Joyce Crommett's Blog
With so much to think about these days, it is not surprising that some first-time home buyers make mistakes they later regret as they shop for a home for sale. Presented here are some of the most popular mistakes, along with tips to help you avoid a similar fate.
Looking for a home before getting a mortgage
Many first-time buyers make the mistake of seeing houses first before ever scheduling an appointment with a lending institution. In some big markets, housing inventory is still tight, and competition is so frightening. You might discover that you are eager to spend more to buy a property, or lose a property because you are not even pre-approved for a mortgage.
What is the solution to this?
Before you fall in love with that perfect dream house you have been looking at all this while, ensure you get a complete underwritten pre-approval letter. Being pre-approved sends the signal that you are a serious buyer whose credit and finances are ready to get a loan successfully.
Buying a house that your financial muscle cannot carry
It’s easy to fall in love with houses that might make you spend more, but over-stretching yourself can cause you regrets later. It could even put you at higher risk of losing your home if you fall on the unpleasant hammer of hard financial times.
The best way to overcome this issue is to concentrate on the monthly expenses you can genuinely afford instead of looking at the highest loan amount you qualify for. Just because you are eligible for a $250,000 loan, that doesn’t mean you can afford the monthly payments that come with it. Factor in your other financial obligations that do not show on a credit report along with additional home expenses like insurance and taxes when deciding on how much house you can afford.
Emptying your savings just to buy a house
One of the biggest mistakes you can make is spending every dime you have. When you invest all your cash, including your savings on the down payment and closing costs, you set yourself up for disappointment. It will do you no good.
Some people make the mistake of spending all they have saved to make the required 20% down payment, so they don’t have to pay for mortgage insurance. However, they are making a grave mistake as they are left with no savings at all.
Homebuyers who pay 20 percent or more down do not have to pay for mortgage insurance when getting a conventional mortgage. That often translates into significant savings on the monthly mortgage payment. However, it is not worth the risk of living on the edge.
Here comes the solution.Let your aim be to save three to six months of living expenses in an emergency fund. Paying mortgage insurance is not the best, but killing your emergency or retirement savings just to make a sizeable down payment is even more of risk.
Talk to your real estate agent about their mortgage and lender recommendations and get yourself pre-approved for a realistic mortgage before starting your home search.
It can feel like real estate has its own language. After all, there is a reason agents take courses and need to become licensed!
And for a first-time buyer, I understand that it can be overwhelming and very confusing to keep track of all of this new information on top choosing the home of your dreams and planning a move.
Which is why I’ve created this quick and dirty list of real estate terms every first time home buyer needs to know.
Let’s get started:
A kick-out clause gives the seller the option to continue showing a house after a buyer has made their offer but is slowing down the process with the sale of their own home. The seller can then “kick out” that offer if someone else puts in a more desirable, and readily available, one.
A title-search is simply a search to pull up relevant information to the title of a house. It helps to determine the history of the home and if there are existing regulations in place that affect the property.
Escrow is a neutral third party used to handle transactions throughout the buying/selling process. They hold all related documents and funds until the day of the sale.
Earnest money is usually held in an escrow account and represents your commitment to the sale of a house you have made an offer on. Typically, the amount out down is between 1-3% of the asking price. It is also called “good faith money”.
An appraisal determines a property’s market value. Only a licensed appraiser can pull a report of this information for you. This is the report a lender will use to determine whether or not to lend money to a borrower.
Closing costs are paid at the actual sale of the house. The “closing” is when the title is transferred from the seller over to the buyer. The cost covers all of the fees that were incurred throughout the buying and selling process. A few examples of these fees are the home inspection, appraisal, and escrow.
A comparative market analysis or CMA is a report pulled from a database your real estate agent has access to. This is then used to determine the offering and asking price of homes.
A contingency is when in order to move forward with a sale there are specific requirements the buyer must complete first. Common contingencies are: waiting on an inspection, pre-approval or signing.
Disclosures are required by law. But what are they? A disclosure means a seller has to inform potential buyers of and problems that would affect the value of the property.
Due diligence is doing the work of fully understanding the property you are interested in before buying it. This includes obtaining insurance, reviewing all documents carefully and walking the property.
During a home inspection appliances, plumbing and electrical work are tested. The heating and cooling system are also inspected. This doesn’t affect the monetary value of your home. This is a way for you to determine what state a home is in and if it is worth the financial investment to you.
Shrewsbury, MA 01545
So, you want to buy a property and offset it with rental income, but a multi-family or apartment complex is a bit too rich for your bank account? No problem! Most of the steady increase in new renters comes from young millennials, and you can cash in on this increase as well by buying just a slightly larger property. Renting out rooms to students, or the other half of a duplex is a great way to supplement your income or offset that larger house purchase you don't completely fill yet.
Some layouts are better for segregating (for privacy) and renting out than others. Look for homes with secondary entrances, guest houses, separate parking, and multiple bathrooms or a finished basement with its own bathroom to ask for the highest rents. Your agent can help you find these properties; they are experts in the needs of potential landlords.
Owning and Renting a Duplex
Duplexes have some significant income advantages, especially for new investors. If you're planning to live in one of the units for at least a year, you'll qualify for FHA loans that can cover over 90 percent of the property value. Additionally, you can rent out the other side to offset your payments. That lets you be both a homeowner and a landlord at the same time, whereas if you were to purchase a single-family home with an FHA loan, you would still have to live in it for a year before renting it out, cutting down on your potential income. The downside of living in and renting out your duplex is proximity. You typically share a wall with your tenants, which means very little is hidden from them, and you're always on call if they need something.
You can also rent out your duplex to your elderly parents or grown children, which allows you to be together while having separation and privacy.
Being a Landlord
No matter what size your rental property, from a single room to an apartment complex, you are responsible for the property. That means all maintenance, landscaping, upgrades, appliances, emergencies, and anything else that crops up is yours to take care of in a timely manner. Be sure to check your state and local laws for the specific landlord requirements and tenants’ rights in your area.
Next time you make that open house list, be sure to ask about properties good for sharing with a tenant. Your realtor can help!