Money on the Table: 5 things to consider before you sell

Stacks of Cash

Home values:

Unless you want to gamble with the possibility of losing a significant amount of money, you must find out your home’s true value in relation to the current market.  Just as you would love to sell your home there are people who would love to buy it, however you will soon learn that it all comes down to the numbers! If the price is too low, you will leave money on the table, too high and the house doesn’t sell. To ensure that you are getting the most value throughout the transaction be sure to avoid the mistake of looking for your homes value on county tax appraisals, Truila, or Zillow. So how do you figure out what your home is worth?  A real estate agent can provide you with comparable properties that have recently sold, as well as, market trends relating to your home and area.  These are the only two things that determine the price for the average home and a realtor can guide you to price your home correctly.

Market Trends:

It can be a great learning experience to sell your house, but you need to know what type of activity to expect while your house sits on the market. Seek the help of a professional to help you find out whether prices of recently sold homes are increasing or decreasing. They will also have accurate information regarding the average time it takes to sell a home like yours. How does an increase or decrease in interest rates affect you? What quick fixes can you complete to add value before listing? You really need to understand the trends of the market, so that you can chose an action plan that best suits your situation.

Selling Options (FSBO vs. Realtor):

We love learning from wise and successful people so let’s highlight Dave Ramsey’s thoughts on this topic (Dave Ramsey is a highly trusted Financial Advisor, TV and Radio personality, and author of books like The Total Money Makeover and Entrée Leadership):

“I’ve had a real estate license for 30 years. If I were to put my personal residence on the market today, I’d use an active real estate agent who really knows his or her stuff in the marketplace. I’d gladly pay them their commission, too. Now, why would I do that if I could just sell it myself and save the commission cost? For starters, if I do afor-sale-by-owner, or FSBO, I’m only getting my [home] in front of buyers I can attract from seeing a newspaper ad, Craigslist, and anyone who happens to drive by the house. If you go with a high-octane real estate agent, you’ll have the advantage of being exposed to their entire pool of buyers. More importantly, you’ll be in the MLS, or Multiple Listing Service, database. There, you’ll immediately have thousands of potential buyers. So, who do you think will have the best chance of selling your house? Market exposure is everything in the real estate game! And think about this: Even if you went the FSBO route every time you moved, you might do three or four of these transactions in a lifetime. A good agent closed three or four deals last week! They’ll know all the ins and outs of buying and selling a home, and they’ll walk you throughevery step of the process. Research has shown that between basic mistakes, pricing errors, and lack of negotiation skills, you’ll cost yourself more than the agent’s commission by trying to sell it yourself. Trust me, you’ll get a much better deal—with a lot less hassle” – Dave Ramsey

Time Frame:

When your house sells, time is not a luxury you have.  It’s imperative that you have a time frame in mind. Do you need to move quickly? Do you need time to find another house? Perhaps you have all the time in the world? Realistically, if you put your house on the market and get a cash offer quickly you may have to vacate the premises within 30 days. Would that expectation overwhelm you? Conversely, you may already have your next house lined up, in that case, do you need to move quickly? If it takes a couple of months for your previous house to sell, could you afford two mortgage payments during that time? Figuring out a time frame, that works for you, will help you make better decisions in the long run.

NextDestination

Is your next stop your dream home? Where have you been wanting to live and what type of house have you been looking for? After you decide to list your home, it’s a good idea to start discussing your next step soon after. Perhaps you already have a house in mind or maybe you haven’t even considered it yet, either way, once your current home is under contract it’s time to get focusedand find the next home for you. Having a few ideas, needs, or desires regarding your next home, ready for your realtor to review, will ensure that time is not wasted throughout the process.

When it comes to selling your house, your financial well-being is at risk.  Be wise when making these kind of decisions.  If you have any questions regarding this topic, please feel free to reach out and ask, no question is a silly question.

 

Closing day approaches!

House Key.jpg

What do I need to know?

If closing day is around the corner, congratulations are soon to be in order! The most important thing to keep in mind is that your closing date is not guaranteed to happen on time. Only about half of our deals close on the day that is stated in the contract. 

