (hardware, lawn, and garden) __________________________________
Child Care __________________________________
Education (continuing education, classes, etc.) __________________________________
Charitable Donations __________________________________
Total Expenses __________________________________
Remaining Income After Expenses __________________________________
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Not only does owning a home give you a haven for yourself and your family, it also makes great financial sense because of the tax benefits — which you can’t take advantage of when paying rent.
The following calculation assumes a 28 percent income tax bracket. If your bracket is higher, your savings will be, too. Based on your current rent, use this calculation to figure out how much mortgage you can afford.
Multiplier: x 1.32
Mortgage payment: _________________________
Because of tax deductions, you can make a mortgage payment — including taxes and insurance — that is approximately one-third larger than your current rent payment and end up with the same amount of income.
For more help, use Fannie Mae’s online mortgage calculators.
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Brush up on these mortgage basics to help you determine the loan that will best suit your needs.
- Mortgage terms. Mortgages are generally available at 15-, 20-, or 30-year terms. In general, the longer the term, the lower the monthly payment. However, you pay more interest overall if you borrow for a longer term.
- Fixed or adjustable interest rates. A fixed rate allows you to lock in a low rate as long as you hold the mortgage and, in general, is usually a good choice if interest rates are low. An adjustable-rate mortgage is designed so that your loan’s interest rate will rise as market interest rates increase. ARMs usually offer a lower rate in the first years of the mortgage. ARMs also usually have a limit as to how much the interest rate can be increased and how frequently they can be raised. These types of mortgages are a good choice when fixed interest rates are high or when you expect your income to grow significantly in the coming years.
- Balloon mortgages. These mortgages offer very low interest rates for a short period of time — often three to seven years. Payments usually cover only the interest so the principal owed is not reduced. However, this type of loan may be a good choice if you think you will sell your home in a few years.
- Government-backed loans. These loans are sponsored by agencies such as the Federal Housing Administration (www.fha.gov) or the Department of Veterans Affairs (www.va.gov) and offer special terms, including lower down payments or reduced interest rates to qualified buyers.
- 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.
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- Develop a household budget. Instead of creating a budget of what you’d like to spend, use receipts to create a budget that reflects your actual spending habits over the last several months. This approach will factor in unexpected expenses, such as car repairs, as well as predictable costs such as rent, utility bills, and groceries.
- Reduce your debt. Lenders generally look for a total debt load of no more than 36 percent of income. This figure includes your mortgage, which typically ranges between 25 and 28 percent of your net household income. So you need to get monthly payments on the rest of your installment debt — car loans, student loans, and revolving balances on credit cards — down to between 8 and 10 percent of your net monthly income.
- Look for ways to save. You probably know how much you spend on rent and utilities, but little expenses add up, too. Try writing down everything you spend for one month. You’ll probably spot some great ways to save, whether it’s cutting out that morning trip to Starbucks or eating dinner at home more often.
- Increase your income. Now’s the time to ask for a raise! If that’s not an option, you may want to consider taking on a second job to get your income at a level high enough to qualify for the home you want.
- Save for a down payment. Designate a certain amount of money each month to put away in your savings account. Although it’s possible to get a mortgage with only 5 percent down, or even less, you can usually get a better rate if you put down a larger percentage of the total purchase. Aim for a 20 percent down payment.
- Keep your job. While you don’t need to be in the same job forever to qualify for a home loan, having a job for less than two years may mean you have to pay a higher interest rate.
- Establish a good credit history. Get a credit card and make payments by the due date. Do the same for all your other bills, too. Pay off the entire balance promptly.
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The tax deductions you’re eligible to take for mortgage interest and property taxes greatly increase the financial benefits of homeownership. Here’s how it works.
$9,877 = Mortgage interest paid (a loan of $150,000 for 30 years, at 7 percent, using year-five interest)
$2,700 = Property taxes (at 1.5 percent on $180,000 assessed value)
$12,577 = Total deduction
Then, multiply your total deduction by your tax rate.
For example, at a 28 percent tax rate: 12,577 × 0.28 = $3,521.56
$3,521.56 = Amount you have lowered your federal income tax (at 28 percent tax rate)
Note: Mortgage interest may not be deductible on loans over $1.1 million. In addition, deductions are decreased when total income reaches a certain level.
