Buying Advice
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Looking For a Home
Before deciding which house to buy, think about your lifestyle, your current and anticipated housing needs, and your budget. It’s a good idea to create a prioritized list of features you want in your next home – you'll soon discover finding the right house involves striking a balance between your "must-haves" and your "nice-to-haves."
To start, consider your lifestyle. If you love to cook, you'll want a well-equipped kitchen. If you're into gardening, you'll want a yard. If you're planning your office at home, you may want a room for a separate library or work space. If you have several cars, you may require a larger garage. Use this list as your search guide.
Next, think about what you might need in the future. As you consider your housing needs, it's important to consider how long you may live in your home. If you're newly married, you might not be concerned with a school district right now, but you could be in a few years. If you have aging parents, you may want to look at homes that offer living arrangements for them as well as you.
It’s important to think about your new home’s location just as carefully as you do about a house’s features. Location is a huge part of any move. In addition to considering the distance to work, you need to evaluate the availability of shopping, police and fire protection, medical facilities, school and day-care, traffic and parking, trash and garbage collection, even recreational facilities.
Perhaps the most important decision is deciding on the type of home you want. Do you want a condominium or a co-op? A town house or a detached single-family home? Do you want brick, stone, stucco, wood, vinyl siding, or something else? Do you prefer a new home or an older one?
Through all of this, make sure to talk to your real estate professional about where you want to live. While more buyers now use the Internet to gain access to listings, or available properties for sale, it is still a good idea to use an agent. The agent brings value to the entire process: he or she is available to analyze data, answer questions, share their professional expertise, and handle all the paperwork and legwork that is involved in the real estate transaction. As a CENTURY 21 professional, I have the expertise to help you narrow down your choices by sharing market trends and local information.
Now that you know what you’re looking for, the next step is figuring out what you can afford. A review of your income, savings, monthly expenses, and debt will be necessary.
Early on in the process, you’ll want to get pre-qualified for a mortgage loan, which helps determine how much you can afford. It enables you to move swiftly when you find the right home, especially when there are other interested buyers. It also indicates to the seller that you are serious and can afford to buy the property. A pre-approval is a simple calculation done by a mortgage lender that tells you the amount you'll be able to finance through a loan and what your monthly payment will be. When you find a home to buy, a pre-approval also reassures the seller that you have the financial means to purchase his or her home.
Know what you can afford is the first rule of home buying, and that depends on how much income and how much debt you have. It pays to check with several lenders before you start searching for a home.
The price you can afford to pay for a home will depend on several factors, such as:
- gross income
- the funds you have available for the down payment, closing costs and cash reserves required by the lender
- your debt
- your credit history
- the type of mortgage you select
- current interest rates
Another figure lenders use to evaluate how much you can afford is the housing expense-to-income ratio. It is determined by calculating your projected monthly housing expense, which consists of the principal and interest payment on your new home loan, property taxes and hazard insurance (also known as PITI).
Each buyer is unique – and a mortgage professional can help you find out just what you can afford. Your income and your debts will typically play the biggest roles in determining your price range. It's simple to make an estimate, just run the numbers for yourself using my Affordability Calculator.
Buying a new home and selling an existing home at the same time has it’s own set of difficulties. But with planning, you can ensure everything goes smoothly.
Before putting your house on the market or committing to buying a new one, take a look at the prices of houses in the areas where you’ll be both selling and buying. You'll need a realistic idea of how much similar houses are going for. Since you're both a buyer and a seller, you'll need to protect yourself in your weaker role while letting your stronger role take care of itself.
What if you're unable to perfectly time the sale of one house with the purchase of another? You may own no houses for a time, in which case you’ll need money in the bank and a temporary place to live. Or, you may own two houses at once. That’s why it’s important to have a back-up plan. Here are some options to consider:
Research short-term rental and storage options (family, friends, storage facilities, containers).
A bridge financing is a loan for the down payment on a new home backed by the equity in your old house, typically at prime plus two percentage points.
Another option is a no-ratio mortgage. A no-ratio mortgage is usually made based on the buyer’s down payment, credit scores or assets. Income isn’t used or reported, and therefore will not exclude a borrower from receiving this mortgage. Rates are often higher but you can refinance later.
Alternatively, you may be able to draw on a home equity line of credit on your old home. However, you might pay a penalty fee if you sell the house within a year.
Buying a Second Home
Buying a second home isn't that much different than buying a first home. Affording it usually depends on your ability to qualify for a mortgage on the second home. Benefits include tax breaks, a getaway for the family on vacations or holidays, a future retirement home, renters making your mortgage payments for you, or just a smart investment.
Many people see buying a second home as an investment opportunity. You'll need to identify sources for your down payment, since you're not selling your current house and using the proceeds, and you'll need to expect a larger monthly obligation for housing expenses.
Keep in mind that if you declare it as a rental, your mortgage might be slightly higher. Work with your lender to create a customized loan program with the best combination of rate, points, and closing costs for your needs.
An important first step is selecting a buyer’s agent to help you find your dream home. As a buyer's agent, I can represent your interest in a real estate transaction. Before making a decision, however, I can help explain the pros and cons of using a buyer’s agent versus a sales or dual agent. As a CENTURY 21® agent, I can guide you through every step of buying your next home.
When you’re ready to visit houses, I can arrange showings, and keep track of the properties you’ve seen. Each time you view more properties, refer to your “what’s right for you” notes to immediately eliminate any that clearly do not meet your standards. And bring a digital camera to record what you see – you’ll be happy to have the record afterwards.
After touring each home, write down what you liked and didn’t like. Develop a rating system that will help narrow the field. For example, pick the house you like best on day one and compare all other houses to it. When you find a better one, use the new favorite as the standard.
