Affordability Options For First-Time Buyers

Most first-time home buyers are eager to have their very own home but it has to be at a price they can afford. Smaller homes, fixer-uppers and cheaper commutes to work are the best options to look into.

The problem is, most firt-time home buyers expect more than what they can actually afford in a home. Coldwell Banker conducted an online survey with 150 of its brokers. The result of the survey yielded a strange trend among first-time home buyers.

Almost of the survey respondents said affordability was their top concern first time buyers. Yet, 81 percent are looking for move-in conditions. Only 7 percent are considering fixer-upper homes. The real estate company suggests looking into fixer-upper homes if you want affordability.

“In the past, first-time home buyers were willing to purchase older, more basic houses in an effort to save money and bhttp://www.doctilo.com/article_writing/index.php?e=33reak into homeownership,” said Jim Gillespie, president and chief executive officer, Coldwell Banker Real Estate, LLC. He adds, “It is important for first-time homebuyers to remember that by considering a fixer-upper for their first home purchase, they can build equity over time and later move up and into their second-stage home that better reflects their expectations.”

Buyers who choose to go with fixer-ups homes should have the house inspected by a professional home inspector. Buyers need to find out how much it will cost you on repairs. You might end up spending more than what you saved. Homes that need basic fixing or improvement can give already give you a lot of savings but you can even save more on houses that need major work. Again, buyers need professional help so you can determine if your savings on the house is more than the cost of repairs.

Another surprising discovery was that most first-time buyers wanted affordability yet they looked for bigger houses within the metro. The survey shows that 71 percent of first-time buyers wanted bigger houses than they were 10 years ago. A smaller home is less expensive because of smaller footprint and square footage. 41 percent were considering proximity. They were looking for a house near their workplace so they could save on gas. However, houses around economic centers are expensive. These properties bank on the value of convenience. Those who live in areas like this can save on travel time and gas money.

A good alternative to this is finding an affordable place far from economic centers but near a transit oriented development (TOD) or low-cost public transit. There is also the option for carpooling or car-sharing communities.

The survey also showed that most of these first-time buyers looked at five to ten homes before they decided on a house. But if you want to get the most for your money, invest more time in looking at houses. More houses, more opportunities for savings. Look at at least 10 houses. You can usually find big discounts from these: houses that had been on the market for at least 90 days; houses being sold by long-time homeowners; houses for sale from flipping investors who got unlucky; and houses from we-want-to-sell-real-estate banks.

Buyers, Get an Edge During The Busy Spring Season

Usually, spring and summer is the busiest time in residential real estate. Most families want to take advantage of the good weather and the children’s summer break. However in most regions, spring is also when houses are most expensive. During this time, there are a lot of buyers and competition is tough.

Here are some measures you can take that can give you an advantage over other buyers:

  • If you plan to work with a real estate agent, start early. Interview three to four agents and talk to their references as well. Once you have chosen, let the agent know exactly what you’re looking for. Be specific and detailed. 
  • Get your loan pre-approved. By doing this early, you have one less task to think about. You’ll also know how much you can borrow. This will save you from looking at houses you can’t afford. And when you make an offer with a pre-approved loan, the sellers know that you’re serious.
  • Determine how much you can afford for downpayment. According to NAR, first-time buyers usually make a down payment of 6 percent on a home purchase, and 24 percent of down payment funds were gifts from relatives or friends. If you don’t have this option, you can turn to loan programs that accept 5-3 percent downpayment. Closing costs typically range from 2-7 percent of the property cost. 
  • Always be ready for your agent’s call. If the competition is tight, as soon as your realtor finds a good deal that is up to your criteria, they’ll notify you. Be ready to visit the house and once you determine that it’s going to be a good buy, make an offer. 
  • When you look at houses, consider the potential. There are some things you cannot change like the neighborhood, proximity to job centers and schools, the basic floorplan of the house, and size of the back yard. But don’t turn your back on a house because you don’t like the color of the paint, the design of the carpet or wallpaper. These are things you can change according to your taste. Try to imagine the house with the furniture and carpet which you think goes best with the house.  Do you ike it now?
  • If you’re in a seller’s market consut your real estate agent on how much you should offer. If there’s competition, consider offering more than the listing price. Avoid asking for a long closing date or extras like carpet allowances. 
  • Start thinking about home insurance now. Start by checking that your credit report is accurate. The accuracy of your credit repor is very important. It will determine if a company will cover you and for how much. According to the Insurance Information Institute, you should get a copy of your loss history report like a CLUE report from ChoicePoint or an A-PLUS report from Insurance Services Office. They record home insurance claims. If you weren’t able to file a claim in the past five years, you won’t have a loss history report. This gives you a better report and a lower premium. If you previously rented, you should have renter’s insurance. Your insurance history will be helpful when you apply for insurance for your new home. 