So many variables have to correctly fall in place for your deal to close, it should be expected that your final day can move forward or backwards on the calendar. This can be frustrating, but it is a common part of the experience. Remember that the house may be getting repairs, the lender may be taking longer than usual in underwriting, or the title company may be waiting on documents. Due to all these moving pieces you will need to keep an open mind about your closing day. 

When the day does finally arrive you will show up at the title company for your scheduled appointment and they will walk you through the details of the transaction as you sign all of the final documents. Don’t worry, you will get copies of everything (and you will want to put them in a safe place). You will probably be overwhelmed with the stack of papers that need your signature, but do not be intimidated. Don’t hesitate to ask questions if you do not understand. There is also a very high likelihood that your agent will be with you during closing just in case you need an explanation or something unexpected occurs. 

The title company will go through the same process with the seller and once all of the documents are signed by both parties, they will work with your financial institution to fund the loan. It usually happens same day or next business day. Depending on how quick they are able to fund the loan, you may or may not get the keys at signing. 

You undoubtedly have come a long way and are probably turning your focus towards moving in and making your new house your home. Just remember, don’t be intimidated, don’t be afraid to ask questions, and be willing to be flexible when it comes time to close. 

My lender...

Mortgage Lender

Why do they keep bothering me?

When you are ready to buy a home, you will go through the process of getting pre-qualified for a home loan. You may obtain your pre-qualification from the bank or credit union that you have been using all of your adult life, or you may get pre-qualified by a completely new financial institution. Regardless of who you choose, here is what you have to keep in mind. 

A pre-qualification is strictly that. The financial institution is going to look at your credit-worthiness, your income, your assets and some other information that you provide on the spot. Once they have your basic information they will decide whether or not they are willing to give you a loan. Their decision will allow you to move on to the next step, or tell you what needs to happen before you can (credit repair, income generation, etc.).  

After getting pre-qualified, many buyers think they are done with the lender, however, this is just the beginning. The lender is the one who will decide whether or not they are going to give you a hundred or even hundreds of thousands of dollars to buy your future home. They will need to vet you, your co-buyers, and your credentials thoroughly and frequently throughout the process to give you your final loan approval. This approval usually comes just hours or a few days before closing. This all means that you will devote a great amount of time, effort and energy to help them during this long approval process. 

They will need copies of all of your pay stubs throughout the process, they should request your previous one or two years of tax returns to verify your income, you should also expect them to contact you a few times for other documentation. If you have selected a Go Team Realty Agent to walk you through the home buying process, we will also work with them to help you figure out how much home you can afford. They will provide pre-approval letters that have to accompany any offers that we make on houses you are interested in. 

We always suggest to our clients that if they haven’t already found a lender to get pre-approved with, to make sure they are comfortable with the lender they choose and try to find lenders with the ability to solve problems. Sometimes problems arise throughout the process, so it helps to find a lender that wants the best for you. They will be willing to go the extra mile. You would be surprised how many times we have had to have a lender work past their normal hours to close a deal, keep us in the loop with issues in underwriting or completely change directions mid-process. So be sure to pick a lender you are comfortable with and that you know you can count on. They can help make or break your deal. 

Another word of advice, ask your agent if he or she recommends a certain lender for your situation. Many times agents have spent years developing relationships with the lenders they know they can trust when faced with adversity. You definitely want as many allies on your side as possible.

Three reasons not to skip that home inspections

Inspection

An Inspection is the best way to protect your investment.

We have all heard the story, it usually starts out, “I bought a money pit.” Someone you know bought a house that has done nothing but cost them more and more money. They had to repair the roof, replace the AC and the foundation was uneven. Let’s just face it, sometimes it happens. When it does, it puts you in a risky financial position, you could bleed cash for months or longer, if you have the available funds. So how do you protect yourself when it comes to buying a home? The best answer is a home inspection. 