Buying a home is one of the most important decisions you will make. That's why it's in your best interest to choose an experienced real estate agent who listens to and understands your needs, and works in the area where you want to live. When you choose to work with me, you're dealing with an experienced professional who understands your concerns and will provide you with the personalized service that makes all the difference. CENTURY 21 is in 42 countries, 7,800 offices, 104 languages, and represented by 143,000 agents who understand the life changes that real estate decisions can bring. What should you expect in our first meeting? I typically will talk to you about the neighborhood where you want to live, home prices, schools, transportation, and the surrounding commercial and residential areas.
Buying 101
Once you’ve found your dream house, it’s time to get started with the financial and contractual side of the purchase. I can guide you through this process. Purchase contracts vary in length and terms from state to state, and within a state, from locality to locality. Because you and the seller have different goals, rely on my experience and expertise. I can bring order and calm to the process and will know what questions you may not know to ask to help you reach a favorable outcome.
Multiple offers on the same home are not uncommon, so you may only get one chance to make an offer that the seller will consider. That's why it's important to think carefully about your strategy. In most cases it is better to have me negotiate the offer for you. If you have any personal interaction with the homeowner, don't give out any information about your move, your current housing status, financial status or your feelings about their property - positive or negative. This could hurt you in future negotiations.
How Much?
Find out what other homes have sold for in the area, how much money you might have to put into repairs or renovations. These considerations factor in with how much you're comfortable spending.
Also, it helps to know the features that help or hurt resale. In some areas, a swimming pool actually detracts from a home's value and makes it harder to sell. In neighborhoods with two-car, attached garages, a single-car or detached garage may affect the home sale and future value.
In addition to sale prices for other homes, there are several ways you can determine a good amount to offer:
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The condition of the house. Is the home in move-in condition, in need of paint and other cosmetic improvements, or a fixer-upper that needs some real work?
- The market. If you are in a buyer's market — where there are more homes for sale than there are people to buy them — prices are probably stable or falling. If you are in a seller's market — where there are more buyers looking for homes than there are homes for sale — prices are probably moving upward.
- Your ceiling. If you've gotten a credit pre-approval, you know how much you can borrow for your home purchase. Of course, you may not be comfortable paying as much as you've been approved to borrow, so think carefully about your financial situation before making an offer.
Next, decide how much you are willing to pay for a home. Remember, the advertised price of a house is just a starting point – it may take quite a bit of negotiating to arrive at a final cost.
Lease Options
A lease option is an arrangement between you and a seller to exercise the option to buy a house after you have rented it for a specific period. A portion of your rent would be applied toward the purchase if the option is applied. This is referred to as rent credit, which most institutional lenders will accept as part of the down payment if rental payments exceed the market rent and if a valid lease-purchase agreement is in effect, a copy of which must be attached to the loan application. Read any lease-option arrangement carefully for details on transferring the option and other important concerns.
For information on lease options, contact me directly or read up on lease options at the public library or on the internet. If you have a real estate attorney, ask if he or she has any prepared information you can review.
The All-Cash Offer
Though most buyers don’t buy a home with all cash, anyone considering such a move may be wondering how. Because all cash buyers sidestep the time-consuming loan qualification process, the deal can close very quickly. The all-cash buyer's primary advantage is completely avoiding mortgage interest. Buyers also save money that would be spent on loan origination fees, required appraisal, some closing costs and various other charges imposed by the lender.
At the same time, all-cash buyers should consider potential pitfalls of the transaction. Buyers who want to use the home as their primary residence lose out on many of the tax advantages available to homeowners with conventional loans.
If you can afford to pay cash but are concerned about price appreciation, you may be better off obtaining some financing. Also, look at other investments that are paying off and determine if spending cash on a home is worthwhile.
Unless you have enough money to pay for a house yourself, you’ll need a mortgage. A mortgage is a loan you take out to finance the purchase of your home. It is also a legal contract stating that you promise to make a monthly payment until your loan is paid off.
Today, there are hundreds of different programs to choose from, but don’t let that overwhelm you. Most loans are variations of a fixed-rate mortgage and adjustable rate mortgage. Knowledge of how these mortgage programs work will help you to understand the majority of available loan options. You may qualify for a new loan without even selling your current home. It's simple to run the numbers for yourself on my Affordability Calculator.
Fixed-Rate Mortgages
A fixed rate mortgage keeps the same interest rate for the life of the loan. For most people, especially first time homebuyers, this is the best option because you pay the same monthly principal and interest rate.
A fixed-rate mortgage means the interest rate and the payments remain the same for the entire life of the loan (taxes, of course, may change.) Advantages include consistent principal and interest payments, making this loan stable. In other words, your rate won't change, so you don't need to worry about market fluctuations.
Disadvantages include a possibly higher cost. These loans are usually priced higher than an adjustable-rate mortgage. Keep in mind that, on average, most people move or refinance within seven years. If rates in the current market are high, you're likely to get a better price with an adjustable-rate loan.
30 Year Fixed-Rate Mortgages offer consistent monthly payments for the entire 30 years you have the mortgage. So if the market is good, you can benefit from locking in a lower rate for the full term of the loan.
20 Year Fixed-Rate Mortgages allow you to make a consistent monthly payment throughout the 20 years you have the mortgage. The shorter term means you pay the loan off more quickly, and therefore pay less interest. And you'll build equity faster than you would with a 30-year loan. (But remember the shorter term means higher payments, when compared to the 30 year fixed-rate mortgage.)
15 Year Fixed-Rate Mortgages provide consistent monthly payments for the 15 years you have the mortgage. By building equity even more quickly than with a 30 year or 20 year loan, and paying less interest, you'll save money in the long run. It's an ideal option if you can handle the higher payments and if you'd like to have the loan paid off in a shorter period of time - for instance, if you plan to retire.
