| First-Time Home Buying
Selling Your Home
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First-Time Home Buying
NEW YORK, Dec. 15, 2005
(CBS) The process of shopping for and buying a home can be an overwhelming
experience, especially for first-time homebuyers. Add the element of uncertainty
and the whole process can be downright stressful. (What if you don't get
approved for the mortgage you want? What if the inspection uncovers problems?
What if the closing is delayed?)
The more knowledgeable and prepared you are about the process,
the more likely you'll be able to minimize the hassles.
Buying vs. Renting
First-time homebuyers should compare the costs of renting (rent, utilities,
renters' insurance) to the costs of owning a home (mortgage payments,
insurance, property taxes, utilities and maintenance).
Often the cash flow costs of owning a home will be the same
or more than renting. Remember to account for the fact that you'l probably
save money on taxes in the form of deductions for mortgage interest and
property tax payments. Also, owning a home does come with some certainty:
while your landlord can and will raise your rent, your mortgage payment
will stay the same each year (assuming you have a fixed rate mortgage).
Time To Buy or Buying At The Top?
There’s no guarantee that home prices won't fall after you buy.
In fact, there are more signs that home prices are softening and in some
areas, prices could be headed for a drop. Rising interest rates on adjustable
rate mortgages and high home heating costs could leave more sellers eager
to cut a deal. According to a recent report in BusinessWeek, there has
been a significant rise in the supply of homes listed for sale in many
areas across the country.
Here's a list of increases in inventory of homes listed
for sale over the past three months:
Phoenix: 72.3 percent
Miami: 47.7 percent
Tampa: 36.3 percent
Washington: 34.1 percent
Jacksonville: 32.1 percent
Boston: 28.5 percent
Los Angeles: 26.7 percent
Source: BusinessWeek, Dec. 19, 2005
The best way to avoid overpaying when buying a home is to
ask a realtor to prepare a comprehensive market analysis before you make
a purchase offer. This should include the recent sales prices and the
original listing prices of comparable homes in the vicinity, listing prices
of similar homes listed for sale, and the asking prices of recently expired
listings of homes taken off the market.
Use what you learn from a market analysis to determine what
you will offer. For example, if the supply of homes for sale is rising
in your local market, more sellers will be competing for you to buy, which
means they may be willing to accept a lower offer.
Also, if you have your eye on a house that has been on the
market for a few months or more, or if the seller has dropped the asking
price several times, this is a sign that the house is overpriced and you
may have some room to bargain.
When you make an offer, you will include an inspection contingency
clause in the purchase contract. Before you close on the house, this will
allow you to get a professional home inspector to inspect the condition
of the home, identifying any repairs and problems. If the repairs identified
in the inspection are considerable, you may be able to justify reducing
your original offer price by the projected cost of the repairs.
Over long periods of time, owning a home has turned out
to be a pretty solid investment, as long as you do not over-pay.
Don't Become House Poor
How much house you can afford to buy depends on two things: the money
you have on hand and your income.
Your housing payment shouldn’t be more than 25 to
30 percent of your gross income. Housing payment includes mortgage payment
(principal and interest), property taxes and homeowners insurance; commonly
referred to as PITI. So, if your gross income is $4,000 a month, your
monthly housing payment shouldn't be more than $1,200.
To determine how much home and mortgage you can afford,
ask a realtor or mortgage broker or use a calculator on Web sites such
as Quicken.com and eloan.com.
Banks and mortgage lenders may allow you to qualify for
a mortgage with a payment that's more than 30 percent of your income (often
up to 38 percent), but I wouldn't recommend it. Common sense should tell
you that with about 30 percent of your gross income going toward house
payments and 25 percent going to income taxes (Fed, State and FICA), you're
left with 45 percent of your gross income to pay for living expenses,
other debt payments, and saving for retirement, kids college, etc.
Get Your Credit Score
Your credit score has become the most important thing to look at before
you apply for a mortgage because lenders will review this score when deciding
to approve a loan and the terms they will offer.