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- Review the Comprehensive Loss Underwriting Exchange (CLUE) report on the property you’re interested in buying. CLUE reports detail the property’s claims history for the most recent five years, which insurers may use to deny coverage. Make the sale contingent on a home inspection to ensure that problems identified in the CLUE report have been repaired.
- Seek insurance coverage as soon as your offer is approved. You must obtain insurance to buy. And you don’t want to be told at closing that the insurer has denied your coverage.
- Maintain good credit. Insurers often use credit-based insurance scores to determine premiums.
- Buy your home owners and auto policies from the same company and you’ll usually qualify for savings. But make sure the discount really yields the lowest price.
- Raise your deductible. If you can afford to pay more toward a loss that occurs, your premiums will be lower. Avoid making claims under $1,000.
- Ask about other discounts. For example, retirees who tend to be home more than full-time workers may qualify for a discount on theft insurance. You also may be able to obtain discounts for having smoke detectors, a burglar alarm, or dead-bolt locks.
- Seek group discounts. If you belong to any groups, such as associations or alumni organizations, they may have deals on insurance coverage.
- Review your policy limits and the value of your home and possessions annually. Some items depreciate and may not need as much coverage.
- Investigate a government-backed insurance plan. In some high-risk areas, federal or state government may back plans to lower rates. Ask your agent.
- Be sure you insure your house for the correct amount. Remember, you’re covering replacement cost, not market value.
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Credit scores, along with your overall income and debt, are big factors in determining whether you’ll qualify for a loan and what your loan terms will be. So, keep your credit score high by doing the following:
- Check for and correct any errors in your credit report. Mistakes happen, and you could be paying for someone else’s poor financial management.
- Pay down credit card bills. If possible, pay off the entire balance every month. Transferring credit card debt from one card to another could lower your score.
- Don’t charge your credit cards to the maximum limit.
- Wait 12 months after credit difficulties to apply for a mortgage. You’re penalized less for problems after a year.
- Don’t order items for your new home on credit — such as appliances and furniture — until after the loan is approved. The amounts will add to your debt.
- Don’t open new credit card accounts before applying for a mortgage. Too much available credit can lower your score.
- Shop for mortgage rates all at once. Too many credit applications can lower your score, but multiple inquiries from the same type of lender are counted as one inquiry if submitted over a short period of time.
- Avoid finance companies. Even if you pay the loan on time, the interest is high and it will probably be considered a sign of poor credit management.
h6. This information is copyrighted by the Fannie Mae Foundation and is used with permission of the Fannie Mae Foundation.
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What does your future home look like? Where is it located? As you hunt down your dream home, consult this list to evaluate properties and keep your priorities top of mind.
What neighborhoods do you prefer?
What school systems do you want to be near?
How close must the home be to these amenities:
• Public transportation
• Neighborhood shopping
□ Home Style
• What architectural style(s) of homes do you prefer?
• Do you want to buy a home, condominium, or townhome?
• Would you like a one-story or two-story home?
• How many bedrooms must your new home have?
• How many bathrooms must your new home have?
□ Home Condition
• Do you prefer a new home or an existing home?
• If you’re looking for an existing home, how old of a home would you consider?
• How much repair or renovation would you be willing to do?
• Do you have special needs that your home must meet?
□ Home Features
Please list one of the choices: Must Have, Would Like, Willing to Compromise, Not Important
Garage ( __ cars)
Formal living room
Formal dining room
Spa in bath
□ Other notes:
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- Know about exclusions to coverage. For example, most insurance policies do not cover flood or earthquake damage as a standard item. These types of coverage must be bought separately.
- Know about dollar limitations on claims. Even if you are covered for a risk, there may be 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.
- Know the 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.
- Know the 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.
- Know the liability. Generally your homeowner’s 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.
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Title insurance protects the holder from any losses sustained from defects in the title. It’s required by most mortgage lenders. Here are five other things you should know about title insurance.
- It protects your ownership right to your home, both from fraudulent claims against your ownership and from mistakes made in earlier sales, such as mistake in the spelling of a person’s name or an inaccurate description of the property.
- It’s a one-time cost usually based on the price of the property.
- It’s usually paid for by the sellers, although this can vary depending on your state and local customs.
- 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.
- 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.
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- Tax breaks. The U.S. Tax Code lets you deduct the interest you pay on your mortgage, your property taxes, as well as some of the costs involved in buying your home.