Adjustable-Rate Mortgages
An adjustable-rate mortgage (ARM) is one that the interest rate changes over the life of the loan - according to the terms specified in advance. The interest rate fluctuates based on several money market indexes, which cause the cost of funds for lenders to vary. All ARMs are amortized (paid down) over 30 years.
With ARMs:
The initial interest rate is usually lower than with a fixed-rate mortgage.
The monthly repayment would also be lower.
The interest rate may be adjusted (up or down) at predetermined times.
The monthly payment will then increase or decrease.
ARMs are usually priced lower than fixed-rate mortgages so you can increase your buying power and lower your initial monthly payments. If interest rates go down, you'll enjoy lower payments. Usually an ARM is the best choice for homeowners who plan to relocate (for example, with their company or the military), or for those who are purchasing their first home and plan to be in the property only for three to five years. Remember that, on average, most people move or refinance within seven years.
Conversely, monthly payments could increase if monthly payments if interest rates go up. Keep in mind that ARMs are best for homeowners who aren't planning on staying with a property for a long period. If you're on a fixed income, an ARM (especially a short-term ARM) may not be your best choice.
10/1 Adjustable-Rate Mortgages provide a fixed initial rate of the loan for the first ten years of repayment. After 10 years, the rate adjusts every year thereafter for the remaining life of the loan. The loan is amortized over 30 years.
7/1 Adjustable-Rate Mortgages offer an initial rate that is fixed for the first seven years of repayment, then the rate adjusts every year thereafter for the remaining life of the loan.
5/1 Adjustable-Rate Mortgages mean the initial rate remains fixed for the first five years of repayment, and then adjusts every year thereafter.
3/1 Adjustable-Rate Mortgages provide three years at the initial fixed-rate, then the rate adjusts every year for the remaining life of the loan. A good choice if you expect to move or refinance in a relatively short period of time. But a much shorter fixed-rate period means your interest rate (and therefore monthly payments) may begin to fluctuate after three years.
New Construction Loan
If you are working with a builder in a sub-division or development you may be able to obtain a standard mortgage loan. But if you're hiring contractors, electricians, plumbers, and painters, you will probably need a construction loan, which provides funds to pay subcontractors as work progresses.
Assumable Loans
Assumable loans permit one borrower to take over a loan from another borrower without any change in the loan terms. Such loans still exist but they aren't very common or popular (for buyers) in a low-interest-rate environment. Plus, today new assumable loans are almost always adjustable rate mortgages. To find out if a loan is assumable, look to the loan agreement to determine if it is assumable by someone else, then talk to the lender about specific requirements based on the value of the home.
Home equity mortgage
A home equity mortgage, like a second mortgage, lets you tap into a percent of the appraised value of your home, minus your current mortgage balance. Like a line of credit, you will not be charged interest until you actually make a withdrawal against the loan, although you will be responsible for paying closing costs.
Of particular importance: make sure you understand the terms of the loan. If, for example, your loan requires that you pay interest only for the life of the loan, you will have to pay back the full amount borrowed at the end of the loan period or risk losing your home.
Reverse Annuity Mortgages (RAMs)
A reverse annuity mortgage is a special type of loan available only to older homeowners with full or nearly full equity in their homes. Such owners can borrow against the equity they have built up over the years, but no repayment is necessary until the borrower sells the property or moves elsewhere. If the borrower dies before the property is sold, the estate repays the loan (plus any interest that has accrued). These loans have become increasingly popular. If you believe you qualify for such a loan, be sure to have the document reviewed by an attorney or financial advisor.
Home equity line of credit
A home equity line of credit is a form of revolving credit in which your home serves as collateral. Because the home is likely to be a consumer's largest asset, many homeowners use their credit lines for major expenses such as education or medical bills.
With a home equity line, you will be approved for a specific amount of credit, and this is the maximum amount you may borrow at any one time under the plan. The interest rates on these loans are usually variable.
Refinance Loans
Bridge Loan
A bridge loan is short-term loan that is used until a person or company secures permanent financing or removes an existing obligation. This type of financing allows the user to meet current obligations by providing immediate cash flow. The loans are short-term (up to one year) with relatively high interest rates and are backed by some form of collateral such as real estate or inventory. Bridge loans are also known as interim financing, gap financing or a swing loan.
As the term implies, these loans "bridge the gap" between times when financing is needed. They are used by both corporations and individuals and can be customized for many different situations. For example, let's say that a company is doing a round of equity financing that is expecting to close in six months. A bridge loan could be used to secure working capital until the round of funding goes through. For an individual, bridge loans are common in the real estate market. As there can often be a time lag between the sale of one property and the purchase of another, a bridge loan allows a homeowner some flexibility.
Wrap-Around Loans
A wrap-around mortgage is a loan transaction in which the lender assumes responsibility for an existing mortgage. A seller will usually incorporate a late charge to encourage the buyer to make monthly loan payments on time.
A wrap-around is attractive to lenders because they can leverage a lower interest rate on the existing mortgage into a higher yield for themselves. Usually, but not always, the lender is the seller. In general, only assumable loans are wrappable.
Fanny Mae
Federal National Mortgage Association, commonly referred to as "Fannie Mae" is a congressionally chartered secondary-mortgage market company that buys loans from private lenders. Because the firm is so big and has been involved in purchasing packages of loans from lenders for 25 years, it has enormous influence on the mortgage market.
Fannie Mae's [Community Home Buyers Program] allows first-time buyers with little cash to obtain 95 percent financing. Participants may put down as little as 3 percent of their own money, with the remainder permitted in the form of a gift from family members, a government program or nonprofit agency. Mortgage insurance is required on all loans above 80 percent loan-to-value ratio when borrowers do not use their own funds for at least 5 percent down.
