Prepare for Home Ownership

10 Steps to Prepare for Homeownership

1.  Decide how much home you can afford. Generally, you can afford a home equal in value to between two and three times your gross income.

2.  Develop a wish list of what you’d like your home to have. Then prioritize the features on your list.

3.  Select three or four neighborhoods you’d like to live in. Consider items such as schools, recreational facilities, area expansion plans, and safety.

4.  Determine if you have enough saved to cover your downpayment and closing costs. Closing costs, including taxes, attorney’s fee, and transfer fees (2 percent and 7 percent of the home price).

5.  Get your credit in order. Obtain a copy of your credit report.

6.  Determine how large a mortgage you can qualify for, explore loans options and what’s best for you.

7.  Organize all the documentation a lender will need to preapprove you for a loan.

8.  Do research to determine if you qualify for special mortgages or downpayment-assistance programs.

9.  Calculate the costs of homeownership, including property taxes, insurance, maintenance, and association fees, if applicable.

10.Find an experienced REALTOR^Ò who can help you through the process.

5 Reasons You Need a REALTOR

1. A real estate transaction is complicated. Buying or selling a home often requires disclosure forms, inspection reports, mortgage documents, insurance policies, deeds, and multi-page government-mandated settlement statements. A knowledgeable guide through this complexity can help you avoid delays or costly mistakes.

2. Selling or buying a home is time consuming. Even in a strong market, homes in our area stay on the market for an average of 90 days. And it usually takes another 60 days or so for the transaction to close after an offer is accepted.

3. Real estate has its own language. If you don’t know a CMA from a PUD, you can understand why it’s important to work with someone who speaks that language.

4. REALTORS have done it before. Most people buy and sell only a few homes in a lifetime, usually with quite a few years in between each purchase. And even if you’ve done it before, laws and regulations change. That’s why having an expert on your side is critical.

5. REALTORS provide objectivity. Since a home often symbolizes family, rest, and security, not just four walls and roof, homeselling or buying is often a very emotional undertaking. And for most people, a home is the biggest purchase they’ll ever make. Having a concerned, but objective, third party helps you keep focused on both the business and emotional issues most important to you.

10 Tips for First-Time Homebuyers

1. Be picky, but don’t be unrealistic. There is no perfect home.

2. Do your homework before you start looking. Decide specifically what features you want in a home and which are most important to you.

3. Get your finances in order. Review your credit report and be sure you have enough money to cover your downpayment and your closing costs.

4. Don’t wait to get a loan. Talk to a lender and get prequalified for a mortgage before you start looking.

5. Don’t ask too many people for opinions. It will drive you crazy. Select one or two people to turn to if you feel you need a second opinion.

6. Decide when you could move. When is your lease up? Are you allowed to sublet? How tight is the rental market in your area?

7. Think long-term. Are you looking for a starter house with the idea of moving up in a few years or do you hope to stay in this home longer? This decision may dictate what type of home you’ll buy as well as the type of mortgage terms that suit you best.

8. Don’t let yourself be “house poor”. If you max yourself out to buy the biggest home you can afford, you’ll have no money left for maintenance or decoration or to save money for other financial goals.

9. Don’t be naïve. Insist on a home inspection and, if possible, get a warranty from the seller to cover defects within one year.

10. Get help. Consider hiring a REALTOR^Ò as a buyer’s representative. Unlike a listing agent, whose first duty is to the seller, a buyer’s representative is working only for you. And often, buyer’s reps are paid out of the seller’s commission payment.

 5 Common First-Time Homebuyer Mistakes

1. They don’t ask enough questions of their lender and miss out on the best deal.

2. They don’t act quickly enough to make a decision and someone else buys the house.

3. They don’t find the right real estate professional who is willing to help you through the homebuying process.

4. They don’t do enough to make their offer look good to a seller.

5. They don’t think about resale before they buy. The average first-time buyer only stays in a home for four years.

Your Property Wish List

While your opinions on the type of home you want to own may change during the home buying process, use this easy checklist to help you prioritize and make the shopping process less time consuming.

• How close do you need to be to: (a) public transportation _______ (b) schools _______
  (c) airport _______ (d) expressway _______ (e) neighborhood shopping _______
  (f) other_______?
• What neighborhoods would you prefer?
• What school systems do you want to be near?
• What architectural style(s) of homes do you prefer?
• Do you want a one-story or two-story house?
• How old a home would you consider?
• How much repair or renovation would you be willing to do?
• Do you have special facilities or needs that your home must meet?
• Do you require a fenced yard or other amenities for your pets?