So just like used cars, unless you are having a home built, you are buying a property that someone else lived in and took responsibility for. You are not only subject to the quality of the home but also the quality of the decisions that the previous homeowner made with the maintenance and upkeep. Many times we see buyers make an emotional connection to a home, it looks perfect, it was exactly what they wanted, it was a bargain, it is more home than they thought they could afford, the school district is amazing, the reasons go on and on. Once that emotional connection is made, it is easy to overlook some imperfections. Just think about children. Some kids can do no wrong in the eyes of their parents, even though you can usually point out more than a few flaws after sitting next to them in a restaurant for an hour. The same is true with a home. So it is in your best interest to pay an experienced home inspector to thoroughly examine the home you want to purchase. Below are the top three reasons for a home inspection:

1.) Peace-of-mind.

An inspector will spend several hours looking at all the details that you may miss. They are not going to look inside the walls and they are not going to find the root cause of every issue. What they are going to do is point out the things they find troublesome. Perhaps certain lights aren’t turning on, they may just need new light bulbs, or it could be a more serious and more expensive issue that has to do with the breaker box. Maybe the gutters don’t drain far enough away from the house, cheap fix, but gone unnoticed could cause mold or foundation problems. They are going to provide a report of all of their findings so that you have a detailed understanding of what needs to be investigated further to prevent costing you more in the future. 

2.) Financial Positioning. 

An inspection not only gives you a better understanding of what you may be spending money on in the near future, but it will also strengthen your position for re-negotiating. Many times the buyer and seller can come to a mutual agreement. The seller may be able and willing to cover some of the necessary repairs that the inspector recommends and will take care of them before you ever move in. In other cases, a list of concerns can help bring down the final price of the home. The seller may not want to deal with fixing a major issue with the roof so they may be willing to bring the cost of the home down $5,000 to compensate. Ultimately, an inspection makes you more prepared to make educated decisions about your future. 

3.) The Power to Walk Away. 

You may have a strict budget of $150,000. If you know that’s what you are paying for the house and an inspector says it needs an additional $20,000 worth of repairs, what can you do? Well if you have had an inspection during your option period, which is what your agent should advise you to do, you can walk away from the transaction without penalty. Sure you may have paid the inspector $200; however, he just saved you $20,000. You can move on smartly and start the search for another home. 

Inspections are a pivotal part of protecting yourself and your investment. It is the best thing you can do, to make sure you are making a good decision. Use a veteran inspector with a TREC license and ask any questions you can think of, they are there for you. If you need a recommendation for a good inspector, please let us know and we can provide you with our top three recommendations.

What is a home inspection?

Home Inspector

Saving yourself a Headache.

Do I really need one or is it just another way for someone to take more of my hard-earned money? The truth is, not only is a home inspection worth it, it can save you from making a huge mistake. The average cost of an inspection is minuscule in comparison to the amount of money it can save you right from the start. 

It’s no secret, buying a home is a huge investment. A large portion of your monthly income will be dedicated to this venture for many years to come. We actually encourage all of our clients to set up a home inspection as soon as we have the home under contract. Here is how the process will go once you find a home you like:

  • You will work with your agent to submit an offer.
  • Your offer will either be accepted, or some more negotiating will take place until you come to an agreement with the seller. Once an agreement is reached, all of the terms are laid out in the form of a contract. 
  • Once the contract is accepted and signed by both parties, you will be asked to show you are a serious buyer by putting earnest money down (usually 1% of the price you offered) and paying for an option period. 
  • The earnest money is a deposit to show you are serious about your offer and depending on how the transaction goes, you may or may not get it back. 
  • The option period that you paid for, usually between $70 and $100 dollars, secures your earnest money and buys you a period of time in which you can cancel the contract and receive your earnest money back without penalty. If you decide to cancel after the period is over, the seller usually keeps the money in return for the amount of time you took their home off the market.
  • It is within this option period that you have an inspection performed in order to make sure the home you are interested in doesn’t have underlying problems. 

You will want to use a licensed inspector with a strong reputation. This inspector’s job is to investigate the physical condition of the property and to look for signs of potential issues. They usually investigate the surface conditions, for example, they may note some staining on the sheet rock and let you know that they suspect a plumbing leak, however, they will not open up the wall and physically find the problem. Your home inspection is a surface level inspection that will give you a good idea of potential issues that you may want to have a deeper look at before you sign on the dotted line. At the end of the inspection, they will provide a report to you of every possible issue they found and what should be done to remedy the issue or investigate further.

