How Much Should You Put as Your Down Payment?

Question: I have been renting the same townhouse for the last six years. My landlord now wants to sell the property and he has asked if I want to buy it. He is offering to sell it to me for $220,000, which I think is a great deal. I have a good salary, good credit and a good savings account. My question is this: How much cash should I use as a down payment and how much of a loan should I apply for? Some people tell me I should put at least 20 percent down to eliminate Private Mortgage Insurance (MI). Others have said I should keep my cash and take the largest loan possible to get the tax deduction. Is there a rule of thumb that I should follow when it comes to a down payment?

Answer: First, congratulations on purchasing your townhouse. Over the long run, your investment of ownership in your dwelling is likely to be very profitable. Remember at the end of the journey, a homeowner pays off his mortgage and owns a house. A renter has zip.

Now, let’s get to your question. Although many experts will say it’s wise for income earning folks to have a large mortgage because of the low rates and tax deduction, it’s not right for everyone. Here are some things to think about:

  • Private Mortgage Insurance (PMI). PMI is a monthly fee that the borrower pays if the first trust loan exceeds 80 percent of the purchase price. Since a lower down payment results in a statistically higher risk to the lender, PMI insures a portion of the loan to reduce the risk to the lender. Thanks to creative lenders, however, a borrower can still put as little as no money down and avoid PMI by taking out two loans. Ask your loan officer about loan packages with no PMI, sometimes called “piggy-back” financing.
  • Monthly payment “comfort level”. This is a very important issue. If you have good credit and income, most lenders will qualify you for a larger loan amount than your would want. The first thing you should do is assess your personal spending and saving habits and try to come up with the maximum mortgage payment that would fit into your budget.
  • Taxes. Understand the benefits of mortgage interest and real estate tax deduction. Since you will own the home, you will be able to deduct all the interest and taxes you pay on the home. Consult a tax expert on these issues, but it’s important to get an idea of how much of a tax break you will receive if you own the home. This will help you decide your mortgage amount.
  • Opportunity costs. Analyze the “opportunity cost” of a large down payment. In other words, if you put down 20 percent, or $44,000, what are you giving up? Is the $44,000 earning a good rate of return? Do you have to sell securities and pay capital gains taxes to liquidate the money? Get an idea of how much it will cost you to put down $44,000.
  • Other debts. Take into consideration other debt you may have. For example, if you are carrying substantial credit card debt, it would probably be better to pay the cards off instead of putting down a large down payment.

Hopefully this is a start in the right direction when determining what mortgage balance you should carry. But as I said, congratulations on purchasing a home.

By Henry Savage
RealtyTimes

Retweet this post

Trouble Selling Your Home? Try Sweetening the Deal

If you’re having trouble landing a buyer for your home, maybe you need better bait.

Crafty home sellers know incentives are the prize at the bottom of the box. By offering buyers something a little different, they can improve their chances of selling their homes quickly and for the price they want.

Here are just a few of the ways home sellers can sweeten the deal with extras.

Cover the buyer’s closing costs
Many buyers, preoccupied with saving enough cash for their down payment, overlook their closing costs which, at between 3 and 6 percent of the sale price, can amount to several thousand dollars extra. Offering to pay them on behalf of potential buyers may be just the push they need to close the deal.

Help the buyer get a better mortgage rate
Another potential deal sweetener is to offer to purchase discount points on the seller’s mortgage. Discount points are purchased up front in order to secure a lower interest rate on a mortgage — the more that are purchased, the lower the rate. In most cases, one point is equivalent to one percent of the loan amount and will reduce the interest rate by .25 percent.

Discount points may make your home more attractive to buyers in that their monthly payments over the life of the mortgage will be lower. Plus, it enables you to advertise your home with the offer of “below market financing,” which may draw in more potential buyers.

