5 Tips from 5 Experts for Home Buying What you need to know for your new home purchase Buying a home is exciting, but it can also be overwhelming. One things for sure, it is one of the most important financial decisions you will make. So it is important to plan ahead and have support. First time home buyers in particular have a lot to keep track of, but even the most seasoned homeowner can still take advantage of tools and advice to make house buying a smooth process. We have assembled useful information from five local New Jersey experts to make your home purchase a success. Simplify the home buying process with tips from our five experts: a Real Estate Agent, a Mortgage Professional, an Attorney, an Insurance Agent, and a Title Officer. Should you have questions or want more information, the contact information for our experts is provided within.
5 Tips from a Real Estate Agent 1. Decide what you want There are several questions you should consider before you begin your search. Can you picture your dream home? Do you want to live near a lake, river or town? What kind of neighborhood, size of property or number of bedrooms? Is it important to have good school systems nearby? What about public transportation or daycare facilities? Remember, the more you know about what you're looking for, the quicker you'll find the perfect match! 2. Don t try to time the market Don t obsess with trying to time the market and figure out when is the best time to buy. Trying to anticipate the housing market is impossible. The best time to buy is when you find your perfect house and you can afford it. Real estate is cyclical, it goes up and it goes down and it goes back up again. So, if you try to wait for the perfect time, you re probably going to miss out. 3. Bigger Isn t Always Better Everyone s drawn to the biggest, most beautiful house on the block. But bigger is usually not better when it comes to houses. There s an old adage in real estate that says don t buy the biggest, best house on the block. The largest house only appeals to a very small audience and you never want to limit potential buyers when you go to re sell. Your home is only going to go up in value as much as the other houses around you. Sometimes it is best to is buy the worst house on the block, because the worst house per square foot always trades for more than the biggest house. 4. How to bid Your opening bid should be based on two things: what you can afford, and what you really believe the property is worth. Make your opening bid something that s fair and reasonable and isn t going to totally offend the seller. A lot of people think they should go lower the first time they make a bid. It all depends on what the market is doing at the time. You need to look at what other homes have gone for in that neighborhood and you want to get an average price per square foot. Sizing up a house on a price per square foot basis is a great equalizer. Sellers respect a bid that is an oddball number and are more likely to take it more seriously. A nice round number sounds like every other bid out there. When you get more specific the sellers will think you've given the offer careful thought. 5. Don t skimp on a home inspector Hire a home inspector. It ll cost about $300 but could end up saving you thousands. A home inspector s sole responsibility is to provide you with information so that you can make a decision as to whether or not to buy. It s really the only way to get an unbiased third party opinion. If the inspector does find any issues with the home, you can use it as a bargaining tool for lowering the price of the home. It s better to spend the money up front on an inspector than to find out later you have to spend a fortune. Ray Peterson Coldwell Banker Residential Brokerage Broker Associate, GRI ray.peterson@cbmoves.com Phone: 732 842 3200
5 Tips from a Mortgage Professional 1. Plan ahead When applying for a mortgage, you will be creating the largest debt in your life. It is a big responsibility that must be taken seriously. The mortgage process, if handled correctly, by you and your chosen professionals, does not have to be an aggravating fiasco. This starts by focusing on financing well in advance. By reaching out to a licensed mortgage professional at least six months prior to your actual application date, you will not only learn more about the process and guidelines, but it will give you time to develop a rapport and comfort level with the person that will potentially be handling your mortgage. 2. Monitor and maintain your credit There will be times when planning ahead is not possible, and you have to act fast due to a job change, an unforeseen opportunity, or any other number of reasons. In these instances, you will have little time to repair your credit if needed to get a better rate, or just qualify at all. Get into a habit of checking your credit score once a year. You can do this at www.annualcreditreport.com, as each U.S. Citizen is allowed one free credit report each year. The key here is to ensure that there are no errors on your report. If you have collections or judgments, pay them as soon as possible. Credit issues can create minor or major problems when trying to obtain a mortgage. 