- Appreciation. Real estate has long-term, stable growth in value. While year-to-year fluctuations are normal, median existing-home sale prices have increased on average 6.5 percent each year from 1972 through 2005, and increased 88.5 percent over the last 10 years, according to the NATIONAL ASSOCIATION OF REALTORS®. In addition, the number of U.S. households is expected to rise 15 percent over the next decade, creating continued high demand for housing.
- Equity. Money paid for rent is money that you’ll never see again, but mortgage payments let you build equity ownership interest in your home.
- Savings. Building equity in your home is a ready-made savings plan. And when you sell, you can generally take up to $250,000 ($500,000 for a married couple) as gain without owing any federal income tax.
- Predictability. Unlike rent, your fixed-mortgage payments don’t rise over the years so your housing costs may actually decline as you own the home longer. However, keep in mind that property taxes and insurance costs will increase.
- Freedom. The home is yours. You can decorate any way you want and benefit from your investment for as long as you own the home.
- Stability. Remaining in one neighborhood for several years gives you a chance to participate in community activities, lets you and your family establish lasting friendships, and offers your children the benefit of educational continuity.
Online resources: To calculate whether buying is the best financial option for you, use the “Buy vs. Rent” calculator at www.GinnieMae.gov.
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Before you make your final buying or selling decision, you should have the home inspected by a professional. An inspection can alert you to potential problems with a property and allow you to make an informed decision. Ask these questions to prospective home inspectors:
- Will your inspection meet recognized standards? Ask whether the inspection and the inspection report will meet all state requirements and comply with a well-recognized standard of practice and code of ethics, such as the one adopted by the American Society of Home Inspectors or the National Association of Home Inspectors. Customers can view each group’s standards of practice and code of ethics online at www.ashi.org or www.nahi.org. ASHI’s Web site also provides a database of state regulations.
- Do you belong to a professional home inspector association? There are many state and national associations for home inspectors, including the two groups mentioned in No. 1. Unfortunately, some groups confer questionable credentials or certifications in return for nothing more than a fee. Insist on members of reputable, nonprofit trade organizations; request to see a membership ID.
- How experienced are you? Ask how long inspectors have been in the profession and how many inspections they’ve completed. They should provide customer referrals on request. New inspectors also may be highly qualified, but they should describe their training and let you know whether they plan to work with a more experienced partner.
- How do you keep your expertise up to date? Inspectors’ commitment to continuing education is a good measure of their professionalism and service. Advanced knowledge is especially important in cases in which a home is older or includes unique elements requiring additional or updated training.
- Do you focus on residential inspection? Make sure the inspector has training and experience in the unique discipline of home inspection, which is very different from inspecting commercial buildings or a construction site. If your customers are buying a unique property, such as a historic home, they may want to ask whether the inspector has experience with that type of property in particular.
- Will you offer to do repairs or improvements? Some state laws and trade associations allow the inspector to provide repair work on problems uncovered during the inspection. However, other states and associations forbid it as a conflict of interest. Contact your local ASHI chapter to learn about the rules in your state.
- How long will the inspection take? On average, an inspector working alone inspects a typical single-family house in two to three hours; anything significantly less may not be thorough. If your customers are purchasing an especially large property, they may want to ask whether additional inspectors will be brought in.
- What’s the cost? Costs can vary dramatically, depending on your region, the size and age of the house, and the scope of services. The national average for single-family homes is about $320, but customers with large homes can expect to pay more. Customers should be wary of deals that seem too good to be true.
- What type of inspection report do you provide? Ask to see samples to determine whether you will understand the inspector’s reporting style. Also, most inspectors provide their full report within 24 hours of the inspection.
- Will I be able to attend the inspection? The answer should be yes. A home inspection is a valuable educational opportunity for the buyer. An inspector’s refusal to let the buyer attend should raise a red flag.
Source: Rob Paterkiewicz, executive director, American Society of Home Inspectors, Des Plaines, Ill., www.ashi.org.
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Before you buy, contact the condo board with the following questions. In the process, you’ll learn how responsive — and organized — its members are. You’ll also be alerted to potential problems with the property.
- What percentage of units is owner-occupied? What percentage is tenant-occupied? Generally, the higher the percentage of owner-occupied units, the more marketable the units will be at resale.