Buying a Home With Loans from Family and Friends

Asking for a home loan from a friend or family member is difficult; even if they are people close to you. The money involved is big and you probably see each other frequently or at least once a year. If they turn you down, you might feel uncomfortable with each other. But if you could show them how it could also work for their advantage, you’ll achieve a favorable result.

  • Asking for the loan

    Thomas Fox, community outreach director at Cambridge Credit Counseling said borrowers should approach a private home loan the same way they would a mortgage from a bank. Before you come talk to a relative or friend asking for a loan, you should come up with a plan or proposal.

    “Borrowers should be realistic about what a practical repayment plan would be and not try to borrow more than they can repay. You have to treat it the same as any kind of loan and be realistic,” he says.

    When you have a contract for the loan, even if it is with your parents, they can sue you for missed payments.

  • What private home loans have in common with traditional loans
    Private home loans or private mortgages are also called intrafamily mortgages. They are not very different from a loan you could get from a bank or credit union.
    • Both parties – lender and borrower, sign a promisory note or a mortgage note. This note contains the terms of your agreement.
    • The promisory note states the following: amount that was borrowed; the interest rate; frequency and date of payments.
    • There will be a deed of trust which gives the lender the right to foreclose the property when the borrower fails to pay according to the payment plan.
    • The lender holds a lien on the mortgaged property.

    This set-up is also for the protection of the borrower. The lender cannot ask for full payment abruptly or foreclose on the property because of personal reasons. Your friend or relative can’t just change the payment plan because they changed their mind and want the money back.

  • How borrowers can benefit from private home loans
    • You can get better interest rates. You can negotiate with the lender interest rates that is more reachable for you. The lender can still benefit from this arrangement even if the interest rates you propose is less than what the banks apply.
    • You can propose a payment term that’s doable for you. It can be monthly, semi-weekly or any other. But even if your lender is generous, don’t take advantage. Live up to the terms you agreed on. 
    • Federal tax deductions that apply to institutional loans can also be applied to private home loans.
  • How Lenders Benefit from private home loans
    • Even if the interest rates your proposed are less than what the bank applies, they can still get more compared to other investments like a savings account in the bank or other investment.
    • This will give your friend or family extra income. The promisory note gives them a sense of assurance that they can expect a certain amount from you based on what was agreed upon.
  • What happens if you miss payments?

    Sometimes unexpected things happen that will cause us to miss payments. You might suddenly lose your job or accumulate medical costs that you didn’t financially plan for. Discuss this situation with your lender. This also applies to institutional loans. The loan can be modified like lowering or postponing the payments but for a longer loan term. But don’t avoid your lender’s calls. It might lead to more problems.

Contingencies Your Home Offer Should Include

When you enter into the buying process, you will be commited despite all the uncertainties involved. By adding contingencies clauses in the contract, the buyer feels a sense of protection from the unknowns. Contingencies clauses state things that need to be met before closing the sale. 

  • The protection buyers get from mortgage contingenciesThis is one of the most common contingency. It provides additional security for the buyer. This contingency states that the buyer will acquire a certain kind of mortgage at or below a certain interest rate for a particular amount of the purchase price (usually 80 percent) on or before a specific date before closing. If the buyer is unable to get a loan according to the terms stated on the contingency, he can withdraw from the contract and the earnest money will be given back to him.
  • Protection for sellersThe security that comes with contingencies protects not only the buyer but the seller as well. If the buyer is unable to secure a loan but fails to inform the seller by the date agreed, the buyer is still obliged to buy the house with or without a loan. Depending on the contingency, the seller can also find a mortgage for the buyer. To provide more protection for the seller, they could do the following: set an earlier date for the deadline so the buyer can’t back out at the last minute; negotiate that a significant part of the earnest money will be forfeited if the buyer can’t get a loan by the deadline.
  • Appraisal contingencyAppraisal contingencies work with mortgage contingencies. It can work in two ways: (1) If a buyer cannot get an appraisal that can cover the asking price, the buyer can back out of the sale; (2) If the buyer cannot acquire enough appraisal, the buyer can negotiate for a lower price. If the seller does not agree with it, the buyer can walk out of the sale.
  • Inspection contingencyThis contingency allows the buyer time to inspect the house. Typically the time frame is 3-14 days. If the inspection reveal major problems with the house, the buyer can opt to back out.There are many other contingencies available like insurance contingencies or mold inspection contingencies. Common contingencies vary among states.Never disregard fine prints. Read them carefully and make sure you understand what you’re about to sign. The contract is legally binding. You can’t just change your mind once you sign it.