3. Save at least 5% for your down payment To qualify for a conventional loan, you will need at least 5% of the purchase price in a liquid bank account. There are very few programs that allow for 0% down in today s market, and most people don t fall into the appropriate demographic anyway. FHA loans require just 3.5% down, but due to a lack of funds during the housing crisis, the general cost of financing using FHA has increased dramatically and is now cost prohibitive. With 5% down and quality professionals at your side, you can easily work out a way to handle the closing costs. 4. Establish a budget Figure out what your maximum monthly budget is prior to the start of your home search. Once you establish the maximum amount you are willing to pay each month, consult with a mortgage professional on how much of a loan you qualifies for. This loan amount will still vary based on the type of home (condo vs. Single Family or Multi Unit), the property taxes, flood insurance, and other factors, so consulting with a professional you trust is vital to ensure that you are shopping for the right properties! 5. Ask a lot of questions Enter into this major transaction with the mentality that everything is different than it was a year ago. Take nothing for granted. A reputable mortgage professional is on your team and wants to help you. Ask a lot of questions until the answer makes sense. Keep asking why? until you are satisfied. A good loan officer not only knows his stuff, but knows why things are the way they are, and can articulate them in a way that is easy to understand. Mark Zacharczyk Guaranteed Rate Vice President of Mortgage Lending www.guaranteedrate.com/markzacharczyk Phone:732 784 2794
5 Tips from an Attorney 1. Understand the impact your purchase will have on your property tax assessment The purchase of your property in the previous year is typically the best evidence of your property s fair market value in the context of a tax appeal. Your tax assessment could be increased or decreased based on what you paid. Be proactive. Even if your tax assessment is lower than your purchase price, you may still be over assessed pursuant to a law commonly referred to as Chapter 123. As of 2015, the deadline to file a tax appeal is currently January 15 in Monmouth County and April 1 in other New Jersey counties. 2. Mortgage contingency language needs to be precise If you, for example, plan to apply for a 10/1 interest only ARM mortgage product, and nothing else will work for you, the contract needs to be very explicit as to what type of mortgage you are obligated to apply for. Otherwise, you could be deemed contractually obligated to accept a mortgage product that you did not want should your preferred product become unavailable. Be very clear with your attorney about this during attorney review. 3. Representations by seller need to be verified before closing A contract for the purchase of real estate is an agreement between a buyer and seller that governs the transaction process. Upon the closing, the contract merges with the deed. This is to say that any representations, promises, requirements, duties, obligations, etc. under the contract are deemed fully performed and extinguished when the seller accepts money and the buyer accepts the deed. Because of this, it is essential for a buyer to independently verify any representations made by the seller to induce the contract (e.g. There are no underground fuel oil storage tanks in the property ). If it becomes necessary for certain obligations or representations to survive closing then a separate instrument needs to be drawn to address that. 4. Zoning check Before closing, you should contact the municipality s building department to ensure proper permits were taken for work that might have been done at the property. In New Jersey, each municipality is able to determine whether or not a certificate of occupancy is required prior to the sale of real estate. A common misconception by buyers is that a municipality is somehow ratifying all work that was done at the property prior to the closing, even work that was done without permits. This is not the case. 5. Contract closing dates are estimated, non essential dates Scheduling movers and days off from work may also require a lot of lead time. While closing dates given in a contract are good for target dates, they are completely unenforceable in the very short term, anyway. There are many facets to your closing, some of which are completely out of the control of you and your professional team, which might cause a delay. You might be surprised to learn there is nothing you can do to force the seller to close on that very day. In fact, in the short term, the party who wishes to close later is always at the advantage until a time of the essence notice is given (this will be discussed in greater depth in a future article). Kevin I. Asadi Zager Fuchs, PC Counselor at Law www.zagerfuchs.com Phone: 732 747 3700 x 211