- What covenants, bylaws, and restrictions govern the property? What grandfather clauses are in place? You may find, for instance, that those who buy a property after a certain date can’t rent out their units, but buyers who bought earlier can. Ask for a copy of the bylaws to determine if you can live within them. And have an attorney review property docs, including the master deed, for you.
- How much does the association keep in reserve? Plus, find out how that money is being invested.
- Are association assessments keeping pace with the annual rate of inflation? Smart boards raise assessments a certain percentage each year to build reserves to fund future repairs. To determine if the assessment is reasonable, compare the rate to others in the area.
- What does and doesn’t the assessment cover? Does the assessment include common-area maintenance, recreational facilities, trash collection, and snow removal?
- What special assessments have been mandated in the past five years? How much was each owner responsible for? Some special assessments are unavoidable. But repeated, expensive assessments could be a red flag about the condition of the building or the board’s fiscal policy.
- How much turnover occurs in the building? This will tell you if residents are generally happy with the building. According to research by the NATIONAL ASSOCIATION OF REALTORS®, owners of condos in two-to-four unit buildings stay for a median of five years, and owners of condos in a building with five or more units stay for a median of four years.
- Is the condo building in litigation? This is never a good sign. If the builders or home owners are involved in a lawsuit, reserves can be depleted quickly.
- Is the developer reputable? Find out what other projects the developer has built and visit one if you can. Ask residents about their perceptions. Request an engineer’s report for developments that have been reconverted from other uses to determine what shape the building is in. If the roof, windows, and bricks aren’t in good repair, they become your problem once you buy.
- Are multiple associations involved in the property? In very large developments, umbrella associations, as well as the smaller association into which you’re buying, may require separate assessments.
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Moving to a new home can be stressful, to say the least. Make it easy on yourself by planning far in advance and making sure you’ve covered all the bases.
- Plan ahead by organizing and budgeting. Develop a master “to do” list so you won’t forget something critical on moving day, and create an estimate of moving costs. (A moving calculator is available at REALTOR.com)
- Sort and get rid of things you no longer want or need. Have a garage sale, donate to a charity, or recycle.
- 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.
- Pack similar items together. Put toys with toys, kitchen utensils with kitchen utensils. It will make your life easier when it’s time to unpack.
- Decide what, if anything, you plan to move on your own. 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.
- Remember, most movers won’t take plants. If you don’t want to leave them behind, you should plan on moving them yourself.
- Use the right box for the item. Loose items are prone to breakage.
- Put heavy items in small boxes so they’re easier to lift. Keep the weight of each box under 50 pounds, if possible.
- Don’t over-pack boxes. It increases the likelihood that items inside the box will break.
- Wrap every fragile item separately and pad bottom and sides of boxes. If necessary, purchase bubble-wrap or other packing materials from moving stores.
- 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.
- 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.
- Keep your moving documents together in a file. Include important phone numbers, driver’s name, and moving van number. Also keep your address book handy.
- Print out a map and directions for movers. Make several copies, and highlight the route. Include your cell phone number on the map. You don’t want movers to get lost! Also make copies for friends or family who are lending a hand on moving day.
- Back up your computer files before moving your computer. Keep the backup in a safe place, preferably at an off-site location.
- Inspect each box and all furniture for damage as soon as it arrives.
- Make arrangements for small children and pets. Moving can be stressful and emotional. Kids can help organize their things and pack boxes ahead of time, but, if possible, it might be best to spare them from the moving-day madness.
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On closing day, expect to sign a lot of documents and walk away with a big stack of papers. Here’s a list of the most important documents you should file away for future reference.
- HUD-1 settlement statement. Itemizes all the costs — commissions, loan fees, points, and hazard insurance —associated with the closing. You’ll need it for income tax purposes if you paid points.
- Truth in Lending statement. Summarizes the terms of your mortgage loan, including the annual percentage rate and recision period.
- Mortgage and note. Spell out the legal terms of your mortgage obligation and the agreed-upon repayment terms.
- Deed. Transfers ownership to you.
- Affidavits. Binding statements by either party. For example, the sellers will often sign an affidavit stating that they haven’t incurred any liens.
- Riders. Amendments to the sales contract that affect your rights. Example: The sellers won’t move out until two weeks after closing but will pay rent to the buyers during that period.
