mortgage Taxes HOME OWNERSHIP Credit Property Tips for Buying or Selling Your Home REAL Estate Agent Loans Home Inspection CURB Appeal
TABLE OF CONTENTS Introduction... 3 Buying a Home... 3 Are You Ready to Buy a Home?... 3 Home Owner Responsibilities... 4 Preparing to Buy a Home... 6 Making Your Purchase... 10 Tips for Selling Your Home... 11 2
INTRODUCTION If you re considering buying or selling your home, today s real estate market can present some pretty tricky waters to navigate. However, with proper planning, the whole process can turn into smooth sailing. This report will guide you through your buying or selling adventure, let you know what to expect, and give you simple tips and tricks for a good experience. BUYING A HOME Are You Ready to Buy a Home? The idea of owning your own home can be very compelling. In fact, the pride of ownership may be enough motivation to carry you through any challenges you encounter. However, there are also many other benefits of home ownership, including: Increased privacy The opportunity to make it your own: paint it however you like; decorate it with what pleases you in lighting, fixtures, cabinets, appliances, and more; and make more permanent changes that you may desire, such as remodeling. Sizable income tax deductions that aren t available to those who rent 3
Your own home is an asset that can increase in value over time. In many areas, the value of real estate increases by 10% each year. Your monthly payment also increases your equity in your home, instead of being just another expense you pay to a rental company for the privilege of living there. You re the boss of your home, not the leasing company! Home Owner Responsibilities On the other hand, buying your own home also increases your responsibilities. Determining if you re ready to take on these responsibilities plays a large part in deciding if home ownership is right for you. Consider these aspects of owning a home: 1. Maintenance and repairs. When you own your home, you can t call the landlord to send someone over whenever your dishwasher or air conditioning system breaks. Since maintenance and repairs are now up to you, you must fix it yourself or hire someone else to do it. Having the funds available for maintenance and repairs takes proper planning in your finances. Setting aside money for home emergencies is necessary for your own comfort and peace of mind. Are you ready for this increased responsibility? 4
2. Property taxes. Some mortgages include provisions for the mortgage company to collect the funds for these taxes as part of your monthly payment. Each month the mortgage company collects these funds in your escrow account at the mortgage company. Then, when the taxes come due, they pay them from your escrow account. However, some mortgages don t have this provision. It lowers your monthly payment to the mortgage company if they don t collect these funds, but then you must pay the property taxes yourself. Not paying your property taxes on time will result in unfavorable consequences, increased fees, and possibly even the government seizing your home and selling it at auction. When your mortgage contract doesn t include an escrow for property taxes, then it s important to set aside these funds so that you can pay them yourself on a timely basis. Are you ready for this responsibility? 3. How long will you live there? Another consideration of home ownership is how long you intend to stay in the home. Because of closing costs and the fact that your first few years of payments mostly go to pay interest on your mortgage, it takes a few years to recoup these costs and start building some equity. Are you planning on staying in your house for at least three years? Only you can decide if you re ready for home ownership. If your answers to the questions above are positive, then your own home may bring you many years of pride and joy. On the other hand, if you prefer 5
not to take on these additional responsibilities, then perhaps renting will suit you at this time. Preparing to Buy a Home Currently, you re likely to find many bargains if you re considering buying a home. It s a buyers market! The recession has forced many home sellers to reduce the price of their home to entice buyers. In addition, banks are selling foreclosed homes at bargain prices. Unfortunately, however, the credit crunch which also resulted from the recession has made it more difficult to acquire financing if your credit leaves something to be desired. Following these strategies will help you prepare for a successful purchase: 1. Research. Find out which areas of your locale are decreasing in their popularity and which ones are more desirable. If your city is expanding to the north, for example, you may want to look for property in that area, as it is very likely to appreciate in value much quicker than in other areas. You might find the best bargains in declining neighborhoods. So if you re looking for the most house for the money, you might choose these. However, if your intention is to sell the house for a profit at some point, it may be best to avoid purchasing in these areas. Speak to a real estate agent who is familiar with the area you re looking at. They may be able to provide you with 6
detailed information about whether a particular house is under- or over-valued. 2. Clean up your credit report. Your credit report, in all likelihood, will be the single most important document that determines whether or not you can get favorable financing, so you want it to represent you in a favorable light. Go over your credit report with a fine tooth comb. Get the credit reporting company or the creditors involved to correct any errors. Pay off any old debts that show up on the report. Sometimes old bills can be forgotten until the mortgage company sees them on your credit report and refuses to offer financing until they re paid off. Taking care of these in the first place and removing the unfavorable items will increase your credit score and prevent hold-ups in your financing. If you already own a home, ensure that your credit report shows a record of 12 months of on-time or early payments to your mortgage company. If you ve paid on time for the past 8 months, for example, it may work in your favor to wait for 4 months before you apply for financing. In the meantime, you can search the market for the home you want. Make scrupulously on-time payments for all credit accounts while you re searching for a house. Try to pay off your debt down to less than 50% of your available credit. For example, if your credit limits total $10,000, try to pare your debt down to less than $5,000. 7
