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Blog Archive for September, 2017

A Millennial’s Guide to Buying Your First Home

Categories: Helpful Tips, Home Builder | Posted: September 29, 2017

A Millennial’s Guide to Buying Your 1st Home by Wendy Weir 

Why call it “A Millennial’s Guide To Buying Your First Home” ? Simply due to the fact, people between 25-40 are waiting longer and longer to ‘buy’ their first home. They are paying off their student debt, saving for a wedding, starting a family, or trying out new jobs and don’t want to be tied down. When do you really think about buying your first home? That moment when you just can’t stand writing one more check to your landlord so that he can pay his mortgage payment, with your money! Why continue to ‘build’ his equity and his real estate portfolio and not your own? That is the moment you are emotionally ready to buy your own home, at least according to investment experts. Let’s see how easy it really is to get that 1st house, build equity then keep moving up over the years while building a real estate portfolio.

What about the down payment?

Down payments are expressed as a percentage of the purchase price of the home. Down payment percentages depend upon the loan you’ll be obtaining. Conventional loans generally require 20 percent down and the best choice if you hope to avoid paying a monthly private insurance premium. Other loans, such as those through FHA or Fannie Mae, require significantly less for the down payment, while the VA and USDA require no money down.

Fast forward to 2017 and a new Fannie Mae study finds that borrowers with a 50 percent (Debt-to-income-ratio) DTI are much better credit risks than previously assumed. The study looked at 15 years of statistics from borrowers with back-end DTI ratios up to 50 percent. Many of them had decent credit scores and the default rate was quite acceptable.

It turns out, a majority of these borrowers have hefty cash reserves (at least 12 months or more) or are willing to come in with a higher down payment. And many of these borrowers are millennials, just like you.

What is the earnest money deposit

When you find a home you want to buy, you will submit a purchase agreement with your earnest money deposit (EMD). Your agent will list the amount you are paying and where it will be held. And EMD shows the seller that you are serious about pursuing the purchase. The seller takes a gamble by removing the home from the market and you put your cash on the line with the possibility of losing it, under certain circumstances.

While on the subject. Do you know how to protect your earnest money deposit. Yes indeed, you can loose it if you don’t know what you are doing. I have seen way too many couples loose the 1st deposit they make on a home, usually because they are trying to buy FSBO.

A look at closing costs

This is the part of the process that catches far too many home buyers by surprise. Closing costs are all the fees required of everyone who helps you purchase the home. From your real estate agent’s commission and appraiser’s fee to the title company’s research and issuance of a policy and, of course, the lender’s fees. These fees add up – fast – so it’s important to compare closing cost estimates from several lenders. It’s also important to understand which costs are negotiable. Closing costs can amount to 2 to 5 percent of the loan amount.

3 Ways to reduce closing costs

  • Close as late in the month as possible. Lenders charge interest in arrears, meaning that when you make a house payment, you are actually paying for last month’s interest (and the coming month’s principal). When you close escrow, the lender will have calculated how much interest you owe from the date your loan was funded to the end of the current month.
  • You can eliminate the need to pay all or part of your closing costs by requesting that the seller contribute. The seller gets to write that amount off as a tax deduction and you get to skip the closing costs, so it’s beneficial to all parties.
  • Ask your lender if you can include the closing costs in your loan. Yes, there will be a charge for this but it won’t be nearly as large as the immediate outlay of cash necessary to pay closing costs.

How do you get started?

Figure out your budget. Truth is, you most likely will be able to afford a mortgage payment every month. But it will be tight and you have some tough decisions to make. Maybe trade in your expensive car lease, check if you can ‘Bundle’ your bills (phone, internet, TV) to reduce monthly expenses… cook more meals at home, carpool whenever possible – all these add up to bigger and bigger savings fairly quickly.

Build sweat equity

For those on a limited budget with sparse savings, buying a fixer home may be the answer. A fixer-upper is priced an average of 8 – 10 percent less than market value. The drawback is that, since you have a tight budget, renovation work will be on an as-you-can-afford-to-make-repairs basis. Fixers are an ideal way to get into home ownership for a lot less money than you’d pay for a turn key home. And eventually, you will have a home that’s customized to your lifestyle and tastes.