Buying a House Together

Buying a home is expensive. A lot of people want to have a home of their own but do not have enough cash or can’t get enough funding to afford a mortgage. On the other hand some people are looking for ways to be able to take advantage of tax benefits from being a home owner. So they turn to co-buying.

“Neither of us had a big enough chunk of money to put down for a home in a desirable neighborhood,” Brian Free told the U.S. News & World Report about his decision to purchase a home with his friend. “However, aggregating our resources allowed us to find a home that suited our needs.”

However, co-owning anything with a friend or relative comes with risks. But there are things you can do to reduce the risk of running into problems. Careful delibiration and planning is a must.

  • Think about how you will hold title

    The decision on how to hold title will affect your say in legal documents. Unmarried co-buyers can share a title as TIC (tenants in common) or as JTWROS (joint tenants with right of survivorship). Co-owners who are married can take title via community property or tenancy by the entirety.

  • TIC versus JTWROS

    With JTWROS both owners have equal shares in a home. When a co-owner has passed away, his share will go to the other owners. Consequently this means that the last surviving owner gets all the shares. In a TIC, the shares may or may not be equal. Each co-owner has its own title. Right of survivorship doesn’t work in TICs. When a co-owner dies, his share will not go to surviving co-owners. Each co-owner can pass their share to their family members or whoever they want to will it to. TICs can be dissolved if a co-owner buys out the share of the other co-owner/s. Or to sell the home, one co-owner can file a partition action.

  • The similarities of a TIC and JTWROS

    In both ownership arrangements, owners have rights to the property. If it is rented or sold, co-owners each receive each will receive a part of the money that is according to their shares.

  • Secure a co-ownership agreement

    It is important to lay the ground rules and protect your share. It is wise to make things clear for all parties involved before problems arise. No matter how close you are with the co-owners, there is always a possibility that ownership issues will be challenged. A co-ownership agreement can help resolve the issue.

  • What are the ownership percentages?

    Joint tenants have equal shares. Co-owners in a TIC agreement can divide the shares based on the amount that each has put in for the downpayment.

  • How are ongoing costs divided?

    They refer to ongoing costs like mortgage payments, property taxes, insurance, utilities and maintenance. The division of expenses like this should be part of the co-ownership agreement. Co-owners may divide this according to their shares or according to the amount of time each co-owner will put in in maintaining or improving the property. You may want to open a joint checking account so each co-owner can withdraw from this account to pay for ongoing expenses.

  • What if a co-owner wants to sell?

    The co-owner who wants to sell does not need to get the approval of the other co-owner as to whom they could sell it to. However, the other co-owner can object to the sale because of their right of first refusal.

Find the Perfect Neighborhood

Finding your perfect home starts with searching for your kind of neighborhood.

What is so important with a good neighborhood? The environment you live in affects your lifestyle and quality of life for you and your family. You may want to live near a park so you and your kids can often walk there and they could play with other kids. Others want to live in a quiet suburb so after a hard day’s work they could retire to a relaxing home. For some a perfect neighborhood should be close to busy commercial districts where shopping and dining is convenient.

The search for a perfect neighborhood starts with driving around, especially in areas you’re not familiar with. Take note of neighborhoods that interest to you. Walk around to get a better feel. See if the houses are well-maintained.

If you have children, you might be looking for a safe, kid-friendly neighborhood. You’ll also want to think about these things:

  • Are there good schools in the area?
  • How is the crime rate?
  • Are there grocery stores nearby?
  • Is theproperty value likely to increase?

If you work with a realtor they should be able to tell youthings you want to know about the neighborhood you’re interested in.

  • School

    Even if you don’t have children, there’s a good reason for living near a good school. Properties near a reputable school is more likely to appreciate in value. Years from now if you sell your house, you will be able to sell it at a high price in no time. Properties like this are attractive to buyers. If you want to know more information about the schools in the area you’re eyeing, you can conveniently do this online. You can just search for the zip code or geographical area and you’ll be able to find ratings for the school system as well as standardized test scores. You can also ask your realtor about the school/s. Or try talking to neighbors with children who go to the school. If you have kids the best thing to do to validate your research is to visit the school yourself or with the kids. And get the feel of the school.

  • Crime Record

    This is a very important aspect you should look at. The good news is, you can easily find information online. There are websites where you can see statistics on crime and other relevant information. Homestore allows you to search for crime data and school information in the area you are searching for. Just enter the zip code or city you choose. The site can also give a comparison of crime rates between another area.