10 Things to Take the Trauma Out of Home Buying

1. Find a real estate professional who’s simpatico. Home buying is not only a big financial commitment, but also an emotional one. It’s critical that the practitioner you choose is both skilled and a good fit with your personality.

2. Remember, there’s no “right” time to buy any more than there’s a right time to sell. If you find a home now, don’t try to second-guess the interest rates or the housing market by waiting. Changes don’t usually occur 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 will make it much harder to make a decision.

4. Accept that no house is ever perfect. Focus in on the things that are most important to you and 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 may lose you the home you love.

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—that you forget such issues as amenities, noise level, etc., that have a big impact on what it’s like to live in your new home.

7. Don’t wait until you’ve found a home and made an offer to get approved for a mortgage, investigate insurance availability, 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 some 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 commitment, but it also yields big benefits.

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 from 1998 to 2006, a home’s most important role is as a comfortable, safe place to live.

The Pros and Cons of Condos

Condominiums and townhouses offer an affordable option to single-family homes in most areas. But consider these facts before you buy.

1. Storage. Some condos have storage lockers, but usually there are no attics or basements to store belongings.

2. Outdoor space. Yards and outdoor areas are usually smaller in condos, so if you like to garden or entertain outdoors, this may not be a good fit. However, if you hate yard work, this may be the perfect option for you.

3. Amenities. Many condo properties have swimming pools, fitness centers, and other facilities that would be very expensive in a single-family home.

4. Maintenance. Many condos have onsite maintenance personnel to care for common areas, do repairs in your unit, and let in workers when you’re not home.

5. Security. Many condos have keyed entries and or even door attendants. Plus, you’ll be closer to other people in case of an emergency.

6. Reserve funds and association fees. Although fees generally help pay for amenities and provide savings for future repairs, you will have to pay the fees agreed to by the condo board, whether or not you’re interested in the amenity or not.

7. Resale. The ease of selling your unit is more dependent on what else is for sale in your building, since units are usually fairly similar. Single-family homes usually are more individual.

8. Freedom. Although you have a vote, the rules of the condo association can affect your ability to use your property. For example, some condos prohibit home-based businesses. Others prohibit pets. Read the covenants, restrictions, and bylaws of the condo carefully before you make an offer.

9. Proximity. You’re much closer to your neighbors in a condo or townhome. If possible, try to meet your closest prospective neighbors before making a decision.

10 Questions to Ask Your Condo Board

Before you buy, contact the condo board with the following questions. In the process, you’ll learn how responsive—and organized—its members are.

1.   What percentage of units is owner-occupied? What percentage is tenant-occupied? Generally, the higher the percentage of owner-occupied units, the more marketable the units will be at resale.

2.   What covenants, bylaws, and restrictions govern the property? What grandfather clauses are in place? You may find, for instance, that those who buy a property after a certain date can’t rent out their units, but buyers who bought earlier can. Ask for a copy of the bylaws to determine if you can live within them. And have an attorney review property docs, including the master deed, for you.

3.   How much does the association keep in reserve? How is that money being invested

4.   Are association assessments keeping pace with the annual rate of inflation? Smart boards raise assessments a certain percentage each year to build reserves to fund future repairs. To determine if the assessment is reasonable, compare the rate to others in the area.

5.   What does and doesn't the assessment cover - common area maintenance, recreational facilities, trash collection, snow removal, etc.

6.   What special assessments have been mandated in the past five years? How much was each owner responsible for? Some special assessments are unavoidable. But repeated, expensive assessments could be a red flag about the condition of the building or the board’s fiscal policy.

7.   How much turnover occurs in the building?

8.   Is the project in litigation? If the builders or homeowners are involved in a lawsuit, reserves can be depleted quickly.

9.   Is the developer reputable? Find out what other projects the developer has built and visit one if you can. Ask residents about their perceptions. Request an engineer’s report for developments that have been reconverted from other uses to determine what shape the building is in. If the roof, windows, and bricks aren’t in good repair, they become your problem once you buy.

10.  Are multiple associations involved in the property? In very large developments, umbrella associations, as well as the smaller association into which you’re buying, may require separate assessments.

Hidden Home Defects to Watch For

No home is flawless, but certain physical problems can be expensive. Watch for:

1. Water leaks. Look for stains on ceilings and near the baseboards, especially in basements or attics.
   
   
2. Shifting foundations. Look for large cracks along the home’s foundation.
   
   
3. Drainage. Look for standing water, either around the foundation of the home of in the yard.
   
   
4. Termites. Look for weakened or grooved wood, especially near ground level.
   
   
5. Worn roofs. Look for broken or missing copings and buckled shingles as well as water spots on ceilings.
   
   
6. Inadequate wiring. Look for antiquated fuse boxes, extension cords (indicating insufficient outlets), and outlets without a place to plug in the grounding prong.
   