When the mortgage companies see that you re in the process of paying off your debt, it looks good for you! 3. Save up funds for a down payment and closing costs. When it comes time to make your purchase, you ll usually need to pay 20% of the price of the house in cash, plus $5,000 to $10,000 in closing costs depending on your negotiations with the seller. You might be able to get the seller to agree to pay all or part of the closing costs. But you ll still need a down payment. Most finance companies will not agree to offer the financing if you need to borrow the funds from a bank for the down payment. If you want to borrow the funds for your down payment, arrange something in advance with family, friends, or business partners that won t be recorded on your credit report. Look for other available resources to help with your down payment. Some government agencies offer to help low income families with a down payment. Organizations connected with your career might help as well. For example, some firefighter organizations help the firefighters in their community with down payments. 4. Find a buyer s agent that will work well with you. A good buyer s agent will attempt to find the perfect house for you and negotiate with the seller s agent for your best deal. On the other hand, the agent who lists the house is representing the seller, not you. A listing agent might only show you the houses they list, while a buyer s agent will show you all of them. In either case, the agent doesn t get paid unless the deal closes, so both types of agents will do all they can to enable 8
a successful purchase. Their pay comes out of the seller s pocket and is usually a percent of the purchase price. The listing agent splits the commission with the buyer s agent. You ll want to sign a buyer broker agreement with your buyer s agent. This agreement will ensure that your buyer s agent gets their share of the agent commission. If you wish to keep your options open, you can sign a non-exclusive buyer broker agreement, a short-term agreement, or an agreement that only covers a single area. 5. Get pre-qualified for financing. Pre-qualifying for financing will speed up the process once you find the home you want. This step isn t necessary, as a good mortgage broker can find the financing once you ve decided on a home to buy, but it may save you some time. Ask your family, friends, neighbors, co-workers, and buyer s agent for referrals. If they ve had a good experience with their purchase, they ll be happy to share their contact with you. Your buyer s agent most likely already works with some great mortgage brokers on a regular basis to help complete their sales. Websites like LendingTree.com enable multiple financing companies to make you an offer, giving you even more options. Items you ll need to acquire financing include: your tax returns for the last two years, paycheck stubs since your last tax return or income/expense statements from your business if you re self-employed, plus verification of any other income you may receive. 9
Making Your Purchase When you ve completed the above steps before finding the home you wish to buy, actually buying the home will be a breeze. Once you find your home, make the seller an offer. Your buyer s agent can provide the necessary forms and do the negotiating for you. Then, when they accept your offer, sign an Earnest Money Contract and include a deposit (usually $500) with the contract. This will save the home for you while the Title Company makes the closing preparations and you secure financing. Get a home inspection. Hire a home inspection company to come in and inspect everything. They make sure all systems, including air conditioning, heating, electrical, and plumbing, are working correctly. If they find that something doesn t work correctly, you can negotiate with the seller to get it fixed before you buy the house, as long as you make your purchase conditional on an inspection. When all is ready, you ll make an appointment to go in and sign the papers. It takes a couple of hours to sign all the legal papers. Then the Title Company faxes all the necessary papers to the finance company and they fund the deal. That s it! Congratulations, the house is now yours! 10
TIPS FOR SELLING YOUR HOME Even though the current climate lends itself to a buyer s market, there are still things you can do to attract a buyer for your home and get a fair price for it. Try these techniques to enhance the marketability of your home: 1. Hire a good real estate agent. Get referrals from your friends, family, and co-workers, then interview agents that regularly work in your area. Your agent will include your house in the Multiple Listing Service, place advertisements, host open houses, negotiate with possible buyers and their agents in your best interest, give you valuable advice, and more. Thinking of For Sale By Owner? In most instances, a good real estate agent can sell your house faster than you can. They are professionals in the market and make their money when your house sells successfully. If you want to test the waters first to save that 6% or so commission, try it yourself first and then get an agent later if it doesn t sell. An agent also pre-qualifies buyers before they show them your house. This protects you from hordes of unqualified strangers looking through your house and also helps keep you, your family, and your belongings safe. For example, with an agent, you ll never have to meet a stranger alone in the house. 2. Increase your home s curb appeal. You never have a second chance to make a good first impression, so the front of your house is vitally important. Make your house look inviting with 11
fresh paint, if necessary, and attractive, well-manicured landscaping. 3. Spruce up the inside with fresh paint. A fresh coat of paint can do wonders for your home. Choosing neutral colors helps prospective buyers to picture themselves in the home, to see it as their home, not yours, which can spur them to make an offer. 4. Remove personalized objects. Put away personal trophies and anything with your name on it so your prospects can picture it as their home. Even removing your name from the outside of the mailbox or your entry area can help in this regard. 5. Get rid of clutter. Make your home as open and airy as possible. Put away breakables, like figurines, that the prospects or their families might break. 6. Make the beds. Prospects like to see neat, tidy homes. It provides a more pleasant, less distracting atmosphere. Simply making the beds is really important for this aspect. 7. Take out the garbage. No one wants to see, or smell, garbage. It pretty much ruins your chance of selling them the house. 8. Leave when the agent shows your home. One reason this tip is important is because, once again, it helps the prospects see themselves occupying the home. Also, when an agent is doing his job, the homeowners can be distracting to both the agent and the prospects. If you have dogs, take them with you. Many people are frightened of or dislike dogs. 12
9. Bake cookies before the showing. Nothing s as inviting and brings on pleasant memories as much as the smell of homebaked cookies. Alternatively, put a drop of vanilla extract on a warm burner or a few drops in a pan of water in a 350 degree oven. 10. Be willing to negotiate. There are many times when negotiating will be the reason your house sells. It may not always coming down on the price, either. The buyer may just want you to make a repair or include an allowance in the price of the house for carpet replacement. Be open to their suggestions and consider them carefully. Once you have an offer on your house, your realtor will guide you through closing the deal. Buying or selling your house can often be confusing, but following these tips will help you get through the basics and enjoy a successful purchase or sale. Don t be afraid of asking questions about any of the processes. Your real estate agent is well-versed in these matters and will give you valuable advice. Good Luck! 13