The most commonly used credit score is the FICO score, developed
by Fair Isaac & Co. Your credit score is a three-digit number, ranging
from 300 to 850 which is calculated from the information on your credit
bureau reports. About 60 percent of individuals have a credit score of
700 or better.While there are other similar credit scores calculated and
used, the FICO credit risk score is used by the majority of mortgage lenders
and the large financial institutions in their evaluation and approvals
process for credit applications.
While there is no hard and fast number, financial institutions
indicate that a FICO score in the 620 range is the cutoff point below
which anyone applying for credit may be considered a higher than average
risk and therefore will be charged higher fees or higher interest on a
loan.
Lenders use credit scores because they feel these scores
provide a predictive assessment of how customers will perform on loan
payments and this allows them to better balance the credit risks they
take into their overall loan portfolios.
Home buyers should get their credit score months before
they intend to apply for a mortgage. The point is: you need to know your
credit score and what you can do to improve it before a prospective lender
checks you over for a loan.
Although you have to pay to get your FICO score, there are
other credit scores provided for free. Those scores are based on similar
factors and are available from sources such as eloan.com.
You can buy your credit score by logging on to myfico.com,
equifax.com, transunion.com and .
Pre-Approval and Shopping for a Mortgage
Buying a home involves a lot of shopping, not just for the home but for
the right mortgage.
Many lenders are willing to pre-approve you for a mortgage
for free in hopes that you'll give them your mortgage business. It will
help your negotiating power to let a buyer know that you are pre-approved
for the mortgage you'll need. Just don't tip your hand too much by telling
them the amount of the mortgage you're qualified to borrow; they could
use this against you when negotiating the price.
Most first-time home buyers are best served with a fixed
rate mortgage, where payments will not change. That's because when you
own a home for the first time, there will be many surprises and additional
expenses; one of these should not be an unexpected hike in your monthly
mortgage payment. Of course, whether you go with a 30-year or a 15-year
term will depend on what you can afford…the shorter the term to
repay the loan, the larger the payment.
Adjustable rate mortgages allow for a lower initial rate
(and payments) in the first several years, such as a fixed rate for the
first five years before any rate adjustments are made or payments increase.
But in an environment of rising interest rates, the recalculated rate
is higher than the initial rate.
These types of mortgages are tricky and require the borrower
to live with changes in their mortgage payments based on the direction
of interest rates. When their interest rate adjusts and is higher, they
will have to decide whether to refinance the mortgage or continue to pay
the new payment, which is likely to be higher.
For some folks, however, the decision includes another factor:
the length of time they expect to own the home. Typically, if your employment
includes possible relocation within five years, or the move to a larger
house to accommodate an expanding family, then a five-year adjustable
rate mortgage would have been the best option to consider. But right now,
according to a search on eloan.com, home buyers can get a 30-year fixed
rate mortgage at a 6.25 percent interest rate, or a five-year adjustable,
or 5/1 ARM with a rate of 6.125 percent, which is only 0.125 percentage
points lower.
Right now the decision is easy: go with the 30-year fixed
rate mortgage because adjustable rate mortgages don't offer enough of
a savings to compensate for the risk of future increases in your mortgage
payments.
In all cases, never use an adjustable rate, or interest
only, mortgage because it provides the low initial payment that is all
you can afford to pay. Your rate and payment will increase, putting your
homeownership on shaky financial ground.
Bank or Mortgage Broker?
A mortgage broker can represent many lenders and claim that they will
"shop the market" for the lowest rate for you. Banks, on the
other hand, only have their mortgage products to offer.
You should shop both banks and mortgage brokers before you
decide. That's because rates in the mortgage market will vary day to day
depending on the supply of money various lenders have available for loans.
Sometimes the large banks and local lenders offer rates that can’t
be matched by the brokers. Also, there are often significant differences
in rates between various brokers due to the volume of loans they write
each month.