Taking into consideration, this is your 1st home, buy the least expensive one you can find. Try and find a house that can be ‘updated’; new windows, door, appliances, landscaping. Over the next few years, look at remodeling the kitchen and baths. If you have saved enough, maybe add an addition like another bedroom or family room. These are the best ways to build equity and make a nice profit too when you go to sell.

Here are some ways to take the money you have right now, and stretch it to make the purchase a bit more comfortable.

Pay more now – to save for later

PMI (private mortgage insurance) or MIP (the FHA Mortgage Insurance Premium) is a monthly payment that you want to avoid. It is required on all mortgages with a down payment of less than 20 percent. PMI adds a big chunk to your house payment.

For example, a 30-year, FHA-backed loan at 3.750 percent interest on a $250,000 loan: with a down payment of $8,750, your MIP will be about $170.00.

If you save enough money to put 20 percent down, and you’ll skip the MIP or PMI fee every month saving you about $2,040 per year. Plus, your loan amount will be smaller and your monthly payment will be less as well.

Get Creative

Don’t won’t to wait a long time to save that much? Maybe there is someone who will gift you the funds for a down payment?

FHA mandates that a borrower put at least 3.5 percent down, conventional loan guidelines permit gift funds for all or part of the down payment, as long as the loan-to-value is 80 percent. The donor has to be related to you, a parent, significant other, fiancee. Basically, here are the 5 things you should know about using gift money for down payments.

Taxes Add up the nickles and dimes

Your monthly mortgage payment can include an escrow fund to pay for insurance, taxes and sometimes homeowner association dues that can add nearly $600 to your house payment each month. HOA fees are on the rise, nationwide. If you don’t mind doing your own exterior home maintenance, mowing, gardening, snow removal, you can save a lot of money.

Insurance

The national average annual premium is $964. You can save on insurance buy asking for a higher deductible, installing security features and take advantage of discounts, such as those for seniors. Shop carefully and compare policies among several insurers. Here is the best guide I have found on what home owners insurance is.

Property Taxes

Wallet Hub’s John S. Kiernan claims that “The average American household spends $2,149 on property taxes or about $179 per month”. Make sure you research a home’s property taxes before deciding to purchase, remember, they will go up when you purchase – too many people think they remain at where they are presently, which can be answered by a simple phone call to your lender. You can also figure it out yourself, it’s easy to do – many assessor’s offices have tax information online. Buyers should find out whether a home may be subject to multiple property tax authorities. Not only states, but also counties, cities and districts (local water, sewers or schools, and possibly even special assessments if new roads have been put in). This is obviously very important. Having an experienced buyers agent representing you will make all the difference in the world – believe me!

Your debt

The word “millennial” is too often followed by the words. “student loan debt”. in the media one would think it’s the generation’s middle name.  While some millennials may be on the hook to repay up to $50,000 or more, it’s not the impediment to home ownership that some make it out to be.

Graduates Lifting Mortarboards — Image by © Royalty-Free/Corbis

And, there is relief for many with two recent announcements by Fannie Mae.

Currently, lenders look at a borrower’s debt-to-income ratio (how much you owe vs. how much you earn, known as DTI) and require that it be no higher than 36 percent. After July 29 of this year, however, that ratio can be as high as 50 percent, under certain conditions.

Then, in April, Fannie Mae announced a new policy specifically aimed at millennial home buyers who have student loan debt. Basically, it excludes any debt that isn’t mortgage-related (auto loans, credit cards and, yes, student loans) from the borrower’s DTI, as long as these debts are paid by someone else (such as a parent).

Curious about your debt-to-income ratio? Use the online calculator at nerdwallet.com.

Credit History

The “Big Three” credit reporting agencies, Experian, Equifax and TransUnion recently announced that most tax liens and civil judgments will no longer end up on credit reports, provided the information in the creditors’ report isn’t complete.