    You can also do these as you research:

    • Observe if the windows and doors of the houses in the neighborhood have bars.
    • Look out for graffiti and vandalism on walls and walkways.
    • Talk to neighbors.
    • Ask the police or sheriff’s office.
    • If you’re looking in town or in busy areas, nooise and traffic is expected.

Go beyond facts and figures. Don’t focus too much on the value of your investment. There other important factors to consider aside from this. Like the convenience it offers to work and school; its proximity to restaurants and shopping centers; or even just the relaxing feel it can give you and your family. But usually property value is a reflection of the area’s overall health. When you do your research find out as well how much property taxes have gone up over the past few years.

The 7 Roles of a Real Estate Agent

Their major responsibility is to protect your interest as a buyer and as their client. Their main roles are the following:

  • Educates you about your market.
  • Negotiates on your behalf
  • Analyzes your wants and needs.
  • Guides you to homes that fit your criteria.
  • Coordinates the work of other needed professionals.
  • Checks and double-checks paperwork and deadlines.
  • Solves any problem that may arise.

Five Key Areas to Pay Attention to When Buying a Home

Looking for a new home is exciting and overwhelming. There are so many things and details to pay attention to. Focus on these five most important areas: electrical, foundation, plumbing, the attic, and landscaping. According to Don Walker, inspector and owner of Ace Home Inspections, these are the five areas in homes that he frequently reports problems with.

  • Electrical

    Most people assume that if they buy a newer house, they won’t have electrical problems anytime soon. “I inspected a brand new house — four years old but the electrical was all done incorrectly,” says Walker. Through a complete home inspection, potential problems are detected early on.

  • Foundation

    Walker said he inspected a four-year-old home that was already showing signs of major damage that is expected to cost you a lot of money in repairs. “It was a model home. What [the homeowners] did was plant trees for shade to make it look really nice, but they planted the wrong trees and they’re going to crack the foundation and it’s going to cut the property value down by $50,000,” says Walker.

    Walker says in the case of that home, the trees were causing micro-fractures in the tile in various locations of the home. “As you walk through the house, 21 feet in and 30 feet deep, there’s just too much root invasion and it’s going to ruin their tile,” explains Walker.

    He says some tell-tale signs with this home were the minor cracks in the foundation that were causing a lifting and separation of the foundation. Also, the windows were not opening and closing properly, “which means the foundation is moving.”

    But not all cracks is an indication of a foundation problem. Walker said, “Most people don’t understand that there are natural cracks in a house. That’s why when we do an inspection report we have to look at it and say ‘Okay, this is a typical crack and this one is an untypical crack.”

  • Plumbing

    According to Walker, is another area that poses a big concern yet often goes undetected. “Mold forms underneath sinks when people have a leak and they fix the pipe but they don’t take care of the mold,” says Walker. He said caulking the sink can help prevent mold. “That’s my number one thing I always find — bad sinks.”

    He says, “When you look at the sink, look behind it and most of the time you will discover a little crack. What happens is, when you wash dishes or you wash your hands in the bathroom or the kitchen, the water gets in that crack and seeps down. Once the water gets behind the cabinet it’s in a perfect position to create mold.” When it’s dark and damp, it becomes a perfect breeding ground for molds.

  • Attic

    Walker says, “You can tell everything about the house by the attic.” When you fix other parts of the house, you can already mask the problem. Take for example a wall damaged by leaks. You can have it fixed and repaint it to make it look new. But Walker says the attic is sort of the eyes to the soul of the home. “In the attic you can tell where all the damage has been.”

    “If you’re in a 20-year-old house and you see that the insulation is brand new, you know that there was a water leak because it had to be replaced,” says Walker. He adds, “You can tell if the roof is good because you can look right at the wood.”

  • Landscaping

    “There should not be moisture or plants next to your house,” says Walker. He says there should be a 12 inch barrier between the landscape and the house. If not, the foundation might crack. If the landscape is too close to the home, when the plants are watered, the foundation and soil expand. And when the they’re not, the foundation dries up and shrinks which causes it to crack.

    Acquiring the money to pay for a house is not the only preparation you need to buy a house. Learn what you can about the house and how to take care of them. It will save you a alot of money in the near  future.

How to Get the Best Deal

Buyers are now in a better position when it comes to buying a house. Gone are the days when real estate is a hot market and you need to make an upfront offer as soon as a property is put up for sale.

Competition has mellowed down in most areas. This gives buyers an opportunity to be able to deliberate on what is available and take advantage of the best deals. How do you determine the climate of your market? According to economists, real estate is directly related to employment. So if there is a rise in employment, you can say that the value of your property is also looking up. In the Midwest real estate is not doing as good as auto manufacturing. Prices are low and is not expected to rise anytime soon. It might take a while until the market rebounds.