Throw in some freebies
If you’re planning to purchase new furniture, appliances, curtains or light fixtures for your new place and the ones at your current home are in good condition, try including them as value-adds in your purchase agreement. This works particularly well with first-time homebuyers who may not have much furniture of their own. Plus, leaving some things behind may even reduce the overall cost of your move.

If you don’t want to part with any of your possessions or fixtures, another low-cost incentive is to include a home warranty. Offered through insurance companies for around $400 (depending on the extent of coverage), home warranties are contracts that cover the cost of replacing or repairing major appliances that break during the first year after the sale of the home. Plumbing, electrical and heating systems may also be included under the home warranty.

Other attractive incentives that may lure buyers in are gift certificates, golf club memberships, airline tickets and even cars. These types of incentives do cost money, but they can go a long way in helping to get your home listing noticed. You may also consider offering them to your real estate agent as an added incentive to finding a buyer.

Overcome objections or problems
A less glamorous but often equally effective tactic to help close a sale is to offer to rectify any concerns a potential buyer may have with your property. Something as simple as offering to repaint the front steps, re-sod the lawn or adjust the move-in date might push a potential buyer off the fence. You can either offer to make the improvements yourself or to include a renovation allowance in your purchase agreement.

Michael T. Moulton

Broker-In-Charge/Investor/Realtor

Bee Home Solutions, Inc.

The Creative Realty Firm.

Phone: 704-885-0488

Fax: 704-896-2802

Visit us on the web: www.BeeHomeSolutions.com

Retweet this post

8 Important Tips For Protecting Yourself When Buying A House

If you’re getting ready to buy a house during what is typically the busiest buying and selling time of the year, then offers may be flying, loans may seem confusing, and everything may be moving way too fast. That’s why it’s important to do everything you can to protect yourself throughout the entire home buying process.

Low mortgage interest rates and a strong underlying demand for housing drove total state existing-home sales to a new record in the first quarter of 2003 with 34 states experiencing sales increases over the first quarter of 2002, according to the National Association of Realtors.

And the NAR says that many states that saw sales decline actually had a shortage of homes for sale – and the biggest price increases.

“Too many buyers, not enough sellers is making this an exceptional sellers’ market … Some bidding wars are here again especially in the first-time buyers market of single-family homes,” said Ben Lambert, a Realtor in Herndon, VA.

The same phenomenon is being felt in other parts of the country.

“The lack of inventory continues to be a concern for the buyer,” said Dave Petruncio, a broker in Western Springs, Ill.

What this means if you’re buying during the frenzied spring and summer months is that you’ll need to do everything you can to protect yourself as you make offers, obtain your loan, buy insurance, and strike up contracts.

Freddie Mac offers a number of tips:

Get pre-approved for a loan. With competition fierce, you’ll want to be ready to make an offer. With a pre-approved loan, you’ll have more clout as the seller considers your offer.

Make sure it’s in writing. Don’t settle for verbal agreements. If the seller says he’ll replace the carpet or leave his washer and dryer, get it in writing.

Get a good-faith estimate. Your mortgage lender is required to provide you with a good-faith estimate of closing costs within three days of receiving your application. They need to provide it in writing. If you don’t have to pay loan application fees, you may want to compare lenders and compare closing costs.

Don’t settle for the first lender you come across. Contact at least three lenders and compare rates.

Lock-in your rate. One of the most stressful parts of the loan process is watching rates inch up and down each day and trying to figure out when to lock in your rate. Once you do lock in, be sure to get a written statement that outlines your interest rate and length of the lock.

Get a home inspection. A professional home inspector will examine the house’s major systems and let you know if there are any problems or defects. You can then use the information in your negotiations. Look for an inspector who is a member of the American Society of Home Inspectors. Members are required to have completed at least 250 paid professional home inspections and passed two written exams that test the inspector’s knowledge. Also, ask for references.