“Specifically, the data [submitted to the credit reporting agency] must include the person’s name, address, and either date of birth or Social Security number,” according to Diana Olick at cnbc.com.

Apparently, errors like this are common, impacting a large number of loan applicants. “With these hits to their credit removed, their scores could go up by as much as 20 points,” Olick claims. Ridding your report of errors is one of the easiest ways to increase your credit score.

The FTC also offers advice on not only how to get free copies of your credit report, but how to dispute incorrect information as well.

While a tight budget doesn’t preclude one from buying a home, finding ways to stretch what little money you have may just allow you to purchase more home than you thought possible. At the very least, taking cost-saving measures will help lower your monthly payment. It also helps to understand all the upfront and closing fees that go along with purchasing a house. Best advice? Do your research, take your time and allow yourself to get into a situation that you are comfortable with. Then enjoy your new home wherever it may be!

9 REASONS TO CHOOSE A NEW BUILD HOME VS. RESALE

Categories: Helpful Tips, Home Builder | Posted: September 7, 2017

New build Home vs. resale

Purchasing a new home can be a very stressful and difficult decision. Do you buy an existing home, or go with a new build? There are many factors to consider in this decision, such as finances, location and timing. Here are 9 reasons that make a new build your best decision. SAVVY BUYER

1. TURNKEY EXPERIENCE

Keys and lock the door on the background of solar garden

Keys and lock the door on the background of solar garden

Imagine walking up to your new home, turning the key, and entering a space that is designed just for you. Older homes often need renovations; it might be a 1970’s kitchen, rusty bathroom fixtures or not enough bedrooms. After the hassle of a move, it is hard to get excited about the extra money and time a renovation project can bring. A new build will move your DIY days well into the future.

2. CUSTOM FINISHING

New build Home vs. resale

In real estate circles, when they describe a property as having character, that usually means wood paneling and green shag carpets. A new build offers extensive choices in the colour and style of your home. You can hand pick the colour of your bedroom walls, the type of countertop and decide whether you want stainless steel appliances. Not sure of your artistic abilities? They often have an interior design team to help you create your dream home.

3. EVERYTHING IS NEW

New build Home vs. resale

With an existing home, everything is in different stages of repair. They advertise a new kitchen, but did they mention the roof is 20 years old? One bad storm, and your insurance will not cover that aged roof. With a new build, you can be confident nothing is old or in need of repair. Everything from your shingles to your basement is brand new. As well, the design, all the appliances and countertops are in contemporary styles that will hold their value for years to come.

4. WARRANTY

New build Home vs. resale

With an existing home, it’s buyer beware. Sometimes, home sellers will put a fresh coat of paint on the ceiling to cover a roof leak. As the new owner, you have little recourse.With new construction, not only will all your appliances come with warranties, but builders also offer a warranty on the entire construction. If you have any new house hiccups, you are covered. With the same budget you would spend on an older home, you could have a home that is fully covered and will maintain its value for years to come.

 5. NEW TECHNOLOGY

New build Home vs. resale

Older homes carry unseen dangers like mold, lead paint and asbestos. Technology is rapidly advancing in the home building trades and efficiency and safety are paramount. You can be confident your builder is using the newest, tried and tested materials and systems. Your new home will be more energy efficient and environmentally friendly than an older home.

6. LOCATION

New build Home vs. resale

One of the most important factors when purchasing your home is location. With an existing home, you might need to compromise on your location to get the size you need. Do you need to be near schools and shopping? New builders are working closely with land developers to create communities rather than just a row of houses. Green spaces, schooling, shopping, transportation and walking trails are all becoming expected. As such, new home buyers have greater choice than ever before. You can decide your view, side of the street (morning or afternoon sun) and proximity to schools and parks.

7. MONEY

New build Home vs. resale

Funding a new build is different from traditional mortgages. Most builders offer financing options within their packages. This offers you one-stop shopping. You will know in advance what you can borrow, before you get your heart set on the walk-in shower. They are experts in the field of financing new builds and will counsel you in all of your options.