The program is administered through participating lenders, and there are income limits in different states. However, the income restriction is waived when borrowers participate in the Fannie Neighbors program. Fannie Neighbors also has lower income requirements for borrowers who want to buy in designated central cities. Fannie Mae's Community Home Buyers program has an income cap of 120 percent of the area's median income. In addition, the borrower must attend a seminar on home ownership and the home buying process. It is not geared only for first-time homebuyers, unlike many of the other low-down -payment programs on the market.
Fannie Mae is expanding the availability of low-down-payment loans in an effort to help more people nationwide qualify for a mortgage. Two new programs will help potential buyers overcome two of the most common obstacles to home ownership, low savings and a modest income.
To address many first-time buyers' struggles to save the down payment, Fannie Mae developed Fannie 97. The program provides 97 percent financing on a fixed-rate mortgage with either a 25- or 30-year loan term through Fannie Mae's Community Home Buyers Program.
Fannie Mae's Start-Up Mortgage assists buyers with a 5 percent down payment who are at any income level. Yet applicants do not need as much income to qualify and less cash for closing than with traditional mortgages. Borrowers receive a 30-year, fixed-rate mortgage with a first-year monthly payment that is lower than the standard fixed-rate loan. Freddie Mac, Fannie Mae's counterpart, also offers low-down-payment loan programs.
For a list of participating lenders, call Fannie Mae at (800) 732-6643.
Alternative (A,B,C,D) Loans
Traditional lenders who offer conforming loans are extremely competitive. They must offer desirable terms or lose their share of the market. Meanwhile, hopeful home buyers who were rejected often turn to mortgage brokers and specialized mortgage lending businesses. Alternative lending sources not only offer a variety of loan products but also are more willing to deal with higher debt-to-income ratios, credit problems and other credit challenges.
In cases where negative information on a credit report may be due to disappear in the next few years, or a borrower expects their income to increase significantly, non-conforming loans without excessive prepayment penalties can be excellent. The borrower can obtain a conventional loan as soon as they qualify, yet enjoy the benefits of home ownership and establish equity in the meantime. Many homebuyers engaged in this process look at these unconventional loans as a penalty while others are grateful for a second chance.
Easy-Qualifier Loans (No-Doc Loans)
Generally, lenders will not make loans to unemployed persons because someone without an income would seemingly have no way of making monthly mortgage payments. However, there are home loans for which lenders require very little loan documentation as long as the borrower puts down a sizable down payment, generally 25 percent or more. These "no-doc" loans are common among self-employed people who say they earn a certain amount of money but whose income tax returns show that their earnings are much lower. Borrowers should check directly with lenders when seeking a no-doc loan.
Negative Amortization
Negative amortization occurs when the monthly payments on a loan are insufficient to pay the interest accruing on the principal balance. The unpaid interest is added to the remaining principal due. When home prices are appreciating rapidly, negative amortization is less of a possibility than when prices are stable or dropping, particularly for the borrower who has made a small cash down payment to begin with. The combination of negative amortization and depreciation in home prices can result in a loan balance that is higher than the market value of the home. Adjustable rate mortgages with payment caps and negative amortization are usually re-amortized at some point so that the remaining loan balance can be fully paid off during the term of the loan. This could necessitate a substantial increase in the monthly payment. Most ARMs have a limit on the amount of negative amortization allowed, usually 110 to 125 percent of the original loan amount. If the loan balance exceeds this amount, the borrower has to start paying off the excess.
Balloon Mortgage
A Balloon Mortgage is a loan in which the entire unpaid principal becomes due and payable on a given date, five, ten, or any number of years in the future. The borrower must pay up, refinance, or lose the property. Interest rates on balloon mortgages are lower than for fixed-rate mortgages. So the monthly mortgage payments will be lower than the monthly payments for conventional mortgages.
Low-Cost Loans
There isn’t really such a thing as a low-cost loan. The term “no-cost” loan is misleading because borrowers are actually paying a higher interest rate in exchange for not having to pay fees or closing costs up front when the loan is secured. While some lenders may promote "no-cost" loans, regulators have tightened restrictions on this. Advertised "no-fee" loans may actually cost the borrower more because these costs are rolled into the new note through higher interest or more principal.
A typical no-fee loan is one in which the points charged and all fees are included in the loan principal, meaning that the borrower does not pay these expenses at the close of escrow, but instead ends up paying them over the life of the loan. The loan is called a no-fee loan because the borrower is not charged any fees up front.
A “no-points” loan is one that the lender does not charge points (one point is equal to 1 percent of the loan amount). But there are other fees involved in no-point loans, as with most loans.
Buying a new home and selling an existing home at the same time has it’s own set of difficulties. But with planning, you can ensure everything goes smoothly.
Before putting your house on the market or committing to buying a new one, take a look at the prices of houses in the areas where you’ll be both selling and buying. You'll need a realistic idea of how much similar houses are going for. Since you're both a buyer and a seller, you'll need to protect yourself in your weaker role while letting your stronger role take care of itself.
What if you're unable to perfectly time the sale of one house with the purchase of another? You may own no houses for a time, in which case you’ll need money in the bank and a temporary place to live. Or, you may own two houses at once. That’s why it’s important to have a back-up plan. Here are some options to consider:
Research short-term rental and storage options (family, friends, storage facilities, containers).
A bridge financing is a loan for the down payment on a new home backed by the equity in your old house, typically at prime plus two percentage points.
Another option is a no-ratio mortgage. A no-ratio mortgage is usually made based on the buyer’s down payment, credit scores or assets. Income isn’t used or reported, and therefore will not exclude a borrower from receiving this mortgage. Rates are often higher but you can refinance later.