- Insurance policies. Provide a record and proof of your coverage.
h6. Sources: Credit Union National Association; Mortgage Bankers Association; Home-Buyer’s Guide (Real Estate Center at Texas A&M, 2000)
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You’ll likely be responsible for a variety of fees and expenses that you and the seller will have to pay at the time of closing. Your lender must provide a good-faith estimate of all settlement costs. The title company or other entity conducting the closing will tell you the required amount for:
- Down payment Loan origination
- Points, or loan discount fees, which you pay to receive a lower interest rate
- Home inspection
- Credit report
- Private mortgage insurance premium
- Insurance escrow for homeowner’s insurance, if being paid as part of the mortgage
- Property tax escrow, if being paid as part of the mortgage. Lenders keep funds for taxes and insurance in escrow accounts as they are paid with the mortgage, then pay the insurance or taxes for you.
- Deed recording
- Title insurance policy premiums
- Land survey
- Notary fees
- Prorations for your share of costs, such as utility bills and property taxes
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 five 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.
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If the latest technology or entertainment options are important in your new home, add the following questions to your buyer’s checklist.
- Are there enough jacks in every room for cable TV and high-speed Internet hookups?
- Are there ample telephone extensions or jacks?
- Is the home pre-wired for home theater or multiroom audio and video? Does it have in-wall speakers?
- Does the home have a local area network (LAN) for linking computers?
- Does the home already have wiring for DSL or another high-speed Internet connection?
- Does the home have multizoning heating and cooling controls with programmable thermostats?
- Does the home have multiroom lighting controls, window-covering controls, or other home automation features?
- Is the home wired with multipurpose in-wall wiring that allows for reconfigurations to update services as technology changes?
To rate the home on its technological sophistication, fill out the Consumer Electronics Association’s TechHome checklist at www.ce.org/techhomerating.
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Condominiums and townhouses offer an affordable option to single-family homes in many markets, and they’re ideal for those who appreciate a maintenance-free lifestyle. But before you buy, make sure you do your legwork. These are some of the important elements to consider:
- Storage. Some condos have storage lockers, but usually there are no attics or basements to hold extra belongings.
- Outdoor space. Yards and outdoor areas are usually smaller in condos, so if you like to garden or entertain outdoors, this may not be a good fit. However, if you dread yard work, this may be the perfect option for you.
- Amenities. Many condo properties have swimming pools, fitness centers, and other facilities that would be very expensive in a single-family home.
- Maintenance. Many condos have onsite maintenance personnel to care for common areas, do repairs in your unit, and let in workers when you’re not home — good news if you like to travel.
- Security. Keyed entries and even doormen are common in many condos. You’re also closer to other people in case of an emergency.
- Reserve funds and association fees. Although fees generally help pay for amenities and provide savings for future repairs, you will have to pay the fees decided by the condo board, whether or not you’re interested in the amenity.
- Resale. The ease of selling your unit may be dependent on what else is for sale in your building, since units are usually fairly similar.
- Condo rules. Although you have a vote, the rules of the condo association can affect your ability to use your property. For example, some condos prohibit home-based businesses. Others prohibit pets, or don’t allow owners to rent out their units. Read the covenants, restrictions, and bylaws of the condo carefully before you make an offer.
- Neighbors. You’re much closer to your neighbors in a condo or town home. If possible, try to meet your closest prospective neighbors.
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Make sure you choose a REALTOR® who will provide top-notch service and meet your unique needs.
- How long have you been in residential real estate sales? Is it your full-time job? While experience is no guarantee of skill, real estate — like many other professions — is mostly learned on the job.
- How many homes did you and your real estate brokerage sell last year? By asking this question, you’ll get a good idea of how much experience the practitioner has.
- How many days did it take you to sell the average home? How did that compare to the overall market?
The REALTOR® you interview should have these facts on hand, and be able to present market statistics from the local MLS to provide a comparison.
- How close to the initial asking prices of the homes you sold were the final sale prices? This is one indication of how skilled the REALTOR® is at pricing homes and marketing to suitable buyers. Of course, other factors also may be at play, including an exceptionally hot or cool real estate market.
- What types of specific marketing systems and approaches will you use to sell my home? You don’t want someone who’s going to put a For Sale sign in the yard and hope for the best. Look for someone who has aggressive and innovative approaches, and knows how to market your property competitively on the Internet. Buyers today want information fast, so it’s important that your REALTOR® is responsive.