This investment is going to cost hundreds of thousands of dollars over the life of your loan and will be a place that you spend your time for many years to come. Spending a couple hundred bucks upfront will give you the ability to make sure this investment is worth it.

Picking an Agent

Real Estate Agent

The right agent will put you in the best

position to succeed. 

Real estate agents can do a lot to make sure that you are never put in an uncomfortable position. As we guide you through the home buying process, we hope that you are starting to get a big picture view of what it takes to buy a home. It is no walk in the park. Once you find the right property, there is negotiating to worry about, a transaction to keep on schedule, and sometimes we need to go to bat for you, get defensive and ensure that our clients are taken care of. You would be surprised how many times we have to keep other parties accountable once all of the niceties have come and gone. In order to help you keep your peace-of-mind and sanity during this process, here are four ways your agent can help. 

Keep an open communication loop.

We have invested in several tools and work very hard to keep an open line of communication with our clients. Not only do we want you to be in the loop at every step, we want to involve you whenever necessary so that you know exactly where we are in the process. We partner with your lender, the title company, your home inspector and the selling party to make your transaction as seamless as possible. If any issues arise, we want you to know as soon as possible. 

We have the hard conversations for you.

When it comes to negotiating the best deal for you, we have the hard conversations and never put you in an uncomfortable situation. You can expect to talk to us about your next move and what options are available to you, we will decide together and our team will take care of the rest. We will always handle the communications with the other party, so that you never feel like you are put on the spot. 

Avoid awkward situations.

Along with handling the negotiations for your transaction, we will serve as the go-between or buffer between you and the other party. We will help you calculate your moves and proceed. It is not unusual to have to terminate a deal, go back to the table for negotiations, or let a seller know that they haven’t held up their end of the bargain. Rest assured, we will take care of the tough topics so that you can make the best decisions for you.  

In-Depth Understanding.

We have years of experience in residential real estate and have come across almost every situation that you may find yourself in. You should have confidence that your agent will be prepared to problem solve, find solutions, and keep you informed at every step of the process. We want you to know exactly what is happening and how it will affect you or your transaction. Ultimately you should be confident that your agent can represent you, communicate with you, protect you, and help you buy a home that meets your needs and goals. Be sure to pick your agent with care and remember that they work for you. You should never feel pressured to make decisions or be put in an uncomfortable position. The agent works for you and should always make your home buying experience a positive one! We would love to sit down with you and show you exactly what we do with our buyers. Perhaps, we are just the type of partner you need for your home buying journey. If we are not a good fit, we hope you get great value from the content coming your way and that it helps you make the decisions that get you closer to your goals and needs. 

 

Finding your home

Luxury Living Room

Use your head, not your heart.

We are often asked, what is the biggest mistake we see homebuyers make? The truth is, it is when we see a buyer making decisions based on emotion rather than facts. Your house will be your oasis. You will be living here for a longer length of time than people usually rent for. The bottom line is, you have to be happy with the decision you make because it will have a lasting impact on your life. 

Before we ever step foot in a house that is for sale, we spend a lot of time helping our clients sift through the wants and needs in order to help them define the goals they have tied to homeownership. Why? Well, believe it or not, we know that for most buyers, emotions are going to play a part in your decision making. One of the first articles you received from us, (“Getting on the same page”), was specifically created to help define the needs and wants that you are looking for in your home (also, how to get on the same accord with your spouse/co-buyer, if necessary). The idea is to determine what your minimum essential criteria are prior to looking at homes and then move on from that starting point. If you need three bedrooms, why look at a home with five? When you start thinking about all of the possibilities a new home can offer, it is easy to get distracted with features that you hadn’t considered before and your emotions can make them appear more important they truly are. 

A swimming pool is a great example. For instance, let’s say you are looking for a three bedroom, two bathroom house with an open floor plan, a large kitchen, and a spacious backyard for your dogs. If your agent isn’t focused on helping you reach your goals, he may take you to a four bedroom, three bathroom house without an open floor plan but containing a spectacular pool. You know the kids would love the pool, you imagine the summertime barbecues and suddenly you realize you just spent an extra twenty thousand dollars on a house that has more bedrooms and bathrooms than you need while you cook dinner in a kitchen the size of a closet.  

