Archive for May, 2007
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Home Buyers
Your search for a new house begins with planning at home. In today’s market, an affordable home is not so much decided by its sale price as it is by the financing which interprets that price into a monthly payment.
How much you can afford to buy depends on two factors: 1. How much you’re able invest in the down payment; and 2. How much you can afford for the monthly housing payment. These payments will include principal and interest on the mortgage loan, and property taxes and insurance (PITI)
Principal
The amount borrowed, or the part of the amount borrowed which remains unpaid (excluding interest).
Interest
The fee charged by a lender to a borrower for the use of borrowed money, usually expressed as an annual percentage of the principal; the rate is dependent upon the time value of money, the credit risk of the borrower, and the inflation rate.
Taxes
The local government where the home is located will assess your home and determine its real estate taxes. Most lenders will collect this as part of your monthly payment and then pay your local government on your behalf. This is commonly referred to as tax escrow.
Insurance
A promise of compensation for specific potential future losses in exchange for a periodic payment. Insurance is designed to protect the financial well-being of an individual, company or other entity in the case of unexpected loss. Some forms of insurance are required by law, while others are optional. Agreeing to the terms of an insurance policy creates a contract between the insured and the insurer. In exchange for payments from the insured (called premiums), the insurer agrees to pay the policy holder a sum of money upon the occurrence of a specific event. In most cases, the policy holder pays part of the loss (called the deductible), and the insurer pays the rest.
Sometimes for buyers, monthly housing costs may also include mortgage insurance, home-owners association dues, and condominium fees.
Down Payment Sources
There are sources of income, other than the profit from selling your house that may not be as obvious as others.
Home Equity Loan
Homeowners usually have substantial equity built up in their homes. Through a home equity loan, one would be able to offer a down payment on a home for their children. It is possible for parents to be required to issue a gift letter after offering down payment to confirm they don’t expect reimbursement. Ask your tax advisor for current information about sharing profit after the house is eventually sold.
Company Profit Sharing or Savings Plan
Look into the possibility of withdrawing or borrowing against what you have in your employer’s profit sharing or savings plan account.
Life Insurance
After you have built up a cash value on your life insurance policy, you may be able to borrow up to the amount saved and get a pleasing interest rate form the insurance company.
Stocks and Bonds
Using your portfolio as security, you may be able to secure a bank loan without selling your stocks and bonds.
The more money you put down as a deposit, the less money you need to borrow. Keep this in mind. You’re still going to need finances to setup you’re new house.
Pre-qualification vs. Pre-approval
You’re focus will become clear during your house hunt after you know you price range. How much money you qualify for will depend on a range of aspects including credit history, length of employment, and down payment amount.
Based on information you provide, your lender can give you an estimated amount of how much money you will be able to borrow before applying for a loan. This non-binding process is called pre-qualifying.
Your lender can also take detailed look at your financial and credit history (including a credit check) and commit to lending you a certain amount of money pending specific property details. The lender will then provide you with a letter stating how much mortgage you qualify for. This process is called pre-approval. With a pre-approval letter, you can:
Search for a home with the self-assurance of, aware exactly how much you can afford.
Show sellers you are serious about purchasing and that you can afford to make a purchase.
Learn of any and all qualification issues early in the home buying process.
Because a pre-approval takes a closer look at your background and includes a credit check, it holds more weight with sellers than pre-qualification.
Mortgage Insurance
If you get a conventional loan, depending on your loan program and down payment amount, you may be required to buy private mortgage insurance (PMI). If you default on the loan, private mortgage insurance protects the lender allowing the lender to approve a larger loan amount.
Mortgage insurance offers several payment options, including making an initial payment at closing or making monthly installments with the house payment. If you want, you may increase your interest rate and have the lender pay the insurance. Compare the benefits of the different plans with you lender to decide which one will be the best for your situation.
Posted: May 11th, 2007 at 10:36 am
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Home Buyers
Fire and Hazard Insurance
At the time of settlement, many lenders will require you to provide a one-year paid receipt for a fire and hazard insurance policy, often referred to as homeowner’s insurance. These policies are available from several principal insurance companies through your agent or the insurance company of your choice.
Home Warranty
Sooner or later, problems with your home will occur. According to recent statistics, one out of 200 new homes will experience a structural malfunction that will cost an average of $30,000. A home warranty from one of our providers will give your home the protection it needs. Depending on the plan you select, coverage will include mechanical breakdowns in major systems such as electrical, plumbing, heating, and air conditioning, as well as major household appliances such as the refrigerator, oven, washer, and dryer.
Home Inspection
People can personally examine a house make out many flaws, but a professional inspector can spot more in areas not easily accessible to you. The inspector, who should be a member of the American Society of Home Inspectors, will study the structure and mechanics of the house. He will then provide you with written details on the results.