Ask your realtor or attorney for the names of lenders in
your area. Also check out HSH.com or eloan.com to find some of the best
deals online. Look for special relationship deals such as a break on the
interest rate if you allow automatic deduction of mortgage payments from
your checking account and payment of taxes and insurance through an escrow
account.
The Down Payment
The amount of money you'll need on hand depends on the price of the home
you're buying, the type of mortgage you'll be getting and closing costs.
The best deal on a mortgage comes when you put down 20 percent or more.
If you make a down payment that's less than 20 percent, your selection
of mortgages will be limited to "non-conforming" mortgages that
charge higher interest rates and mortgage default insurance (called Primary
Mortgage Insurance, or PMI).
One strategy to help come up with a larger down payment
is to get a loan or gift of cash from your parents or family members.
You are obligated to disclose to the lender if you do so, but if the cash
is a gift, many lenders will accept these additional funds as such and
not count this as more debt.
You’ll also need to come up with at least several
thousand dollars for the closing costs associated with the purchase transaction,
for items such as:
Application fees
Appraisal Fees
Inspection Fees (pest, radon, asbestos, lead paint etc.)
Title Insurance (the biggest of all)
Homeowners Insurance (the first year premium)
Attorney Fees (you pay for the banks attorney and your own)
Property Taxes prepaid by the Seller
Deed Recording Fees
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Selling your
home can be an anxious and intense time for homeowners
-- and there aren't nearly as many resources available to today's home
sellers as there are to home buyers.'
Holly Slaughter | brand manager and consumer experience expert at RealEstate.com.
CHARLOTTE - Selling a home can be an overwhelming experience for any
homeowner, whether it's your first time or tenth time. In a recent survey,
both home sellers and real estate agents provided information that sheds
light on the many important factors that should be considered to successfully
sell a home.
The survey, commissioned by RealEstate.com, asked 500 recent home sellers
and 100 licensed, practicing real estate agents about the variety of critical
elements involved in selling a home.
So what did successful home sellers have to report? The majority (65 percent)
said that hiring a real estate agent to facilitate the sale is the best
way to get the process off to a good start.
Pricing their homes was of major importance to sellers when they prepared
to sell, and 51 percent of sellers and 64 percent of real estate agents
agreed that setting an asking price at 5 to 10 percent above what the
seller would actually accept is a good range to follow when putting a
house on the market.
Despite recent reports of housing booms and hot markets with inflated
prices, 37 percent of sellers surveyed reported selling their homes at
the list price, and more than half of the overall respondents reported
selling at or below $250,000 (57 percent).
Other key findings include:
The length of time needed to sell a home varied between sellers and real
estate agents. Thirty-three percent of sellers reported that their homes
sold within the first two weeks of putting it on the market, with another
27 percent citing homes selling within the first month. On the other hand,
41 percent of real estate agents suggest budgeting 2-3 months from the
time you put your home on the market to selling it.
Sellers and real estate agents agree that the local school system is the
most important factor that buyers consider when choosing a home (48 percent
sellers, 40 percent real estate agents).
"Selling a home can be an anxious and intense time for homeowners
- and there aren't nearly as many resources available to today's home
sellers as there are to home buyers," said Holly Slaughter, brand
manager and consumer experience expert at RealEstate.com.
In addition to maximizing the timing and pricing for a sale, there are
a number of other details that sellers should consider before posting
the 'For Sale' sign out front. Additional survey findings revealed:
Fifty-five percent of real estate agents felt that having a comprehensive
comparative market analysis done is a very smart thing to do before selling
a home.
Real estate agents and sellers report the kitchen is the room that prospective
home buyers care most about (59 percent sellers, 37 percent real estate
agents).
Fifty percent of sellers and 38 percent of real estate agents said cleaning
is the most important factor for a seller to consider when getting ready
for a showing.
Home sellers and real estate agents agree that enhancing the lawn/landscape
is the top priority for getting the exterior of a home ready to sell (51
percent sellers, 40 percent real estate agents).
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