Believe us, it happens. The chef in the family falls in love with the kitchen that has an island and a breakfast bar, dad discovers a room that would make an awesome man cave, and the kids stumble across the playground that the previous owners had in the back yard. In the blink of an eye, you are trying to purchase a house that meets none or very few of your needs. 

On another note, many times we show our clients a house that they fall in love with and they start to unpack in their mind. They start to think about where the furniture is going to go, what color the walls are going to be painted, and just how to set up that office/guest room to keep everyone happy. The problem is, there is a long way to go before the ink is dry. Even after a contract is accepted, there are still places within the transaction that a deal can fall apart. We have seen plenty of clients be disappointed because they loved a house, but were outbid in a multiple offer situation. Facts, priorities and goals are your best friend when house hunting.

Remember to always try and stay unbiased when deciding on which property to buy. When you buy a home, it should be about meeting your personal and financial goals first. This is one case in which you will want to use your head more than your heart.  

 

Should I buy or rent?

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Which is right for me?

Do you remember the sugar coating we promised to avoid?  The question to buy or rent is one of those conversations, and the answer to this question is completely circumstantial and will be different for everyone. Let’s imagine that you have read every other “Buy vs. Rent” article or blog that a google search will yield and that you already understand the basic pros and cons of buying and renting. For instance, when you buy you are putting money into an asset, your home can appreciate and net you a substantial return upon the sale there are also tax benefits to homeownership. On the contrary, when renting, you save on interest and taxes, you avoid paying out-of-pocket for most repairs and maintenance, and the commitment level is low. 

These are all valid issues that need to be considered, but we want to take you a step further. You may come across individuals that are steadfast in their position that because they have a great experience as a renter or owner, whatever they are doing is absolutely the correct step for everyone, however that is just not true. There are many variables at play that can make either decision the right one for you. Also the market can always shift and make either position more appealing. To make the best decision for you and your family, you will need to look at your individual circumstances. For instance:

Is it currently a buyer’s or seller’s market? 

You may choose to rent because the houses in your area are too expensive to reasonably afford, and conversely, you may choose to buy if renting is a popular option in the location you wish to live. If the latter is the case, the cost of rent will naturally be higher than average and may put you in the right position to buy. 

How long do you plan to stay? 

Homeownership becomes more affordable over time. The longer you stay, the longer you get to spread out the costs of ownership. If you plan on moving within 5 years, the high upfront costs of homeownership may prompt you to rent until your plans are more concrete. Many buyers that buy under the FHA loan program may be disappointed if they decide to sell their home within 5 years because they may have to pay out of pocket to sell, if they have not incurred enough equity to cover their costs. 

What are the opportunity costs? 

When you purchase a home you will be responsible for your down payment, closing costs, taxes, and insurance. You have to take into account what else could be done with that money to help you reach your individual goals before you take the leap. 

Obviously, the question of whether to buy or rent will be different for everyone and for many different reasons. Other factors to consider may have to do with school districts, how much home you can afford, your career path and the development of the area you are living in just to name a few. 

In some cases it will be smarter to rent and others to buy. Whichever path you decide to embark on, make sure your decision aligns with your goals and always remember to do what feels right for you.

Understanding Down Payments

Writing Checks

What do you need to know?

Knowing you are ready to buy a house is a great thing. Many people think that buying a house is expensive. When it comes to buying a house and understanding how much cash you need up front, you will want to understand both your down payment and the necessary closing costs. Today we want to take a close look at your down payment. This can be the largest variable in determining your immediate costs.

The amount of down payment due when you close on your home will usually be determined by the type of loan program you choose. Title companies will generally want a cashier’s check or a wire transfer to complete your part of the transaction on the day of closing. There are loan programs to fit many needs and situations. Conventional loans may require a down payment of up to 20%. That means if you are looking to purchase a $150k home, you will need roughly $30,000 for your down payment. That can be a hard pill to swallow for most people. However, homeownership can be more affordable up front through a different loan program such as the FHA program, which only requires 3.5% of the value of the home as a down payment. Meaning for that same house you would only be out of pocket $5,250 for your down payment. With the VA loan program, you don’t have to make a down payment at all. There are also at least another half dozen loan programs you can get pre-approved with like NACA and USDA, so you will want to pay attention to the type of loan program you are being pre-approved for and the down payment it requires.