5 Tips from an Insurance Agent 1. Understanding replacement cost Replacement cost is the all inclusive estimated cost to replace your home should it be damaged beyond a point of repair. Your Homeowners Insurance coverage should always be at 100% Replacement Cost. This cost includes demolition, design, code enforcement and reconstruction. This is not just the cost to rebuild. The additional costs, could be about 40% of the total replacement. 2. Everyone needs flood insurance Floods can happen anywhere and about 25% of all flood claims come from low risk flood zones. Understanding that the risk of flood can happen anywhere, it is important to know how that premium will impact your overall insurance expense. If you are in a high risk zone, it is important to understand the factors that affect your flood insurance premium and you should speak to your insurance agent for more information about high risk policies in zones A or V. 3. Protect yourself with liability insurance Accidents happen. The liability portion of the homeowners insurance policy covers the homeowners in case a guest or neighbor gets hurt on your property, sues you for damaging their property or for some forms of personal liability against libel or slander. The liability coverage is extremely important in homeownership as it protects your assets. 4. Don t skimp on valuable coverage Water backup and equipment breakdown are often part of additional endorsements added onto homeowners policies. Often times, when prices are low, these valuable coverages can be missing. Water back up is not the same as flood, it is for sewer or sump pump overflow, which can be expensive. The equipment breakdown can cover valuable computers and televisions against power surge or unexpected mechanical failure. These are not maintenance policies, but can be very helpful and the addition to your insurance policy is inexpensive. 5. Proper deductibles will save you if a claim happens It is very well known that a higher deductible can lower insurance premiums. It is important to have proper deductibles, not higher deductibles. Deductibles go over various risks and sometimes there can be two different deductibles on a homeowners policy. This can sometimes seem deceiving. The second deductible is usually for wind or hurricane and can sometimes be up as high as 5% of your coverage, meaning it can get as high as $25,000 without much effort. It is important to understand if it states hurricane, NOAA must officially designate that a hurricane made landfall. Otherwise, it is just wind. Aaron Levine LG Insurance Group Professional Insurance Agent www.alevinegroup.com Phone: (877) 288 7169
5 Tips from a Title Officer 1. Don t be surprised by Title Insurance If you are obtaining a mortgage, the lender will usually require that you purchase title insurance. If you hire a lawyer, they will probably insist as well. In New Jersey, title insurance is regulated, so the cost can be determined with reasonable accuracy prior to closing. For example, title insurance for a single family house, with a purchase price of $400,000.00, will cost approximately $2100. 2. Know what you are paying for Title Insurance protects your interest in real estate from claims of ownership, liens or rights of others. Title Insurance involves an examination of the land and court records to determine what rights, rules, restrictions, and liens affect the property you are purchasing. Once you pay for title insurance, the insurance is good for as long as you own the property. It protects you against liens, informs you of restrictions (such as how close to the road to you can build or what type of use is allowed) and insures that you have valid ownership of the property. 3. You choose the title company Attorneys, realtors, lenders often take control of the process, choosing a company owned by a friend, family member or someone with whom they have a business relationship. As the consumer, you have the ability to choose someone you trust to help you with one of the biggest financial investments you will ever make. 4. Not all title insurance agents are created equal The amount of research done on a property varies from company to company. The stability or financial strength can vary dramatically from agent to agent and company to company. Too often, we read in the paper that a title agency or company went out of business or didn t pay off mortgages they were supposed to pay. Choose an agent who is underwritten by a major underwriter, such as First American or Old Republic, and who carries insurance protecting you if they do something wrong. Its not mandatory in New Jersey for a title agent to carry professional liability insurance and a fidelity bond, but if they do, you have another layer of protection. 5. Take a look at your title commitment before you close For most people, title insurance is just another cost at the closing table. If you take a look at the commitment ahead of time, you might learn a lot about the property that no one told you. Sometimes these are happy surprises. Your property might carry a right to use a nearby dock or access rights to a lake or road your realtor didn t know about. Sometimes, however, it contains restrictions or rights given to others. One common example are utility easements. These are rights which may have been previously given to gas, electric, and telephone companies. The location of these easements could prevent you from building your dream home, or putting on the addition you were planning. Be informed, don t be surprised. Matthew A. Cohen, Esq. Two Rivers Title Principal & Licensed Title Producer www.tworiverstitle.com Phone: 732 747 3615