Alternatively, you may be able to draw on a home equity line of credit on your old home. However, you might pay a penalty fee if you sell the house within a year.
Buying a Second Home
Buying a second home isn't that much different than buying a first home. Affording it usually depends on your ability to qualify for a mortgage on the second home. Benefits include tax breaks, a getaway for the family on vacations or holidays, a future retirement home, renters making your mortgage payments for you, or just a smart investment.
Many people see buying a second home as an investment opportunity. You'll need to identify sources for your down payment, since you're not selling your current house and using the proceeds, and you'll need to expect a larger monthly obligation for housing expenses.
Keep in mind that if you declare it as a rental, your mortgage might be slightly higher. Work with your lender to create a customized loan program with the best combination of rate, points, and closing costs for your needs.
Your chances of obtaining a mortgage really depend on all the information that will be contained in the credit report. So, it’s a good idea to get your credit report, before you apply for a mortgage, and correct errors. If there are any inaccuracies you don’t know about, this could cost you thousands of dollars in extra interest or even cause a denial of credit.
When you apply for a mortgage, the lender will want a lot of information about you (and, at some point, about the house you'll buy) to determine your loan eligibility. Here's what you'll need to provide:
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The name and address of your bank, your account numbers, and statements for the past three months
- Investment statements for the past three months
- Pay stubs, W-2 withholding forms, or other proof of employment and income
- Balance sheets and tax returns, if you're self-employed
- Information on consumer debt (account numbers and amounts due)
- You'll sign authorizations that allow the lender to verify your income and bank accounts, and to obtain a copy of your credit report. If you've already made an offer on a house or condo, you'll need to give the lender a purchase contract and a receipt for any good-faith deposit that you might have given the seller.
Once you apply, your lender will verify all the information you’ve provided. This is a loan approval process and it can take one to eight weeks, depending on the type of mortgage you choose and other factors that will affect your approval such as fulfillment of contract contingencies.
As your mortgage application is processed and finalized, your lender is required by law to give you several documents. Within three business days of applying for the loan, the lender must inform you of the mortgage's effective rate of interest, or annual percentage rate (APR). If relevant, the lender must also give you consumer information on adjustable rate mortgages. In addition, the lender is required to give you an itemized good-faith estimate of your closing costs and a government publication that explains those costs.
Since the home that you're purchasing will serve as collateral for the loan, the lender will order a market value appraisal of the property. The lender will not lend you more than a certain percentage of the value of the property. If your down payment will be less than 20 percent of the value of the property, your loan will require private mortgage insurance, and the lender will obtain insurer approval. If the lender has not already done so as part of a pre-approval process, it will verify your employment and bank accounts as well as obtain and evaluate your credit report.
Want more information? Contact me today and I will be happy to help you.
This is a major step in the buying process and there are many potential problems that can be discovered during this period. These include a leaky roof, radon gas, termite damage, a foundation problem, and wall cracks, to name a few. These problems happen all the time. The difference between closing on your dream home and starting the process all over again is what occurs during the negotiations between you and the seller.
As your CENTURY 21® Real Estate Professional, I can help make these discussions go more smoothly. In most states you will also have the option of a "walk through" before the closing. This is your last chance to make sure that all of the items that you have agreed upon were completed to your satisfaction.
Protecting your new home with insurance is a must. How well you do that depends on the details of your policy. And while you are not legally required to have homeowners' insurance, mortgage lenders stipulate that you do.
A standard policy will suffice in most instances. It protects against several natural disasters and catastrophic events. However, it will not guard against earthquakes, floods, war, and nuclear accidents. The policy can be expanded to include these disasters as well as coverage for such things as workers' compensation. In fact, the lender may require that you purchase flood or earthquake insurance if the house is in a flood zone or a region susceptible to earthquakes. You also can increase coverage beyond the depreciated value of personal property such as televisions and furniture by purchasing a replacement-cost endorsement.
The closing meeting is where ownership of the home is officially transferred from the seller to you. Most of the people involved with the purchase of your home will attend your loan closing. The closing is a formal meeting typically attended by the buyer and the seller, both real estate sales professionals, a representative of the lender, and the closing agent.
First, the closing agent reviews the settlement sheet with you and the seller and answers any questions. Both you and the seller sign the settlement sheet.
Then, the closing agent asks you to sign the other loan documents. Evidence of required insurance and inspections is also presented (if it wasn't previously given to the lender).
After that, if everyone agrees that the papers are in order, the buyer submits payment to cover the closing. If the lender will be paying your annual property taxes and homeowner's insurance for you, a new escrow account (or reserve) is established at this point.
Finally (here’s the best part) you receive the keys to your new home!
After the meeting, the closing agent officially records the mortgage and deed at your local government clerk's office or registry of deeds. This legal transfer of the property may take a few days after closing. The closing agent usually will not disburse the funds to everyone who is owed money from the sale (including the seller, real estate professionals, and the lender) until the transaction has been recorded. It is at the point of deed recordation that you become the official owner of the home.
Six to Eight weeks prior:
- Purchase or rent moving supplies: tape, markers, scissors, pocketknife, newspaper, blankets, moving pads, plastic storage bins, rope and a hand truck. Free boxes can usually be obtained at a local supermarket, but consider purchasing wardrobe boxes for moving clothes.
- Have a garage sale to clear out unwanted items and plan accordingly. Consider donating unwanted items.
- Keep a detailed record of all moving expenses. Your costs may be tax deductible depending on the reasons for your move.
Two weeks prior:
- Hire a reputable mover or rent a moving truck. Be sure to get referrals or references, check with the Better Business Bureau, get estimates, purchase moving insurance.