So what else should you keep in mind? Well there are a few other key considerations. First, in most cases, when you put less than 20% of the value of the loan down as a down payment, you will have to pay some type of insurance premium usually called “PMI”. We have already discussed PMI, but just as a refresher, if you owe more than 80% of the value of your loan (hold less than 20% equity) the lender is lending money to you at a higher risk of foreclosure. Because of this, you pay an annual insurance premium at a rate somewhere between .3% and 1.2% of the value of your loan. This is important to consider and will raise your monthly mortgage payment. 

Secondly, you will need to consider how long you plan on living in this home. Is this your forever home? Are you relocating for work and uncertain? Is it a five-year plan? You will want to take the length of your homeownership into consideration. The less you put down, the less equity you have in your home. Keep in mind that it cost money to sell a house, so if you plan on selling in two to three years, you will want to put a sizable amount down. If you do not, you may find yourself in a position that will require you to pay more money to sell your house if you have not established enough equity to cover your expenses. This is a complex topic and depends on the stability of the market, but it is a key consideration that you will want to discuss with an experienced agent. 

Obviously, the less money you borrow, the better financial position you are in. So deciding on a down payment that you are comfortable with will be important. There are several considerations to take into account and you may want to run all of your ideas by your agent, remember, they are there to help put you in the best position to reach your goals.

The True Costs of Homeownership

Adding it up

So what is this going to cost you?

So you have the itch to buy a new home, as you know, at Go Team Realty, we never want to sugar coat things just to sell a house. So we decided we should take a minute to explain to you the true costs of homeownership. There can be a lot of unforeseen costs that you would not know to expect if you are currently renting. Let’s break down the key areas that are the most significant so that you know exactly what you should expect once you have signed on the dotted line. 

Your mortgage payment is going to be made up of four different costs, unless you finance more than 80% of the value of your home, then there are five (we will discuss this in a minute). These charges are mostly dynamic, meaning that they change, or at least can change every year. Your mortgage will be made up of your principal, loan interest, property taxes, and homeowner’s insurance (PITI as it is known in the industry). If you have financed more than 80%, you will also be responsible for private mortgage insurance (PMI), thanks to those crafty folks that were responsible for the market collapse in 2008. It is extremely important to understand that when banks give you an estimated monthly payment, you may find that they only include a portion of these items. Some may only give you the cost of the principal and the interest, which can be very misleading. 

Principal

The principal, in theory, is the amount of money that you borrow divided by the amount of payments you agree to. A traditional 30 year mortgage will be broken down into 360 payments. So if you borrowed $200,000 to buy a house, you would owe $555.55 every month for the next 360 months. There are also 15 and 20 year mortgages that would lower the number of payments, but raise the monthly costs. Since there are 180 months in 15 years, your payment would essentially double monthly at $1,111.11. So you definitely want to explore your options in order to figure out which scenario helps you meet your goals.

Interest

Because banks do not lend money out for free, you will also be responsible for the interest you are charged to borrow their money. The interest rate you agree to is important because over 30 years a couple of points could wind up costing you thousands and thousands of extra dollars. Here is also where it can get a bit confusing, the banks like to front load their interest so that you are paying interest at a higher rate than the principal, earlier in the loan. This could be the reason that banks will give you an estimated monthly cost that includes principal and interest only, because the total of these two numbers usually stays constant, even though your monthly payment is allocated differently.

We know, that was a lot of info in a few words, so feel free to request an example amortization chart to help you wrap your mind around it. Here is a good example, if your estimated principal and interest payment will be $954.83 monthly, your first payment will allocate $666.67 towards interest, whereas on your last payment only $178.01 goes towards interest. As your interest payment decreases over the life of your loan, the money applied to the principal increases accordingly. Also, you will want to note that over a 30 year mortgage at a 4% interest rate, you will pay close to $145,000 in interest alone.    

