Buyers Guide and Getting Started Checklist
Getting Started – First Step
1. Check your credit rating. Sit down with a reliable loan officer and choose a loan program that meets your needs and get pre-qualified.
2. Determine a comfortable monthly budget for your new purchase.
3. Determine what neighborhood or area of town best matches your needs.
4. Identify important features you want/need in a home.
7 Reasons To Own Your Home
1. 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.
2. 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.
3. 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.
4. 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.
5. 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.
6. 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.
7. 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.
Take The Stress Out Of Home Buying
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.
1. 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.
2. 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 loosing 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.
3. 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.
4. 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.
5. 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.
6. 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.
7. 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.
8. 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.
9. 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.
10. 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.
Loan Types To Consider
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 my 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 Veteran Affairs (www.va.gov) and offer special terms, including lower down payments or reduced interest rated 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.
10 Questions To Ask Your Lender
1. What are the most popular mortgages you offer? Why are they so popular?
2. Which type of mortgage plan do you think would be best for me? Why?
3. Are your rates, terms, fees and closing costs negotiable?
4. 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%. However, most lenders will let you discontinue PMI when you’ve acquired a certain amount of equity by paying down the loan.
5. Who will service the loan – your bank or another company?
6. What escrow requirements do you have?
7. 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?
8. How long will the loan approval process take?
9. How long will it take to close the loan?
10. Are there any charges or penalties for prepaying the loan?
Used with permission from Real Estate Checklists & Systems, www.realestatechecklists.com.
Tax Benefits Of Home Ownership
The tax deductions you are eligible to take for mortgage interest and property taxes greatly increase the financial benefits of home ownership.
Here’s how it works:
$9,877 = Mortgage interest paid (a loan of $150,000 for 30 years at 7%, using year five interest)
$2,700 = Property taxes (at 1.5% on $180,000 assessed value)
$12,577 = Total deduction
Then, multiply your total deduction by your tax rate. For example, at 28% tax rate: 12,577 x 0.28 = $3,521.56
$3,521.56 = Amount you have lowered your federal income tax (at 28% 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.
What A Home Inspection Should Cover
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
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.
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)
10 Questions To Ask Home Inspectors
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:
1. 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.
2. 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.
3. 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.
4. 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.
5. 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.
6. 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.
7. 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.
8. 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.
9. 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.
10. 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.
5 Things To Know About Title insurance
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:
1. 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.
2. It’s a one-time cost usually based on the price of the property.
3. It’s usually paid for by the sellers, although this can vary depending on your state and local customs.
4. 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.
5. 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.
5 Things To Know About Homeowner’s Insurance
1. Know about exclusions to coverage. For example, most insurance policies do not cover flood or earthquake damage as a standard item. (These types of coverages must be bought separately.)
2. 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.
3. 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.
4. 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.
5. 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.
Common Closing Costs For Buyers
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 Pro-rations: 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.
Closing Documents You Should Keep
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.
Sources: Credit Union National Association; Mortgage Bankers Association; Home-Buyer’s Guide (Real Estate Center at Texas A&M, 2000)
What Is A Home Warranty?
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
What Not To Overlook On A Final Walk-through
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 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.
Your Property Wish List
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:
What architectural style(s) of homes do you prefer?
Do you want to buy a home, condominium, or townhome?
Would you like a one-store or two-store home?
How many bedrooms must your new home have?
How many bathrooms much your new home have?
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
How much repair or renovation would you be willing to do?
Do you have special needs that your home must meet?
17 Tips For Packing Like A Pro
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.
1. 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)
2. Sort and get rid of things you no longer want or need. Have a garage sale, donate to a charity, or recycle.
3. 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.
4. 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.
5. 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.
6. Remember, most movers won’t take plants. If you don’t want to leave them behind, you should plan on moving them yourself.
7. Use the right box for the item. Loose items are prone to breakage.
8. Put heavy items in small boxes so they’re easier to lift. Keep the weight of each box under 50 pounds, if possible.
9. Don’t over-pack boxes. It increases the likelihood that items inside the box will break.
10. Wrap every fragile item separately and pad bottom and sides of boxes. If necessary, purchase bubble-wrap or other packing materials from moving stores.
11. 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.
12. 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.
13. 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.
14. 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.
15. Back up your computer files before moving your computer. Keep the backup in a safe place, preferably at an off-site location.
16. Inspect each box and all furniture for damage as soon as it arrives.
17. 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.