- Two weeks before moving day, contact your telephone, electric, gas, cable/satellite, refuse and water companies to set a specific date when service will be discontinued. Contact utilities companies in your new town about service start dates, including Internet & long distance telephone services.
- Notify healthcare professionals (doctors, dentists, veterinarians) of your move and ask for referrals and record transfers.
- Register children for school and ask for school records to be transferred.
- Notify lawn service, cleaning and security companies when service should be terminated.
- Advise the post office, publications and correspondents of change of address and date of move.
- Check your homeowner's insurance and make arrangements for new coverage.
Moving Day
- Have tools handy for breaking down beds and appliances.
- Move valuables (jewelry, legal documents, family photos & collections) yourself - don't send them with the moving company. Make sure you have a complete Home Inventory of all your possessions.
- Give every room a final once over. Don't forget to check the basement, yards, attic, garage and closets.
- Have the final payment for the movers and money for a tip
- Don't forget to check in with me as I may be able to provide useful local advice and/or referrals.
Selling Advice
click on a topic below to learn more
Marketing Plan
The common top three listing agreement choices are:
1)Open Listing
2)Exclusive Agency Listing
3)Exclusive Right-to-Sell Listing
The best choice for you will depend on your willingness and ability to tackle some of the home selling duties and the local real estate market climate.
- Open Listing
An open listing lets an owner sell her home by herself. It is a non-exclusive agreement, meaning the owner may execute open listings with more than one real estate broker and pay only the broker who brings an able buyer whose offer the owner accepts.
- Exclusive Agency Listing
An exclusive agency listing is similar to an open listing except the major difference is the agent will represent the owner. The owner still reserves the right to sell the property herself and not pay a commission. The broker is free to cooperate with another brokerage, meaning the second brokerage could bring an able buyer whose offer the owner accepts. Typically, the broker is paid a listing commission that is shared with the selling broker, so the owner pays both fees.
- Exclusive Right-to-Sell Listing
An exclusive right-to-sell listing is the most commonly utilized instrument. It gives the broker the exclusive right to earn a commission by representing the owner and bringing a buyer, either through another brokerage or directly. The owner pays both the listing and selling broker fees. The owner cannot sell the property herself without paying a commission, unless an exception is noted in the contract.
Selling can entail a variety of marketing strategies. Once listed, it's likely that the home will be quickly entered into the local MLS (Multiple Listing Service) and placed on Century21.com and my site, BetterCincinnatiHomes.com. Much of my work will be quiet and unseen – yet important. The quiet telephone calls, the work with contacts, arranging for and marketing open houses, the follow-ups with open-house visitors, conversations with ad respondents, web postings and other outreach efforts are all part of the process required to sell homes.
As your agent, I will create a marketing plan for your home that will help distinguish it in your local marketplace and attract buyers to your property. This may include posting your listing on the Internet, holding an open house and more. I use the CENTURY 21 Customized Marketing System to create a personalized selling program for my clients. Its purpose is to sell a home at the best price possible in the shortest amount of time.
A key part of the marketing plan is setting the list price. If a home is priced too low, you won’t benefit from the optimal profit. If a home is priced too high, potential buyers may be scared away. To determine the best asking price review the cost of recently sold homes, evaluate the competition and study marketplace trends. I am trained to use this information to help you reach the right asking price. It is also helpful to discuss other terms and conditions, such as timing and items that can be included with the sale of the home. Both of these can make your home more attractive to potential buyers.
1) Location: You can't get away from this one. If your house is located in a desirable area that is in demand, you will be able to get a higher price than you can for the same house in a less desirable area.
2) Condition: A house that has been better maintained and shows better will always sell for more than one that has had deferred (neglected) maintenance and needs work.
3) Desirable amenities: If a house has amenities that are currently popular in the marketplace, it will bring a higher price.
4) Calculate the price per square foot: The average price per square foot for homes in your neighborhood shouldn't be the sole determinant of the asking price for your home, but it can be a useful starting point. Keep in mind that various methodologies can be used to calculate square footage.
A formal written appraisal can be useful if you have unique property, if there hasn't been much activity in your area recently, if co-owners disagree about price, or if there is any other circumstance that makes it difficult to put a value on your home. Appraisers consider the location of the home, its proximity to desirable schools and other public facilities, the size of the lot, the size and condition of the home itself and recent sales prices of comparable properties, among other factors.
Although the buyer is a guest in your home, you want the buyer to imagine owning the home. You don't want to make the buyer feel like an intruder.
Now it's time to get your home ready for the spotlight. Start with a good cleaning, then eliminate any clutter, add a fresh coat of paint and tidy up the yard. Talk to your real estate professional about other tips that can help boost a home's curb appeal and impress potential buyers once they're in the door. One way to make a home more attractive is to purchase a Home Protection Plan. This insurance protects you, the seller, from paying repair or replacement costs of major items during the listing period. It also protects the buyer during their first year of homeownership.
- Check the Temperature
If weather permits, open the windows -- if there is too much noise outside, close them. And if it's cold enough to wear a sweater to stay warm, turn on the heat. You want the temperature inside to be comfortable and to give the buyer more of a reason to linger, especially on hot or cold days!
- Create a Mood Light
A fire in the fireplace, and if you have water fountains, turn them on. They are especially useful for drowning out traffic noise.
- Play Up the Visual
Open all the window coverings to let in light. Keep blinds partially closed that otherwise show undesirable outdoor scenery such as a dilapidated fence or a nearby structure that obstructs views. If you have seasonal photographs showcasing flower gardens, leaves bursting in color or a snow-covered lawn twinkling from street lights, then display them in a prominent position. Turn on every light in the house, including appliance lights and closet lights. Brighten dark rooms with few windows by placing spot lights on the floor behind furniture.