Property Tax

Property taxes are local taxes that provide the largest source of funding that local governments use to pay for schools, streets, roads, police, fire protection and many other services. As such, property tax is the third constant on your mortgage payment. The tax rate is set by the county in which you live. Usually, your bank will establish an escrow account, tied to your home mortgage, in which they will collect your annual expected tax load over the course of your 12 monthly payments that year. At the end of the year, you will receive a tax document showing how much property tax was payed on your behalf.  

This number is dynamic because every year the county will re-assess the value of your property and multiply that by the tax rate your county has selected to determine how much you owe. This can be a problem for homeowners because if you live in a developing area, the values of your property will probably be on the rise which would be compounded by the areas growing need for county services. You will want to analyze these numbers every year, if you feel like your taxes are being raised disproportionately, you can contest your value with your county (but we will re-visit that topic another day). You can also homestead your property to limit the amount that they can raise your values from year to year. 

Homeowner’s Insurance

The last part of your mortgage payment is the cost of your homeowner’s insurance. To get a home loan, you will have to provide proof of insurance to the lender before you close. It is in your lender’s best interest to make sure you have insured the property that they are loaning you money on. So, your lender will usually collect this money for you and put it in an escrow account for the year, very similarly to how they collect for your property taxes. This number is dynamic as well because homeowner’s insurance can change from year to year. Be sure you select a company and a policy that you are comfortable with. Shopping around can help you save money here. 

Mortgage Insurance

Mortgage Insurance is a premium that applies to people that finance more than 80% of their home loan. So if you purchase our example home at $200,000 and are not prepared to put $40,000 down up front, you will be responsible for paying a premium for the life of the loan. This number is payed yearly and can be anywhere from 0.5%-1% of the entire loan. Assuming the rate is 1% and your loan is $200,000, your payment would be $166.67 per month or $2,000 per year. That could be as much as an extra $60,000 over the life of your loan.  

Utilities

If you have been renting for any length of time you may be in a situation where your rent includes certain utilities. When you are a home owner, your utilities will vary, but you will be responsible for paying these utility companies for all services provided. For example, a typical home will require the following utilities: electricity, water, city trash, sewage and propane. Depending on your location, your utilities could all be provided by one large provider or several different providers. You will want to gain a good understanding of what the total costs can be before you purchase so that you can budget accordingly. These charges are also dynamic and change based on demand or usage. 

Upkeep

Lastly, you will be responsible for the upkeep and improvements to your property. You should now have a better idea of how serious of an investment homeownership can be. You will want to take care of your asset by properly maintaining the condition. When you were renting and the AC went out, it was the owner’s problem. In this situation, you are the owner. Keep in mind that you will be buying products to clean your property on a regular basis, consumables like AC filters and light bulbs are often over looked, as well. When you purchase your home, it may come with all of the appliances you need, or not, it may be brand new, or it might need major repairs. All of these costs add up so you will want to have a healthy expectation of the changes in responsibility when you move from renter to owner.  

Homeownership can be a very rewarding experience and comes with many benefits. But make no mistake, this is a serious investment. There are many ways to protect yourself when it comes to your money and your home. There are also many ways to help curtail some of the largest costs. For example, making one extra payment per year, can help you pay off your 30 year mortgage 6-7 years early and save thousands and thousands of dollars in interest. If, you are on the verge of buying, it is important to avoid the pitfalls that people experience due to a lack of knowledge.

 

Getting on the same page...

Couple Agree

What do you really need from your next home?

So you know who is going to lend you money, you know how much money to spend, we are making good progress. Here comes the fun part, let’s decide what to spend your money on. Many of our clients realize that they don’t have a good idea of what they want until we sit down and talk specifics. Understandably, having a housemate/s will also complicate this process exponentially. You are picturing a trendy uptown loft and they want an acre or two with a ranch home on the outskirts of town. It is shocking sometimes to see how far apart some of our clients can be during this process. But don’t stress, that is why we are here. 

There are many factors to look at when figuring out where to lay roots down. Obviously people are concerned about getting the most home for their money, but we need to dive deeper and really understand everything involved in this decision making process. You will find a corresponding exercise below. If you are buying solo, you will want to print it out and use it to gather your thoughts when it comes to what you are looking for.