Shop for homeowners’ insurance as soon as your offer is accepted. The National Association of Realtors recently cautioned homebuyers to not take homeowners insurance for granted. You and your spouse may have a clean claims history and a stellar credit history – something insurance companies use to determine whether they will insure you – but it’s not just you they’re looking at. If the house you’re eyeing has had claims, there’s a chance they won’t insure you, especially if it’s a water-related claim.

Read everything. When you have the closing meeting to sign the mountain of papers, make sure you read through everything carefully and don’t hesitate to ask questions if there are something you don’t understand.

Finally, give yourself enough time between your closing and your move date, just in case there are delays in the closing process.

Article By Michele Dawson
The Realty Times

Retweet this post

Buying Houses In High-End Real Estate Markets?

In 2002, James and Michelle Rigdon purchased a new $427,000 Gilroy, CA home with a conventional $282,500 first mortgage, a $25,000 deferred payment California Housing Finance Agency second, an $85,000 third from South (Santa Clara) County Housing, a $6,500 fourth from the Housing Trust of Santa Clara County and a $6,000 grant from a non-profit agency.

That’s what it’s come to in Silicon Valley, CA an area where single family home prices have fallen nearly $40,000 in recent months but the median price of homes remain higher than a half million dollars.

Instead of the traditional first and second mortgage to finance a home and cover the down payment, buyers are piling on more mortgages to acquire the American Dream.

“We can’t just get a first loan anymore. You have to go and find other loans. We spend a lot of time trying to guide people to the right place so they can get first, seconds, thirds and fourths,” said Tracy Cunningham, the Single-Family Program Manager for the Housing Trust of Santa Clara County.

But it’s not just California. New England, some Northeast metros, Denver and other areas have been socked with high home prices that often make creative financing with multiple loans the only way to buy.

“I’m not sure I’d advise someone in Boston that it is time to leave town, but I am certainly advising buyers to sit this market out. Boston has been through this real estate cycle before, and a lot of people will regret buying in the current real estate bubble,” said Bill Wendel, of the Real Estate Cafe in Lincoln, MA.

Others say, while real estate isn’t without its risks, that risk diminishes over time and buying, even in an expensive market, more often than not, makes sound financial sense.

The Office of Federal Housing Enterprise Oversight’s Second Quarter House Price Index says the nation’s housing market has enjoyed a nearly 39 percent rate of home price appreciation since 1997, with more the half the states and the District of Columbia enjoying a 5 percent growth in price appreciation during past year.

The federal overseer of Fannie Mae and Freddie Mac says any housing market downturn isn’t likely to fall as far as prices have risen and over time, banking on real estate is not a risky investment.

It’s just tough getting through the door in some areas and consumers need to give it a good hard shove to get it open.

“Call the housing department in your city. Many cities offer great deals for first-time home buyers. Zero-interest loans or loans with no payments or even loans that do not have to be repaid at all if you stay in the house for a time. Different programs are offered at different times depending on the funds available,” said Joette Joseph, branch manager of VP Alliance Title Co. in San Jose, CA.

Grants, for example, have been so overlooked, the national non-profit housing grant industry recently formed a trade group, the Homeownership Alliance of Nonprofit Downpayment Providers (HAND) to boost the visibility of grants that average $6,000 to $15,000 nationwide per home buyer.

“I’ve been talking to professors of urban affairs and almost no one has heard of this industry. It’s a five-year old industry and there are about 22 agencies. We are doing it with private capital. It is a gift to a buyer. The buyer doesn’t repay the money. That’s the main appeal,” said Jon Cottin, the new association’s executive director.

The same lack of knowledge often exists about special mortgages and loan programs available from city, county and state housing offices, as well as private agencies that don’t always have the budgets to advertise like private lenders.

“Find a loan broker who frequently works with first time buyers. They often have the inside scoop on whatever is currently available. There are many programs available if you do a little research. Be sure to get preapproved before you start shopping for a home,” said Joseph.

Many lenders participate in the federal Mortgage Credit Certificate (MCC) program typically administered on the county level in most states.

