The Crisis of Credit Visualized

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These questions will help you decide whether you’re ready for a home that’s larger or in a more desirable location. If you answer yes to most of the questions, it’s a sign that you may be ready to move.

 1. Have you built substantial equity in your current home? Look at your annual mortgage statement or call your lender to find out. Usually, you don’t build up much equity in the first few years of your mortgage, as monthly payments are mostly interest, but if you’ve owned your home for five or more years, you may have significant, unrealized gains.

 2. Has your income or financial situation improved? If you’re making more money, you may be able to afford higher mortgage payments and cover the costs of moving. 

 3. Have you outgrown your neighborhood? The neighborhood you pick for your first home might not be the same neighborhood you want to settle down in for good. For example, you may have realized that you’d like to be closer to your job or live in a better school district. 

 4. Are there reasons why you can’t remodel or add on? Sometimes you can create a bigger home by adding a new room or building up. But if your property isn’t large enough, your municipality doesn’t allow it, or you’re simply not interested in remodeling, then moving to a bigger home may be your best option.

 5. Are you comfortable moving in the current housing market? If your market is hot, your home may sell quickly and for top dollar, but the home you buy also will be more expensive. If your market is slow, finding a buyer may take longer, but you’ll have more selection and better pricing as you seek your new home.

 6. Are interest rates attractive? A low rate not only helps you buy a larger home, but also makes it easier to find a buyer.

1. Choose a low down payment loan.

There is no law that says you MUST put 20% or even 10% down. There are some loans that require as little as 3% or even zero down. This is attractive for three reasons: It’s hard to save for a large down  payment, you could earn more interest on that money than you’re paying in interest on the loan, and  it’s nice (and sometimes necessary) to have cash on hand after buying a home.

2. Have someone give you money to pay closing costs.

A relative, church or nonprofit organization can give you money for closing costs.

3. Ask the seller to pay some of your closing costs as part of your offer.

Sellers are usually allowed to contribute to a buyer's closing costs.

4. Do not pay too much insurance at closing!

Most lenders require 14 months hazard insurance paid at closing, so be ready. What happens to that  extra money?
It sits in your escrow account until you sell the house.
It is safe there, but it often earns no interest.

5. Remember, the homes that you are looking at don’t belong to your agent.

You must be straightforward about your likes and dislikes in order for the agent to do the best job for you. Your agent should show you everything available that meets yo ur requirements.
Don’t make a decision on a house until you feel that you’ve seen enough to pick the best one.
Review the Multiple Listing printout with your agent to make sure that you are getting a COMPLETE list.

6. Shop around for your home insurance.

A little shopping might be able to save you money.

7. You can deduct money paid for discount points from your gross income before computing your tax.

See a CPA for more information.

1. A cushion in the price may be desirable, but only if prospective buyers are willing to negotiate.
2. An overpriced home is not likely to be shown.
3. If shown but not sold, a home may be used to make other listings more attractive.
4. A house being shown should receive an offer within 12 to 15 showings. If no offer is received within 15 to 20 showings, a price adjustment should be made as soon as possible to maintain market interest.
5. No showings indicate a house is probably at least 5% overpriced.
6. Showings, but no offers, may indicate a house is overpriced between 3 and 5%.
7. In today’s market the maximum cushion over market value should be no more than 3%.
8. A dramatic increase in showings will occur when a price is adjusted below market value.
9. Market values are determined by buyers and sellers through their negotiations. Agents do not set market values. Agents can only assist in setting effective prices to which the buyers will respond.
10. A house “sold” may not close if the appraised value does not equal or exceed the sales price.
11. Once a house is vacant the economic cost of owning it is 1%  of the value a month or more depending on current interest rates.

Sooner or later, most homeowners will be in a position to sell their home. This report summarizes the top five mistakes that home sellers make, simply because the experience is new to them.

Mistake #2.  Failing to Maximize the "Curb Appeal" of Your Home

Mistake #3.  Not Appreciating the Buyer’s Point of View

Unreasonable though it may be, a prospective buyer would like to see a perfect home from top to bottom and inside and out.  To improve the likelihood of an easy, fast and profitable home sale, we suggest that you attend to the following items:

On the outside

1. Sweep the front walkway.
2. Remove newspapers, bikes and toys.
3. Park extra cars away from the property.
4. Trim back the shrubs.
5. Apply fresh, clean paint on your home, wooden fence, and outbuildings.
6. Clean windows and window coverings.
7. Maintain sprinkler systems.
8. Maintain sealants around windows and doors.
9. Make sure roof and gutters are clean and in good condition.
10. Mow the lawn frequently and plant flowers.
11. Keep pet areas clean.
12. Take down out-of-season decorations.