For house hunters where more than one opinion is involved, you will want to print three copies of this document and from this point on, you and your housemate are not to communicate until you have each filled one out. Gathering your thoughts independently is an important part of this process. You may each have different wants, needs and goals. We are going to use this resource to help bridge the gap. You are to list your goals without taking your housemate's opinions into consideration. How many bedrooms are you looking for? Bathrooms? What school district? What type of home? What amenities are important to you?... You get the idea. Finally, you will take all of the things that are important to you and rank them in order of importance. 

Next you will present your document to your housemate so that together you can compare and contrast priorities, remember compromise is important. Your rankings will be key to consider here. Somethings may not be as high of a priority to you as they are to them, so there is room to negotiate. As you will soon learn, there is not one perfect house, unless it is one that you build together. After compromising and figuring out what is most important to you both, you will fill out the third copy together based on your final decisions. One very important thing to keep in mind is that as a buyer you are subject to the inventory that is currently available within the housing market. This can be a frustrating process, but we want to get as close as possible to meeting your needs, if we meet 70% or 80% of the criteria on your list, we are on the right track.

Can I really afford what they approved me for?

Money Confusion

Focusing on your goals. 

Congratulations, you did it, you got approved for a home loan! Now what? If you are like some of our clients, you may have done a double take when the lender told you how much you were actually approved for. Before we get ahead of ourselves, hopefully you will appreciate this little moment of honesty and truth.

Initially, you had some price point in mind, you thought you would conservatively spend 100k, 150k, or 200k on your home (this number is different for everybody). Then you were surprised to find out that you were approved for much more than you expected. Before you start upgrading, let’s make sure you are keeping your eyes set on a home that fits your goals. Let’s break it down, your monthly payment is made up of four or five different components; the principal (the amount you borrowed), the interest (the amount you are paying to borrow the principal), the taxes your county collects, and your home owners insurance costs. Private mortgage insurance would be the fifth but is only applicable under certain loan programs. 

A large pre-approval can be distracting because obviously we hope that the lender wouldn’t do anything to put us in a bad position right? Before we move forward, we’d like to point out that we are not using this opportunity to pick on lenders, we work with some great ones that put people first; however, we do want to provide you with some insight on the lender’s perspective so that you are educated on their decision making process. Most lenders think that you will use up to 36% of your income to pay back your debts on a monthly basis. Of that 36%, they assume you can spend roughly 28% of your income on your monthly housing payment alone. That leaves 8% to cover your car note(s), student loans, medical bills, credit cards, etc. Can you pay all of these bills with 8% of your monthly income? If you can, that is excellent, but chances are, many of you may struggle to do that.

At our core, we believe in putting people in a situation that is a blessing and not a curse, so these four steps will help you get a better idea of how much home you can really afford. 

1.) Do the Math.

You are an informed adult, so you probably have a good idea of what your credit looks like. If not, annualcreditreport.com or creditkarma.com may be a good place to start. You can find plenty of mortgage calculators online, as long as you plug in the correct information, you will get an approximate figure that you can use as a reference point (remember you want to account for principal, interest, taxes and insurance) so do your best to fill in the blanks, your agent can help you with this as well. 

2.) Work the numbers.

A budget is your friend. If you have a working budget you are ahead of the game, if not, now is a good time to start one. Determine how much money you are currently spending on your living expenses and compare it with the number you came up with in the last step. Is there a wide margin? Now you can retool your budget to see if that mortgage payment is within reach. Maybe you can spend less on entertainment each month, maybe you can pull from your groceries, and maybe that daily coffee you get in the morning is keeping you from owning a home.  Either way, a budget will help you identify how ready you are for a mortgage payment. 

3.) Give it a try.

Take a few months to make those changes in your budget and see if the mortgage payment you are expecting is achievable. Perhaps, your morning coffee is important to you, now is when you can determine what fits into your budget and what works best for you. Don’t forget you will also want to take into account that you may have some home repairs or maintenance costs as well as a difference in utility and insurance costs.  

4.) Make a decision

Based on your newly collected information, you can make adjustments to help achieve your goal of homeownership. Ultimately you will have a good understanding as to whether or not it is the right time for you to become a home owner. Mortgages can last for 15 to 30 years so making the correct decision is important to your financial future.