The Sale
When a buyer is ready to make you an offer they will contact you or me to let us know. Buyers should present their offer formally with a contract of purchase and sale. These documents can be obtained from the buyers or sellers agent, lawyer, or notary. If you are going to use their services to review the contract, and later transfer the property title to the successful buyer, they will happily supply you with some blank copies for free. It is also advisable to review one to become familiar with a typical real estate purchase and sale contract.
Most home buyers and home sellers want to arrive at a win-win agreement, but that's not to say either side would regret getting a bigger “win” than the other. Successful negotiating is more than a matter of luck or natural talent. It also encompasses the learned ability to use certain skills and techniques to bring about those coveted win-win results.
1. Start with a fair price and a fair offer
There's no question that significantly overpricing your home will turn off potential buyers. Likewise, on the buying side, making an offer that's far lower than the asking price is practically guaranteed to alienate the sellers. Asking and offering prices should be based on recent sales prices of comparable homes.
2. Respect the other side's priorities
Knowing what's most important to the person on the other side of the negotiating table can help you avoid pushing too hard on hot or sensitive issues. For example, a seller who won't budge on the sales price might be willing to pay more of the transaction costs or make more repairs to the home, while a buyer with an urgent move-in date might be willing to pay a higher portion of the transaction costs or forgo some major repairs.
3. Be prepared to compromise
"Win-win" doesn't mean both the buyer and the seller will get everything they want. It means both sides will win some and give some. Rather than approaching negotiations from an adversarial winner-take-all perspective, focus on your top priorities and don't let your emotions overrule your better judgment.
If a seller helps to finance a real estate transaction by taking back a second note or even financing the entire purchase if the seller owns the home free and clear it is called seller financing. Usually sellers do this when a buyer has difficulty qualifying for a conventional loan or meeting the purchase price.
Seller financing differs from a traditional loan because the seller does not give the buyer cash to complete the purchase, as does a lender. Instead, it involves extending a credit against the purchase price of the home while the buyer executes a promissory note and trust deed in the seller's favor. These special circumstances must be acceptable to the lender who makes the first mortgage on the property.
The necessary paperwork is prepared by the title or escrow company after the terms are worked out between the buyer and seller. If you are a seller considering such an arrangement, it is critical to thoroughly evaluate the creditworthiness of the buyer first. You should consult with legal counsel and your accountant regarding the potential consequences of this type of arrangement. Fear of default makes many sellers reluctant to take back a second. But seller financing can bring a higher price plus complete the sale sooner in some situations. For more information, contact the Internal Revenue Service for a copy of its Publication 537, "Installment Sales." Order by calling (800) TAX-FORM.
Seller financing offers tax breaks for sellers and alternative financing for buyers who can't qualify for conventional loans. If you are a seller, the risks you face are the same as those facing any lender: Is the borrower a good credit risk? Will the property hold enough value over time to allow for the repayment of all loans made against it? You should run a full credit check on the borrower, require hazard insurance on the property and include a due-on-sale clause. There also are financing, disclosure and repayment-term requirements that need to be met. Again, it is wise to consult a lawyer when putting together this kind of transaction.
The interest rate on an owner-carried loan is negotiable. Ask your agent to check with a lender or mortgage broker to determine the current rate on institutional first (or second) loans. Seller financing typically costs less than conventional financing because sellers don't charge loan fees (points). Interest rates on an owner-carried loan will also be influenced by current Treasury bill and certificate of deposit rates. Sellers usually aren't willing to carry a loan for a lower return than they would earn if their money was invested elsewhere.
Your home is in escrow, and the buyer has scheduled a home inspection. A home inspection is a thorough visual examination of the home and property. The process usually takes two to three hours, during which time the house is examined from the ground up. The inspection includes observation and, when appropriate, operation of the plumbing, heating, air conditioning, electrical, and appliance systems, as well as structural components: roof, foundation, basement, exterior and interior walls, chimney, doors, and windows.
It’s important to remember that a home inspection does not detect every conceivable flaw. It is an inspection of those areas and items that can be seen. Home inspectors cannot see through foundations, floors or walls, and cannot inspect areas or items that are inaccessible.
A pre-sale inspection enables you to attend to problems before the house is put on the market, it also removes any questions about the condition of your home for you and a potential home buyer. Buyers are positively influenced by a professionally produced home inspection report, which improves the speed, price, and likelihood of a sale.
Some home sellers elect not to correct every defect reflected in the inspection report. Instead, they acknowledge the defects to buyers and explain that the asking price has been adjusted to reflect the estimated cost of repairs. Such candor tends to shorten negotiation time because buyers have fewer objections that could thwart a sale. In addition to facilitating the sale of a home, an inspection helps the homeowner comply with full-disclosure real estate laws, governed by state laws. By focusing on the condition of your property, you are less likely to overlook a defect or material fact for which you later could be held liable.
Qualified inspection companies will provide a sample report to substantiate that they abide by industry standards. One of the key standards is that ethical inspectors neither perform repairs nor refer clients to repair companies (thus avoiding a conflict of interest). Obviously, inspectors who make repairs on homes they inspect are more likely to "find" defects.
Once you have arranged for a home inspection, plan to accompany the inspector for the entire procedure. You have the right to be there, and leading home inspection companies will encourage your presence. It helps you to better understand the findings in the report, and will reduce post-closing hassles. Don't forget your list of questions and items of concern. A thorough home inspection covers more than 1,000 items, everything from the foundation to roof and takes two to three hours depending on the size of the property. The report should reflect the condition of about 400 items.