With an MCC, up to 20 percent of the annual mortgage interest paid to the lender is refunded to the home owner as a federal tax credit. Homeowners who paid $10,000 in interest, for example, would receive a tax credit of $2,000. The remaining 80 percent of the interest — $8,000 — is taken as a typical mortgage interest deduction.

Because the program offers a tax credit that is subtracted from taxes due (rather than a deduction the reduces your taxable income) home owners can see the benefit immediately by adjusting their W-4′s exemption status. Or home owners can add the $125 a month to cash available for a mortgage payment. In many cases, lenders will qualify borrowers based on the extra monthly cash flow, enabling them to qualify for a home that might have been out of their reach without the MCC.

Along with grants, government assistance, MCCs and private lender programs, builders also offer special financial keys to home ownership.

Some jurisdictions mandate a below market rate housing program that requires builders, in some cases, to set aside a small portion of newly developed homes for low and moderate-income households. Builders can meet the requirements with lowered sale prices, special loan assistance and by other means.

Savvy brokers and lenders can help steer borrowers to all these special programs, but it’s often up to the borrower to seek out the programs. Finding one program often leads borrowers to others.

“Don’t be afraid to have your buyer agent call a builder directly and ask for a deal. Sometimes builders have remnant lots which they will sell at a bargain. Sometimes they will build a house on a ‘cheap’ lot and sell it for a discount from the normal price in that neighborhood. Maybe the lot has a drainage easement or some other weakness that has made it be the last house in a built out subdivision, but you get the deal because you asked,” said Dane Hahn, broker-owner of Exit 11 Real Estate in Stratham, NH.

by Broderick Perkins
RealtyTimes

Retweet this post

Things You Need to Know to Pass Your Home Inspection

Nearly all buyers will hire a professional home inspector to take a closer look at their new home before closing. In some cases home inspections are done before the home goes under contract.

A home inspection covers several areas and systems within the house, but there are a few that actually worry buyers the most…. Will the roof end up leaking? Is the wiring safe? What about the plumbing? These, and others, are the questions that the buyers looking at your home will seek professional help to answer.

It is important to not wait until inspection day to assess the condition of your home and make necessary home repairs before you sell. Small problems can turn into major issues which could end up costing more in the end and possibly lower your homes value.

In most cases, you can make a reasonable pre-inspection yourself if you know what you’re looking for.

Here are some of the most common items to consider when preparing for your home inspection:

  1. Mold and Mildew
    Mildew stains and odors scare buyers, especially now that toxic black mold is such a hot topic. Chances are you won’t even get an acceptable offer if mold and mildew are present. Even if the mold in your house is the normal variety and not stachybotrys chartarum, it is important that you take care of it immediately. Kill the mold and mildew and fix the source of the problem.
  2. Defective Plumbing
    Defective plumbing can manifest itself in two different ways: leaking, and clogging. A visual inspection can detect leaking, and the inspector will check water pressure by turning on multiple faucets and flushing toilets at the same time. Appliances such as dishwashers and clothes washers may be tested, too. Leaks and clogs will be apparent during these checks. When checking the faucets if the water appears dirty when first turned on, this is a good indication that the pipes are rusting, which can result in severe water quality problems.

    The home inspector may also check the septic system. During one method dyes are flushed and the inspector waits to see if the dye surfaces on the drainfield, indicating a drainage problem.

  3. Damp or Wet Basement or Crawlspaces
    An inspector will check your walls for a powdery white mineral deposit a few inches off the floor, and will look to see if you feel secure enough to store things right on your basement floor. A mildew odor is almost impossible to eliminate, and an inspector will certainly be conscious of it.  The inspector might use a meter to determine how much moisture is present in these spaces, because moisture deteriorates building materials and attracts insects.

    It could cost you a few hundred dollars or several thousand, depending on the problem. You will have to weigh these figures into the calculation of what price you want to net on your home.