Things buyers can keep in mind to get the best deal in the market:

  • Do your homework and negotiate fairly.

    In a changing market, the biggest problem is human nature. Market value can drop or stagnate. But sellers often refuse to believe this. To them, the price of their home is based on how dear it is to their heart regardless of its actual market value. On the other hand, buyers take advantage of a market slump and make unrealistically low offers. Before you make an offer, research and think about important things like the features of the home that you want to be in the home, the size of the home and the going rate of properties in the area.

  • Research on comparable sales.

    Find out how much the last one in the area sold. According to Beverly Durham of ReMax Gold Coast Realty in Camarillo, Calif., “See what’s going on out there.’’ Don’t insult the seller by making a very low offer. You’ll drive them away. Your goal is to make them consider your offer.

  • Why is the seller putting it up for sale?

    Find out as much as you can about this. Is it because of retirement, job-related, divorce, they need to relocate, or they simply want to sell to the highest bidder.  This information is crucial. If a buyer knows this, they can either negotiate better or decide to look elsewhere.

  • Check the MLS (Multiple Listing Service).

    They usually state what the seller owes. Or your agent can provide this information for you.With this information, you could negotiate accordingly.

  • Timing.

    According to Durham, “After 45 to 60 days the seller is usually absolutely sick of keeping their house spotless and sick of people walking through.’’ After this period the seller will be anxiouse to sell their house.

  • Go for newer or well-maintained houses.

    It will cost you time, effort and money to fix damages.

    Even in a tight market, it’s okay to ask the seller to add the closing costs to the price of the house. It’s better to pay 20% downpayment and roll the closing costs into the loan than pay 15% downpayment and pay upfront for the closing costs.

  • Be reasonable

    when you ask for extras.You can also ask for new kitchen appliances or washer and dryer. Durham said you can even ask the seller to pay for the first year of homeowner association dues. But don’t ask them for things that involve workmanship. Durham said, “Don’t ask them to paint.’’“They won’t do it the way you want. They’ll do a lousy job.’’

    When you consider buying a home, think about staying there for atleast five years. Remember your goal as a buyer is to get the home that you want; not to outsmart the seller.

Five Keys to Successful Negotiation

Your success in the realty market lies in how well you negotiate. But negotiation is a complicated matter. All the parties involved want things to go their way. Given these conditions, how can you make things work for your favor? How does one become a succesful negotiator?

Based on experience, these five aspects determine a successful negotiation:

  • What the market says

    Study the market. There will be times when it’s more favorable for buyers and there will be other times when it will lean towards sellers. The key is to strike when the time is favorable for your side. For example, as a buyer you are in a position to offer the seller a quick deal and you know that the seller is in a hurry to sell the property. Take it as an opportunity to make things work in your favor.

  • Determine who has leverage

    If word has gotten out that the seller has gone bankrupt, you are in a position to make reasonable demands. On the other hand, if you know that the house is a hot item, expect many competition. Therefore, you are in no position to dictate the terms or ask for “extras”. The owner has the liberty to choose the buyer they want; usually to the highest bidder with the best terms.

  • What are the details?

    What are the other costs (or savings) involved? Most people think that the price of the house is all there is to it. But in fact, there are other things to consider. For instance, Both house A and house B cost $275,000. However, house A is an older house that needs costly repairs. Plus the seller of house A agreed to pay  a portion of the closing costs. On the other hand, house B also costs the same. But cost of  necessary repairs will not be covered by the seller.

    Think about all the costs and savings involved and determine where you can get better value for your money.

  • Financing

    All transactions involve money. Money affects negotiations in so many ways.

    Is the buyer pre-qualified or pre-approved by a lender? Finding your ideal house does not guarantee that financing will also be available. Your loan application can be denied because of several reasons; among them: appraisal problems, title issues, survey findings.

    One of the advantages of being pre-approved is that buyers already know how much they could afford. Sellers like buyers who are pre-qualified. They pose less risk to the seller. They won’t have to worry about waiting for the buyer to find a loan to seal the deal. Being pre-qualified means that you have the financial capacity to pay for the loan.

    Lower interest rates mean a broad market – a lot of potential buyers.

    Nowadays, downpayments are made easier. Now you can find loans with as low as 5% downpayment or even less. 100 percent financing or no downpayment plans is even an available option. 

  • Broker expertise

    Brokers are now representing not only sellers but buyers as well. If you have competition, being represented by a reputable broker gives you an edge.