Closing & Beyond
Closing -- or “settlement” or “escrow” -- is essentially a meeting where the closing agent (the party who conducts settlement) takes in money from the buyers, pays out money to the owner and makes sure that the purchaser's title is properly recorded in local records along with any mortgage liens. All papers have been prepared by closing agents, title companies, lenders and lawyers. This paperwork reflects the sale agreement and allows all parties to the transaction to verify their interests. For instance, buyers get the title to the property, lenders have their loans recorded in the public records and state governments collect their transfer taxes.
The closing agent reviews the sale agreement to determine what payments and credits the owner should receive and what amounts are due from the buyer. The closing agent also assures that certain transaction costs are paid (taxes and title searches).
Closing is also the time when "adjustments" will be made. For instance, suppose you've pre-paid taxes four months in advance. In this case, the closing agent will compensate you for the prepayment at closing by having the buyer pay you additional money.
It could also work in reverse. If you are behind on property taxes, the closing agent will reduce the money due to you at settlement by the amount of the unpaid taxes.
The Closing Paperwork generally consists of the following documents:
Deed - A legal description prepared by an attorney to transfer and record, in public records, ownership of property.
Title Insurance Policy and Certificate of Title - This coverage is issued by the title company after completion of the title search. They check to see if there are any judgments, liens or attachments that need to be taken care of to `clear' the title. After checking on unpaid taxes and assessments (e.g., sidewalks or sewer), the attorney provides a certificate of title to the lender and the buyer.
Homeowner’s Insurance Policy - New home buyers must obtain a `binder' for new coverage on the home, and the seller is generally required to keep the property insured against loss or damage prior to the Closing to protect the new buyer's interests.
Mortgages - The mortgage contract gets recorded to protect the mortgage lender's interests. When a mortgage is paid off (also known as 'satisfied'), the home buyer will receive a copy of the "satisfaction of mortgage" which is a document that indicates that the mortgage has been paid in full.
Property Tax Bill - Many homeowners will supply a copy of their property tax bill to the home buyers; if not, a copy can be obtained from the town or city hall Assessor's office.
Warranties and Service Records - Home buyers appreciate these records, if available from the home sellers, as they can aid in obtaining satisfaction if a product or service fails within the given time or usage limits. It is also helpful to know what service people the sellers have used in the past as they experience, sometimes for the first time, the maintenance of a home (furnace cleaning, snow plowing, plumbers, etc.)
Plot Plans and Surveys - An up-to-date survey will be required for the closing. You can look up a the current plot plan at the town hall and obtain a copy for a nominal fee.
Water and Sewer Bills - Proof of payment by the seller will probably be required for the Closing.
Utilities Records - Homebuyers generally arrange for services to be changed the day of or day after your Closing. Check with each service provider to determine how they handle requests and what is required for final readings and new service setups.
Whether you have moved once or a dozen times, it never seems to get any easier. Here are some hints that we hope you will find helpful as you prepare for moving day.
- Make agreements with buyers about possession of the home and moving date. Having sellers and buyers meet on the front walk – each with a house full of furniture – is not a happy situation.
- Start planning early. Once you are confident that you will be proceeding with the sale, start weeding out your current possessions. Toss (or give away, sell at a yard sale, or on-line) things that you don't want to move.
- Make a list on any important items you will need to buy for your new house. Examples: draperies, blinds, shower curtains, etc. Having these things with you on the day you move in prevents unnecessary surprises.
- Start packing early. Anything that you are sure you will not be using before moving day should get boxed.
- Mark every box and carton. Again, it makes it much easier if you need an item before you move, and makes it much simpler after you move. Unpacking will probably be somewhat of a gradual process--this way you know where the most necessary items are located.
At first, selling your home seems daunting: You haven't sold a home before, the market looks complex, and what worked for owners 10 or 20 years ago seems inappropriate today.
What steps should you take? Here's a simple list to get you started.
1. You Can Do It. Some 5.65 million existing homes were sold in 2007* , more than 15,000 a day. Other owners have done it and so can you.
2. Define Your Goal. Do you want the highest sales price -- or the biggest check at closing? They're not necessarily the same. Imagine that two homes sell for $300,000, but one owner pays 2 points and agrees to replace the roof. The owner who sold without such costs got a bigger check at settlement. The bottom line: To have a successful sale you need to look at both price and terms -- you must have a strong negotiator in your corner.
3. Times Have Changed. Today's real estate marketplace is radically different when compared with 10 years ago. Purchasers now use the Internet, receive seller disclosure forms, get home inspections, and are routinely represented by buyer brokers. The result is that buyers can be better prepared than in the past.
4. Sparkle And Shine. Imagine going to a supermarket and seeing dusty fruit or aisles filled with old shelving and cans. It doesn't happen because the grocery store knows how to present its goods. Sellers must do the same. Get rid of things you don't want to move, organize closets and storage areas, and clean everywhere.
5. Mechanics Count. Buyers expect everything to work. Home inspections are now entirely common and what buyers miss home inspectors will catch. Fix and paint things now and they won't be an issue in the future.
6. Set the stage. When buyers see your home, it's showtime. They want an environment where they can see themselves. De-clutter and hide knick knacks that will distract them from their dreams. Given them a show where everything is painted, arranged, and attractive, a home where the only issue is when to move in.
7. Know the market. Real estate is local. I can help explain current market trends in your community, including what's selling, what isn't selling, and why. This information is central to getting the optimal price and terms.
8. Know the competition. Your property will be competing with other homes for buyer attention. Ask me how you can be competitive -- and how to have an edge.
9. Be realistic. Markets differ by location and time. When interest rates are low and the local job base is growing, it's great to be a seller. But when times are slack and mortgage rates are rising, homes also sell. The trick is to be realistic, to get as much as market conditions will allow.
10. Have a plan. Real estate marketing involves far more than a sign in the yard and an ad in the paper. Successful brokers use a variety of methods to attract and qualify prospects, including the latest Internet and communication advances.