  4. Inadequate Wiring & Electrical
    The electrical panel and circuit breaker configuration should be adequate for the needs of the house. A 125 amp electrical panel works for most homes. Individual circuits should not be overloaded. Wire should be copper or aluminum.

    The inspector will look for receptacles with ground fault circuit interrupters (GFI) in bathrooms and kitchens. These receptacles have little test-reset buttons on them. The home inspector will likely make sure the receptacles are what they appear to be, and not “dummies” that aren’t wired to work. Some of the grounded receptacles (with 3-pronged plugs) will be checked too.

  5. Poor Heating & Cooling Systems
    Insufficient insulation, and an inadequate or a poorly functioning heating system, are the most common causes of poor heating. While an adequately clean furnace, without rust on the heat exchanger, usually has life left in it, an inspector will be asking and checking to see if your furnace is over its typical life span of 15-25 yrs. For a forced air gas system, a heat exchanger will come under particular scrutiny since one that is cracked can emit deadly carbon monoxide into the home. These heat exchangers must be replaced if damaged – they cannot be repaired.
  6. Roofing Problems
    Water leakage through the roof can occur for a variety of reasons such as physical deterioration of the asphalt shingles (e.g. curling or splitting), or mechanical damage from a wind storm. When gutters leak and downspouts allow water to run down and through the exterior walls, this external problem becomes a major internal one.
  7. Damp Attic Spaces
    Aside from basement dampness, problems with ventilation, insulation and vapor barriers can cause water, moisture, mold and mildew to form in the attic. This can lead to premature wear of the roof, structure and building materials. The cost to fix this damage could easily run over $2,500.
  8. Rotting Wood
    This can occur in many places (door or window frames, trim, siding, decks and fences). The building inspector will sometimes probe the wood to see if this is present – especially when wood has been freshly painted.
  9. Masonry Work
    Re-bricking can be costly, but, left unattended, these repairs can cause problems with water and moisture penetration into the home which in turn could lead to a chimney being clogged by fallen bricks or even a chimney which falls onto the roof. It can be costly to rebuild a chimney or to have it repainted.
  10. Unsafe or Over-fused Electrical Circuit
    A fire hazard is created when more amperage is drawn on the circuit than was intended. 15 amp circuits are the most common in a typical home, with larger service for large appliances such as stoves and dryers. It can cost several hundred dollars to replace your fuse panel with a circuit panel.
  11. Adequate Security Features
    More than a purchased security system, an inspector will look for the basic safety features that will protect your home such as proper locks on windows and patio doors, dead bolts on the doors, smoke and even carbon monoxide detectors in every bedroom and on every level. Even though pricing will vary, these components will add to your costs. Before purchasing or installing, you should check with your local experts.
  12. Structural/Foundation Problems
    An inspector will certainly investigate the underlying footing and foundation of your home as structural integrity is fundamental to your home.

When you put your home on the market, you don’t want any unpleasant surprises that could cost you the sale of your home. By having an understanding of these problem areas as you walk through your home, you’ll be preparing yourself against potential problems in the selling process.

Before the Inspection
Do everything you can to get the house in good condition before you attempt to sell it, but don’t be discouraged if the inspection report contains negative statements. Home inspectors make note of everything they see. No home is perfect.

Remember that the home inspection report is not a wish-list for buyers. Read your contract carefully–it probably states which systems should be in good working order at closing. For instance, if the roof is older, but doesn’t leak, it is in good working order. If there’s a leak, and fixing just the leak is possible, the roof will be in good working order.

Your contract may also state that you are under no obligation to make any repairs at all–although the buyers can then likely withdraw from the contract. Don’t feel you must comply with unreasonable demands for repairs.

Michael T. Moulton

Broker-In-Charge/Investor/Realtor

Bee Home Solutions, Inc.

The Creative Realty Firm.

Phone: 704-885-0488

Fax: 704-896-2802

Visit us on the web: www.BeeHomeSolutions.com

Retweet this post