- Will you represent me exclusively, or will you represent both the buyer and the seller in the transaction? While it’s usually legal to represent both parties in a transaction, it’s important to understand where the practitioner’s obligations lie. Your REALTOR® should explain his or her agency relationship to you and describe the rights of each party.
- Can you recommend service providers who can help me obtain a mortgage, make home repairs, and help with other things I need done? Because REALTORS® are immersed in the industry, they’re wonderful resources as you seek lenders, home improvement companies, and other home service providers. Practitioners should generally recommend more than one provider and let you know if they have any special relationship with or receive compensation from any of the providers.
- What type of support and supervision does your brokerage office provide to you? Having resources such as in-house support staff, access to a real estate attorney, and assistance with technology can help an agent sell your home.
- What’s your business philosophy? While there’s no right answer to this question, the response will help you assess what’s important to the agent and determine how closely the agent’s goals and business emphasis mesh with your own.
- How will you keep me informed about the progress of my transaction? How frequently? Again, this is not a question with a correct answer, but it reflects your desires. Do you want updates twice a week or do you not want to be bothered unless there’s a hot prospect? Do you prefer phone, e-mail, or a personal visit?
- Could you please give me the names and phone numbers of your three most recent clients?Ask recent clients if they would work with this REALTOR® again. Find out whether they were pleased with the communication style, follow-up, and work ethic of the REALTOR®.
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Buying a home should be fun, not stressful. As you look for your dream home, keep in mind these tips for making the process as peaceful as possible.
- Find a real estate agent who you connect with. Home buying is not only a big financial commitment, but also an emotional one. It’s critical that the REALTOR® you chose is both highly skilled and a good fit with your personality.
- Remember, there’s no “right” time to buy, just as there’s no perfect time to sell. If you find a home now, don’t try to second-guess interest rates or the housing market by waiting longer — you risk losing out on the home of your dreams. The housing market usually doesn’t change fast enough to make that much difference in price, and a good home won’t stay on the market long.
- Don’t ask for too many opinions. It’s natural to want reassurance for such a big decision, but too many ideas from too many people will make it much harder to make a decision. Focus on the wants and needs of your immediate family — the people who will be living in the home.
- Accept that no house is ever perfect. If it’s in the right location, the yard may be a bit smaller than you had hoped. The kitchen may be perfect, but the roof needs repair. Make a list of your top priorities and focus in on things that are most important to you. Let the minor ones go.
- 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 or by refusing to budge on your offer may cost you the home you love. Negotiation is give and take.
- 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, etc. — that you forget about important issues as noise level, location to amenities, and other aspects that also have a big impact on your quality of life.
- Plan ahead. Don’t wait until you’ve found a home and made an offer to get approved for a mortgage, investigate home insurance, 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.
- Factor in maintenance and repair costs in your post-home buying budget. Even if you buy a new home, there will be costs. Don’t leave yourself short and let your home deteriorate.
- Accept that a little buyer’s remorse is inevitable and will probably pass. Buying a home, especially for the first time, is a big financial commitment. But it also yields big benefits. Don’t lose sight of why you wanted to buy a home and what made you fall in love with the property you purchased.
- 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 to serve as a comfortable, safe place to live.
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Increase your chances of getting your dream house in a competitive housing market, and lower your chances of losing out to another buyer.
- Get prequalified for a mortgage. You’ll be able to make a firm commitment to buy and your offer will be more desirable to the seller.
- Stay in close contact with your real estate agent to find out about the newest listings. Be ready to see a house as soon as it goes on the market — if it’s a great home, it will go fast.
- Scout out new listings yourself. Look at Web sites such as REALTOR.com Lake-N-Woods.com, browse your local newspaper’s real estate section, and drive through the neighborhood to spot For Sale signs. If you see a home you like, write down the address and the name of the listing agent. Your real estate agent will schedule a showing.
- Be ready to make a decision. Spend a lot of time in advance deciding what you must have in a home so you won’t be unsure when you have the chance to make an offer.
- Bid competitively. You may not want to start out offering the absolute highest price you can afford, but don’t go too low to get a deal. In a tight market, you’ll lose out.
- Keep contingencies to a minimum. Restrictions such as needing to sell your home before you move or wanting to delay the closing until a certain date can make your offer unappealing. In a tight market, you’ll probably be able to sell your house rapidly. Or talk to your lender about getting a bridge loan to cover both mortgages for a short period.