8. EXPERTISE

New build Home vs. resale

In an existing home, you have no confidence that the wiring was not Bob’s DIY project. New home builders hire only the best journeymen to construct your house from start to finish.

Another benefit is that you can choose from multiple floor plans, each of which has been crafted by professionals. These floor plans are well designed, unlike existing homes with interesting quirks. There are no hallways that lead nowhere or impossible kitchens where the dishwasher door hits the opposite wall.

9. YOU DECIDE

New build Home vs. resale

Choice, Choice, Choice – Possibly the best reason to choose a new build over an existing home is choice. You decide the number of rooms and bathrooms that your family needs. Do you need an office, garage, extra family room? That is all up to you. No need to be “satisfied” with what is available on the market at the time. You are in the driver’s seat. The choice is yours.

Get out there and meet some builders and see how possible it is for you to have your dream home!

Homeownership: Opportunity is Knocking!

Categories: Helpful Tips, Home Builder | Posted: September 1, 2017

Homeownership is an important part of the American way of life. Today there are many opportunities in the housing market – including low mortgage rates and new homes that are built to fit your lifestyle – to find a home that is right for you. But market conditions can change, and these opportunities may not be around for long, so home buyers shouldn’t wait.

Low Interest Rates

Today’s low interest rates are helping home buyers find affordable housing options. But, it’s important to keep in mind that interest rates are sensitive to market forces and can change quickly. Even a slight rate increase can push monthly payments to the point that a buyer might miss out on their first choice for a new home.

Interest Rates

Large Downpayments Not Necessary

While lenders are looking more closely at borrowers today than in recent years, there are options for purchasing your home without a 20% downpayment. For example, the Federal Housing Administration (FHA) offers loans to first-time home buyers with downpayments as low as 3.5%. However, these loans require mortgage insurance.

To ensure that the process goes smoothly, buyers should consider pre-qualifying for a mortgage and having financing in place before shopping for a new home. Buyers also may find that some home builders have arranged favorable financing for their customers or offer financial incentives.

Built to Fit Your Lifestyle

Designed to accommodate today’s busy lifestyles, new homes – including urban condos and single-family homes – feature open floor plans, flexible spaces, low-maintenance materials and other amenities that make them more appealing than ever before.

Family

With energy costs near the top of consumer concerns, it’s good to know that new homes can be more energy efficient than ever. Innovative materials and construction techniques mean that today’s new homes are built to be much more energy efficient than homes constructed a generation ago. Not only can they be more affordable to operate, new homes also are significantly more resource efficient and environmentally friendly.

And in many areas, prospective home buyers who wish to live in age-qualified communities for those 55 and older will find a large selection of homes tailored to the evolving lifestyles of the baby boom generation.

Benefits for Home Owners

Homeownership also provides important benefits to owners.

Tax Benefits: For Home Owners Only

Unique tax benefits that apply only to housing help lower the cost of homeownership. Both mortgage interest and property taxes are deductible. Moreover, for married couples, profits of up to $500,000 on the sale of a principal residence ($250,000 for single taxpayers) are excluded from tax on capital gains.

Baby

The Advantage of Leveraging

Leveraging is another advantage of homeownership. A buyer can purchase a home and receive the full benefit of homeownership with a cash downpayment that is only a fraction of the total purchase price. This is called leveraging, and it makes the rate of return on a home purchase greater than on other purchases with the same value, such as stocks, where the buyer must put up the entire price.

Building Personal Resources

For most Americans, homeownership is a primary source of net worth and an important step in accumulating personal financial assets over the long term. For most families, home equity represents the largest share of net worth.

There Really is No Place Like Home

Although there are many positive financial aspects to homeownership, a home cannot be valued in monetary terms alone. Not only can homeownership be a stepping stone to greater financial well-being, it provides a permanent place to call home and great personal satisfaction.

Academic research also shows that homeownership provides a wide range of social benefits and strengthens the nation’s people and its communities.

Homeownership is truly a cornerstone of the American way of life.