On the inside

1. The kitchen and bathroom should look and smell clean.
2. Vacuum rugs and carpets (and have them professionally cleaned, if necessary).
3. Place fresh flowers in the main rooms.
4. Put away dishes, unless setting a formal display for decoration.
5. Make all beds and put away clothing.
6. Open drapes and turn on lights for a brighter feel.
7. Straighten closets.
8. Put away toys.
9. Turn off televisions.
10. Play soft music on the radio/stereo.
11. Keep pets out of the way and pet areas clean and odor-free.
12. Secure jewelry, cash, prescription medication and other valuables.
13. Consider removing unnecessary furniture and appliances from counter tops to create a greater sense of space.
14. Consider baking cookies or lighting scented candles to create a homey atmosphere.

Mistake #4.  Thinking You Need To be In the Home to Provide Details to Prospective Buyers

Mistake #5.  Over-Pricing Your Home

 If the listing price is too high, you'll miss out on a percentage of buyers looking in the range where your home should be priced.  Some people think that if they leave some “wiggle room” in the price, they'll always have the opportunity to negotiate and accept a lower offer.  However, chances are the offers won't even come in, because the buyers who would be most interested in your home have been scared off by the price, and won’t even take the time to consider it.  By the time you correct the price, you've already missed exposure to a group of potential buyers.  

The listing price becomes even trickier to set when prices are quickly rising or falling.  It's critical to be aware of where and how fast the market is moving – both when setting the price and when negotiating an offer.  An experienced, well-trained real estate consultant is always in touch with market trends – often even to a greater extent than appraisers, who typically focus on what a property is worth if sold as is, right now.

Say you started the home buying process backwards and started LOOKING at homes before you pre-qualified yourself for a loan. Now you’ve found that none of the homes in your price range will measure up. What do you do? Short of robbing a bank, there are 6 things that you can do to qualify for a bigger mortgage.

1. Reduce long-term debt

The first thing that lenders look at is your income to expense ratio. They compare how much money you have coming in against how much money you have going out every month.

We all know that a dollar will only go so far – and lenders know this particularly well. So, if you can pay off car loans, credit cards, or any other obligations against your income, you’ll have more money to spend on a loan – and a lender will let you borrow more money.

2. Wait until you get more income

Another way to look at the income-expense ratio is from the income side. If you have more money coming in, you can borrow more money. If you’re expecting a raise within the next year, maybe you should wait until that comes through, before asking to borrow money for a new home.

3. Add someone else to the loan

Another way to demonstrate to a lender that he will be repaid is by having someone (with a good income and stable job) co-sign on the loan. This way, the lender is looking at MORE income available to repay the loan. Family members Bank of Dad) are the typical source of someone willing to co-sign.

4. Use financing that requires lower down payments

The basic idea is this… the more money that you have available to spend, the more money that a lender will let you borrow. You’re trading off having the money available NOW or later. If you put a large down payment on a home now, that means you may have less income available to repay a loan later.

By the same token, if you make a smaller down payment, then you’ll have more money available to repay a loan – and the lender is likely to let you borrow more.

5. Wait for interest rates to drop

Interest rates are the price that lenders charge for the use of their money. So, when interest rates are high, it’s because lenders are charging you more to use their money right now.

Again, it’s a trade-off between now and later. Lenders are only going to give you so much money to use over the next 15-30 years (the life of your mortgage). They work backwards from that figure using interest rates. If you have a higher interest rate, you have less money to spend now. If you have a lower interest rate, you have more money to spend now.

So, if you can wait for a lower interest rate, you’ll be able to get more money to spend on the home you want.

1. Begin with the end in mind.

Have an ultimate scenario of where you’re trying to be. What will life be like when you get there? How will it be better than where you are now? Dwell on that picture and write it out, fill up at least a page about how it feels in the new place. This is imperative.

Having the goal in front of you at all times energizes you to achieve it, in spite of setbacks and frustrations. Emotions will run high and you need an anchor. You too must focus on that future goal when anxiety threatens to get the better of you.

2. Be flexible.

In your monetary calculations, overestimate by a thousand dollars. In this market, anything can happen between contract acceptance and closing. It could be the inspections reveal areas of concern that the seller is unwilling to fix or the repair costs are higher than the amount limited in the contract.

Or the interest rate changes, which affect the necessary down payment and closing costs, you will need to come up with. As your real estate team, we will strive to tie up loose ends as quickly as possible, but remember there is no perfect world. Most buyers feel a bit overwhelmed when taking on a new mortgage and the responsibilities of a new home.

We’ve seen many buyers get angry when it seems like the cost just keeps going up. Anger is caused when reality doesn’t match up with the expectations you had in your mind. So if you anticipate this happening in advance, you won’t get angry. In fact, it’ll probably go better than you expected.