Certain detailed information could reduce the price of the house if the seller will agree the price has not already been discounted due to these imperfections. These days, several states require that sellers supply buyers with either a residential property disclosure or disclaimer statement.
Title Insurance
Title insurance provides security in case anything that has happened to the house prior to your purchase. Most lenders will require title insurance to protect their interests. Remember to ask the owner about their policy to protect your title. You may save money if you buy owner’s title insurance at the same time as mortgage title insurance, rather than buying it separately later.
As a home buyer, you may be able to save money with a reissue rate for title insurance, if the property changed hands within the last several years. Reissue rates are normally available only when refinancing, but in some areas they can be obtained on a home resale where a title search was performed relatively recently for the seller. The title insurance may allow a lower re-issue rate premium because the recent title search is still valid. Consult your title attorney and insurance company for details.
Walk-Through Inspection
The time for you to examine and note any flaws for correction by the seller is during the contract negotiation and before signing the sales agreement. The purpose of the walk-through inspection prior to settlement is to determine if conditions in the contract are satisfied.
It is your choice to perform the final walk-through inspection. The seller may or may not be present. You should be accompanied by the selling broker or the listing broker.
During the inspection, you should
Open and close all windows and doors.
Turn all faucets on and off.
Run showers and flush toilets.
Turn on the furnace and central air conditioning. In the off-season, the buyer may hire a professional to certify proper functionality.
Try all lights and switches.
Turn on the oven at bake and broil.
Test all stove burners.
Run some ice cubes through disposal to test the blades.
Run the dishwasher, washer, and dryer through complete cycles.
All deficiencies will be noted. The selling broker will organize with the listing broker and seller to make repairs before settlement. If the seller does not correct problems prior to settlement, the attorney may withhold funds from the seller.
Posted: May 11th, 2007 at 12:03 pm
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Home Sellers
Many details must be taken in consideration when selecting your home; price, style, size, location. It’s probably impossible to say which factor is most important. If there is a chance you’ll be moving again in a few years, be sure you buy with a selling in mind. It’s a strong possibility that the items that make your new home a comfortable fit for you will also attract buyers later on.
For the short-term homeowner who has resale in mind, there are some special considerations:
Watch for growth potential
Look for an established neighborhood that will not inconvenienced by future growth but be enhanced by it.
Look out for resale value
Look for a neighborhood where houses sell well in any market.
Check out location
Consider all types of transportation; even those you may not use.
Schools are important
Check for quality public schools, whether or not you have young children who may be attending.
Green is good
Look carefully at the lot for trees and greenery to shield winter winds or summer heat.
Make room for visitors
Be aware of the parking arrangements for you and your neighbors.
Privacy is a plus
Consider how much privacy the house and lot provide you and your family.
Drive the commute before you buy
Check morning and afternoon drive time to work and other facilities you may frequent.
Posted: May 11th, 2007 at 12:06 pm
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Home Buyers
Sellers sometimes get tempted to test a higher price at first to see if they’ll be lucky enough to find a buyer willing to pay. Unfortunately, experience shows this pricing strategy rarely pays off. Instead, asking the right price from the start avoids the many dangers of overpricing.
The right sales price is based on factors like the size of the house, its amenities and features, demand for homes in your area, recent home sales, and prices of similar homes currently on the market.
You may have decorated lovingly or renovated extensively but those improvements may have a small effect on the market value of your home. Actually, personalized decorating can slow a sale unless the style has wide appeal.
Overpricing Dangers
Here are 8 reasons why overpricing your home is dangerous:
You will miss out on pent-up demand.
The most activity on a listing will come within the first 30 days. An initial high price can discourage buyers, not tempting them to wait for the price to come down.
You will raise doubts about hidden problems.
If your overpriced house stays on the market for a long time, it may eventually be seen as “stale inventory” which can suggest structural or mechanical imperfections, even after you lower your price.
You will reduce buyer pool.
Extremely high pricing will eliminate a whole class of qualified buyers. Many buyers know just how high they can go and don’t even look at homes priced above their limit.
You will risk lender rejection.
If you do get a sales contract, the contract may fall through because of its low appraisal. The buyer may not be able to borrow enough to proceed with closing.
You could sell the competition.
Overpricing helps sell other, more competitively priced homes first. Your home may be compared to underscore what a good deal another home is.
You might turn off buyers.
You may experience few or no showings because some prospective buyers who can afford the price won’t waste time with an overpriced listing. They know they can find a better buy elsewhere.
You could frustrate prospects.
Prospective buyers who may extend their best offer can become frustrated when they can’t buy the home they want at a fair market price only because an unreasonable seller insists on accepting only a premium price.
You will frustrate your own timetable.
You could also become frustrated when your house fails to sell in a timely manner. Only a price reduction is likely to help sell your house faster and meet your estimated time of moving out.
Posted: May 11th, 2007 at 12:08 pm
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