- Don’t get caught in a buying frenzy. Just because there’s competition doesn’t mean you should just buy it. And even though you want to make your offer attractive, don’t neglect inspections that help ensure that your house is sound.
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Your neighborhood has a big impact on your lifestyle. Follow these steps to find the perfect community to call home.
- Is it close to your favorite spots? Make a list of the activities — movies, health club, church, etc. — you engage in regularly and stores you visit frequently. See how far you would have to travel from each neighborhood you’re considering to engage in your most common activities.
- Check out the school district. This is especially important if you have children, but it also can affect resale value. The Department of Education in your town can probably provide information on test scores, class size, percentage of students who attend college, and special enrichment programs. If you have school-age children, visit schools in the neighborhoods you’re considering. Also, check out www.schoolmatters.com.
- Find out if the neighborhood is safe. Ask the police department for neighborhood crime statistics. Consider not only the number of crimes but also the type — such as burglaries or armed robberies — and the trend of increasing or decreasing crime. Also, is crime centered in only one part of the neighborhood, such as near a retail area?
- Determine if the neighborhood is economically stable. Check with your local city economic development office to see if income and property values in the neighborhood are stable or rising. What is the percentage of homes to apartments? Apartments don’t necessarily diminish value, but do mean a more transient population. Do you see vacant businesses or homes that have been for sale for months?
- See if you’ll make money. Ask a local REALTOR® or call the local REALTOR® association to get information about price appreciation in the neighborhood. Although past performance is no guarantee of future results, this information may give you a sense of how good of an investment your home will be. A REALTOR® or the government planning agency also may be able to tell you about planned developments or other changes in the neighborhood — like a new school or highway — that might affect value.
- Make personal observations. Once you’ve narrowed your focus to two or three neighborhoods, go there and walk around. Are homes tidy and well maintained? Are streets quiet? How does it feel? Pick a warm day if you can and chat with people working or playing outside.
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Home inspections will vary depending on the type of property you are purchasing. A large historic home, for example, will require a more specialized inspection than a small condominium. However, the following are the basic elements that a home inspector will check. You can also use this list to help you evaluate properties you might purchase.
For more information, try the virtual home inspection at www.ASHI.org, the Web site of the American Society of Home Inspectors.
Structure: A home’s skeleton impacts how the property stands up to weather, gravity, and the earth. Structural components, including the foundation and the framing, should be inspected.
Exterior: The inspector should look at sidewalks, driveways, steps, windows, and doors. A home’s siding, trim, and surface drainage also are part of an exterior inspection.
- Doors and windows
- Siding (brick, stone, stucco, vinyl, wood, etc.)
- Attached porches, decks, and balconies
Roofing: A well-maintained roof protects you from rain, snow, and other forces of nature. Take note of the roof’s age, conditions of flashing, roof draining systems (pooling water), buckled shingles, loose gutters and downspouts, skylight, and chimneys.
Plumbing: Thoroughly examine the water supply and drainage systems, water heating equipment, and fuel storage systems. Drainage pumps and sump pumps also fall under this category. Poor water pressure, banging pipes, rust spots, or corrosion can indicate problems.
Electrical: Safe electrical wiring is essential. Look for the condition of service entrance wires, service panels, breakers and fuses, and disconnects. Also take note of the number of outlets in each room.
Heating: The home’s heating system, vent system, flues, and chimneys should be inspected. Look for age of water heater, whether the size is adequate for the house, speed of recovery, and energy rating.
Air Conditioning: Your inspector should describe your home cooling system, its energy source, and inspect the central and through-wall cooling equipment. Consider the age and energy rating of the system.
Interiors: An inspection of the inside of the home can reveal plumbing leaks, insect damage, rot, construction defects, and other issues. An inspector should take a close look at:
- Walls, ceilings and floors
- Steps, stairways, and railings
- Countertops and cabinets
- Garage doors and garage door systems
Ventilation/insulation: To prevent energy loss, check for adequate insulation and ventilation in the attic and in unfinished areas such as crawlspaces. Also look for proper, secured insulation in walls. Insulation should be appropriate for the climate. Excess moisture in the home can lead to mold and water damage.