3. Trust in the process.

There’s just so much to do, it’s easy to panic. You wonder if it will ever work out. In fact, when we bought our house, we couldn’t eat for a day, we felt sick to our stomachs! You think you’re taking a big chance, but the truth is you’re giving yourself a big chance.

Even though you can’t see every step of the way, as you move towards your goals, the way opens up. We know that you haven’t moved in a long time and it’s a major upheaval in your life. But we’ve been there many times before, and we’ll be looking out for you. Trust that we know the way to get you there.

4. Get knowledge.

One thing you’ll probably feel during this transition time is being out of control. It feels like everyone else has taken over your life. The seller, your lender, the appraiser, the inspectors, they all have the power to say yes or no to your moving plans.

We’ll try our best to let you know ahead of time what your expenses will be, and what the unknowns are. We’ll tie down the loose ends as soon as possible. We’ll try to get your loan approved within a reasonable time frame. We’ll educate you as best we can and let you in “behind the scenes” so you won’t ever feel stupid or out of control.

Mistake #1: Not knowing how much they can afford before they make an offer.

The easiest way to avoid this mistake is to get pre-approved for a mortgage by a lender so you know in advance exactly how much you can afford.

Most pre-approvals are free and it will give you a basis to make a more informed purchasing decision when you find the house you like.

Mistake #2: Not realizing that the wrong mortgage can cost thousands of dollars in needless interest and taxes.

Check with your accountant before you make your final decision on which mortgage you are going to choose. Your CPA will be able to tell you what the long-term effects will be on your income, your taxes and the equity you build in your home over time.

Most people aren't aware that with a standard 30-year mortgage they will be paying two and a half times the amount of the mortgage in payments.

With some advance planning and a simple strategy, they can cut the amount of interest they pay dramatically and own their homes sooner.

Mistake #3: Not realizing in advance who the real estate sales person represents.

Most people think that the agent they are working with is working for them. But unless they are working as your buyer representative, they represent the seller. There are different types of agency relationships you can have with a Realtor, make sure that you are clear on your options.

Mistake #4: Not discovering hidden defects before they buy a home.

One of the most expensive mistakes is also one of the easiest to avoid, by having a professional pre-purchase home inspection. Don't get stuck with a money pit. The cost of a professional home inspection is usually a few hundred dollars, but the peace of mind it can give you and the expense you can avoid needlessly is in the thousands of dollars.

Mistake #5: Not knowing how much their credit can affect their ability to buy or refinance a home.

Before you buy a home, many of the clouds on your credit history can be cleared up or even eliminated. Your mortgage professional can help you review and prepare your credit file in advance.

When building or buying a home, it helps to decide just exactly what you NEED and what you WANT. Once you have a price in mind, THEN start looking, if you do it the other way around – you’ll fall in love with a home that you can’t afford and none in your price range will ever measure up to it.

Location, Location, Location!

Don’t you wonder why people always ask about location first? Well, it is the hardest thing to change about a home once you buy it. However, there are things besides the neighborhood that you need to consider. Things like… size of the lot – do you really want to mow those 5 acres or is it worth it to be that far from those nosy neighbors.

Dinner anyone?

Think about your lifestyle in relationship to the Kitchen and Dining Room.

Do you actually cook? Do you need that full gourmet kitchen with stainless steel appliances and lots of cabinet space? Do you need room in the kitchen for eating in – or will you always use the dining room?

What’s on TV tonight?

Do you need separate Living and Family Rooms? In some states, like Florida and California, lifestyles are pretty relaxed all around and rarely do we find that we need a formal Living Room.

Many family rooms need to be large enough to accommodate computer stations as well as the entertainment center, complete with video games and surround sound.

Nite Nite, Sleep Tight…

The thing that really draws the attention of a homebuyer is the Master Suite. Think about the size of your furniture, do you need extra room for a crib? Do you need a sitting area or study? Separate walk- in closets for you and your spouse?

Where’s MY room?

Do you need more bedrooms? One for each kid or guest? Do they each need their own bathroom or can they share? Where are these rooms in relation to the Master Suite? Is there a room dedicated as an office or a gym?

Where are we going to put that?

Think about how much and where you need to have storage. Under the rafters tends to be very warm in the summer and cold in the winters – not the greatest place for temperature sensitive items – or things that you need to get to frequently.

Where are my clean socks?

I like to think about the Laundry as little as possible. Even so, would it be better for you to have the washer and dryer stashed in an upstairs closet, or have a Laundry production room (complete with built-in ironing board and laundry chute) – that the kids pass through on their way back in from the pool?

Once you have a prioritized list, share it with your consultant – this will help them find a home to really suit your needs. If after seeing a few homes that the consultant has found based on your list you find that something has moved up or down the list, in terms of priority – make sure to tell them. They want to help you find what you need and want. Having gone through this list – you’re well on your way to finding your new dream home.