   
7. Plumbing problems. Very low water pressure, banging in pipes.

10 Questions to Ask A Home Inspector

1. What are your qualifications? Are you a member of the American Association of Home Inspectors?
   
   
2. Do you have a current license? Inspectors are not required to be licensed in every state.
   
   
3. How many inspections of properties such as this do you do each year?
   
   
4. Do you have a list of past clients I can contact?
   
   
5. Do you carry professional errors and omission insurance? May I have a copy of the policy?
   
   
6. Do you provide any guarantees of your work?
   
   
7. What specifically will the inspection cover?
   
   
8. What type of report will I receive after the inspection?
   
   
9. How long will the inspection take and how long will it take to receive the report?
   
   
10. How much will the inspection cost?

What Your Home Inspection Should Cover

• Siding: Look for dents or buckling
• Foundations: Look for cracks or water seepage
• Exterior Brick: Look for cracked bricks or mortar pulling away from bricks
• Insulation: Look for condition, adequate rating for climate
• Doors and Windows: Look for loose or tight fits, condition of locks, condition of weatherstripping
• Roof: Look for age, conditions of flashing, pooling water, buckled shingles, or loose gutters and downspouts
• Ceilings, walls, and moldings: Look for loose pieces, drywall that is pulling away
• Porch/Deck: Loose railings or step, rot
• Electrical: Look for condition of fuse box/circuit breakers, number of outlets in each room
• Plumbing: Look for poor water pressure, banging pipes, rust spots or corrosion that indicate leaks, sufficient insulation

• Water Heater: Look for age, size adequate for house, speed of recovery, energy rating
• Furnace/Air Conditioning: Look for age, energy rating; Furnaces are rated by annual fuel utilization efficiency; the higher the rating, the lower your fuel costs. However, other factors such as payback period and other operating costs, such as electricity to operate motors.
• Garage: Look for exterior in good repair; condition of floor—cracks, stains, etc.; condition of door mechanism
• Basement: Look for water leakage, musty smell
• Attic: Look for adequate ventilation, water leaks from roof
• Septic Tanks (if applicable): Adequate absorption field capacity for the percolation rate in your area and the size of your family
• Driveways/Sidewalks: Look for cracks, heaving pavement, crumbling near edges, stains

10 Questions to Ask Your Lender

Be sure you find a loan that fits your needs with these comprehensive questions.

1.  What are the most popular mortgage loans you offer?

2.  Which type of mortgage plan do you think would be best for us? 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? (Private mortgage insurance is usually required if you make less than a 20 percent down payment).

5.  Who will service the loan? Your bank or another company?

6.  What escrow requirements do you have?

7.  How long is your loan lock-in period (the time that the quoted interest rate will be honored)? Will I be able to obtain a lower rate if they drop 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?

10 Things a Lender Needs From You

1.  W-2 forms or business tax return forms if you’re self-employed for the last two or three years for every person signing the loan.

2.  Copies of one or more months of pay stubs from every person signing the loan.

3.  Copies of two to four months of bank or credit union statements for both checking and savings accounts.

4.  Copies of personal tax forms for the last two to three years.

5.  Copies of brokerage account statements for two to four months, as well as a list of any other major assets of value, e.g., a boat, RV, or stocks or bonds not held in a brokerage account.

6.  Copies of your most recent 401(k) or other retirement account statement.

7.  Documentation to verify additional income, such as child support, pension, etc.

8.  Account numbers of all your credit cards and the amounts of any outstanding balances.

9.  Lender, loan number, and amount owed on other installment loans—student loans, car loans, etc.

10.Addresses where you lived for the last five to seven years, with names of landlords, if appropriate.

5 Things to Understand 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.

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.

What Not to Overlook on a Final Walk-through

Be sure that:

§         Repairs you’ve requested have been made. Obtain copies of paid bills and any related warranties.

§         All items that were included in the sale price—draperies, lighting fixtures—are still there.

§         Screens and storm windows are in place or stored.

§         All appliances are operating.

§         Intercom, doorbell, and alarm are operational.

§         Hot water heater is working.

§         HVAC is working.

§         No plants or shrubs have been removed from the yard.

§         Garage door opener and other remotes are available.

§         Instruction books and warranties on appliances and fixtures are there.

§         All personal items of the sellers and all debris have been removed.

Bob and Karen Goldman at The Bean Group   TEAMGOLDMAN@comcast.net   603-781-2000

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Although we believe that this information is accurate as it is compiled from professional sources, please verify this information on your own before relying on it as your only source of knowledge to base any decisions on.