Fireplaces: They’re charming, but they could be dangerous if not properly installed. Inspectors should examine the system, including the vent and flue, and describe solid fuel burning appliances.
Source: American Society of Home Inspectors (www.AHSI.org)
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It’s guaranteed to be hectic right before closing, but you should always make time for a final walk-through. Your goal is to make sure that your home is in the same condition you expected it would be. Ideally, the sellers already have moved out. This is your last chance to check that appliances are in working condition and that agreed-upon repairs have been made. Here’s a detailed list of what not to overlook for on your final walk-through.
Make sure that:
- Repairs you’ve requested have been made. Obtain copies of paid bills and warranties.
- There are no major changes to the property since you last viewed it. * All items that were included in the sale price — draperies, lighting fixtures, etc. — are still there.
- Screens and storm windows are in place or stored.
- All appliances are operating, such as the dishwasher, washer and dryer, oven, etc.
- Intercom, doorbell, and alarm are operational.
- Hot water heater is working.
- No plants or shrubs have been removed from the yard.
- Heating and air conditioning system is working
- Garage door opener and other remotes are available.
- Instruction books and warranties on appliances and fixtures are available.
- All personal items of the sellers and all debris have been removed. Check the basement, attic, and every room, closet, and crawlspace.
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A home warranty is a service contract, normally for one year, which helps protect home owners against the cost of unexpected covered repairs or replacement on their major systems and appliances that break down due to normal wear and tear. Coverage is for systems and appliances in good working order at the start of the contract.
Check your home warranty policy to see which of the following items are covered. Also find out if the policy covers the full replacement cost of an item.
- Electrical systems
- Water heater
- Heating ducts
- Water pump
- Garbage disposal
- Swimming pool (may be optional)
Source: American Home Shield, www.ahswarranty.com, REALTOR® Benefits Partner
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Not all real estate practitioners are REALTORS®. The term REALTOR® is a registered trademark that identifies a real estate professional who is a member of the NATIONAL ASSOCIATION of REALTORS® and subscribes to its strict Code of Ethics. Here are five reasons why it pays to work with a REALTOR®.
- You’ll have an expert to guide you through the process. Buying or selling a home usually requires disclosure forms, inspection reports, mortgage documents, insurance policies, deeds, and multi-page settlement statements. A knowledgeable expert will help you prepare the best deal, and avoid delays or costly mistakes.
- Get objective information and opinions. REALTORS® can provide local community information on utilities, zoning, schools, and more. They’ll also be able to provide objective information about each property. A professional will be able to help you answer these two important questions: Will the property provide the environment I want for a home or investment? Second, will the property have resale value when I am ready to sell?
- Find the best property out there. Sometimes the property you are seeking is available but not actively advertised in the market, and it will take some investigation by your REALTOR® to find all available properties.
- Benefit from their negotiating experience. There are many negotiating factors, including but not limited to price, financing, terms, date of possession, and inclusion or exclusion of repairs, furnishings, or equipment. In addition, the purchase agreement should provide a period of time for you to complete appropriate inspections and investigations of the property before you are bound to complete the purchase. Your agent can advise you as to which investigations and inspections are recommended or required.
- Property marketing power. Real estate doesn’t sell due to advertising alone. In fact, a large share of real estate sales comes as the result of a practitioner’s contacts through previous clients, referrals, friends, and family. When a property is marketed with the help of a REALTOR®, you do not have to allow strangers into your home. Your REALTOR® will generally prescreen and accompany qualified prospects through your property.
- 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 a professional who is immersed in the industry and knows the real estate language.
- 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. REALTORS®, on the other hand, handle hundreds of real estate transactions over the course of their career. Having an expert on your side is critical.
- Buying and selling is emotional. A home often symbolizes family, rest, and security — it’s not just four walls and a roof. Because of this, home buying and selling can be an emotional undertaking. And for most people, a home is the biggest purchase they’ll ever make. Having a concerned, but objective, third party helps you stay focused on both the emotional and financial issues most important to you.
- Ethical treatment. Every member of the NATIONAL ASSOCIATION of REALTORS® makes a commitment to adhere to a strict Code of Ethics, which is based on professionalism and protection of the public. As a customer of a REALTOR®, you can expect honest and ethical treatment in all transaction-related matters. It is mandatory for REALTORS® to take the Code of Ethics orientation and they are also required to complete a refresher course every four years.
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