Selling Your Home? Don’t Make These Silly Mistakes
When you’re selling your home, you want to make sure you’re doing everything right. You don’t want to inadvertently turn off potential buyers. Yet many homeowners make major mistakes that can end up killing a home sale.
When you’re selling your home, you want to make sure you’re doing everything right. You don’t want to inadvertently turn off potential buyers. Yet many homeowners make major mistakes that can end up killing a home sale. Here are a few of the things to avoid when you put your home on the market.
If your house smells musty when potential buyers walk through the door, they might turn right back around. A musty, dank odor could signal mildew or even mold, which is a big concern. If your home has a mold outbreak, you’re best suited to call in a professional for areas larger than 10 square feet. For smaller mold patches, you can scrub with water and detergent. A dehumidifier is another smart option for airing out damp parts of your home.
Another offensive smell? Pet odors. When you’re selling your home, it’s important to set the scene with pleasing, welcoming aromas, such as the scent of vanilla or freshly baked cookies. Nobody wants to breathe in the less-than-delightful scent from soiled carpets or wet dogs. A good solution before putting your home on the market is getting your carpet professionally cleaned.
Too Much Clutter
When you put your home up for sale, the house should absolutely sparkle. Yet many homeowners fail to make their homes look as attractive as possible. Be sure to take down personal items such as family photos, and organize the areas in your home that are traditionally messy — the kitchen counter, laundry room, and pantry, for example.
When you’re selling your home, don’t overlook the baseboards and windows. Many sellers don’t think to look there, but that’s often where signs of pest infestations are found. If a potential buyer notices a trail of carpenter ants marching along your baseboards or small gaps in your home’s exterior, they may think twice about making an offer.
Do you love a great Friday-night fish fry? Or how about a dish of spicy enchiladas? Consider keeping these items off the menu while your home is on the market. Certain types of food can have a lingering smell that might not be appetizing to potential buyers. If it’s a nice day, open up some windows to air out your kitchen and let any unsavory smells drift away.
Selling your home is an exciting time. Make sure you’re doing all the right things to make your house as appealing as possible to potential buyers.
8 Unwritten Etiquette Rules Every Home Seller Should Know
If you’re trying to sell your home, you’ve probably scrutinized it, staged it, and scrubbed it down from floorboards to rooftop as if the folks from Architectural Digest were stopping by for a cover shoot. OK, so it’s in immaculate shape—but your home isn’t the only thing under scrutiny here. You are, too! That’s right: No matter how nice your home is, your behavior can also affect how buyers feel about making an offer.
Last week we told you the secret etiquette rules that every home buyer needs to know in order to nail the deal. Today we’re focusing on the selling side of the equation. Here are the (previously) unwritten etiquette rules sellers should follow to show their home—and themselves—in the best possible light.
Sure, you’re dying to know if prospective buyers will love what you’ve done with the kitchen, but Realtors® agree sellers should not be there lurking in the shadows during an open house or showing.
“Buyers don’t feel as comfortable when the owner is at the home watching their every move,” explains Nicholas Kensington of Scottsdale Real Estate. “Get out of their way so that they can start to picture themselves living there instead of being spied on.” So take a powder. Or at least hide.
Take your pets with you
You think Humbert is the cutest labradoodle ever, but not everyone is bound to share that opinion. In addition to having allergies, some home shoppers may not be in the market for a run-in with an animal they don’t know.
“Imagine, as a buyer, having the background music set to ‘barking dog’ while you are trying to take in the home’s nuances that you, as the seller, have worked so hard to hone,” says Brenda Hayward, a Realtor with Coldwell Banker. “To say nothing of the stress it puts on your beloved pet. Take your mutt for a car ride, to the dog park, or for a long walk. It will do you both good.”
Your pooch may not love the idea of strangers paying your home a visit.
Betty Clark, who claims an “irrational fear of birds,” says she was shocked by how many open houses she ran from due to unexpected tweeting and chirping from caged and uncaged feathered friends. Don’t alienate would-be purchasers by forcing your pets on them.
Move your car
“Make it easy for visitors to park and view the home,” Kensington notes. “No one likes parking issues. Having them is a sure way to get a viewing off to a bad start.” In fact, if potential buyers have to park a block away and walk, they may just skip taking the tour of your home. Or if they’re willing to make the hike, they may be in a lousy mood by the time they enter your home. Why risk it?
Lay out important documents
If questions arise while buyers are on the premises, it may help them decide to put in an offer that much faster if they can find answers quickly and in writing.
“Leaving necessary documents in an easy-to-find spot isn’t just good for selling, it’s also good selling etiquette,” says Kensington. “Put out the home inspection report, appraisal, home warranty, monthly bill information—gas, oil, electric—and proof of any major repairs are all good things to let people look through when they are considering buying your home.”
Offer some refreshments
House hunters can get parched and peckish. You can help!
“Putting out a few small bottled waters in a small bowl of ice is always appreciated, along with some light, easy grab-and-go sort of refreshments like mints or cookies,” says Cara Ameer, a Realtor with Coldwell Banker.
Be patient waiting for feedback
Of course, you’re dying to know what buyers thought of your home, but that information may not flow back to you instantaneously. Buyers often want to process what they’ve seen and think it over before making an offer. If one comes through, don’t worry, you’ll hear about it!
“It is reasonable to ask for feedback from your Realtor after the showing, but understand it may take a day or two for the buyer’s agent to respond,” Hayward says.
Don’t be greedy
Who doesn’t want top dollar for their home? But an unwillingness to negotiate can kill a possible deal and keep your home on the market long after you were hoping to be unpacking at your new place.
“Focusing on your bottom line is always important, but greed can lead to disaster. Remember a little of something is better than a lot of nothing. Generosity will lead you to your promise land,” says Josh Myler, a Realtor with The Agency.
Listen to the professionals
If your Realtor has some suggestions for improvements that may help sell the home faster, take them to heart but don’t take them personally.
“Don’t shoot the messenger,” says Caroline Gosselin, a Realtor with Sotheby’s Prominent Properties. “Keep emotions out and listen to what a licensed, trained, professional has to say about the house, be it a Realtor or an inspector. It’s immature and unmannerly not to be able to take criticism and be able to move on.”
10 Surprising Ways to Find More Space in Your Home
An organized home is a happy home.
How are your 2016 resolutions going? It’s that time of year again when we break out the running shoes, eat healthier for a couple of weeks and pledge to get our lives more organized. However, how are we supposed to eat healthier if our pantries are over flowing or be inspired to hit the pavement every morning if we are looking at piles of clothes? To lead a more organized and inspired life the clutter around you must be cleared. It’s simple, if your home is organized your mindset will be too.
A clean and balanced home is actually a launching pad for all of your other resolutions. So if you are already starting to fail at your self-resolutions try this home resolution – find more space in your home by clearing out the clutter. Follow these ten tips and I promise you it will inspire you to complete your other resolutions and lead you to a more organized, happier year!
1. The pantry. Create room by removing the large and awkward food packaging. Purchase clear, air-tight containers, take the box of your food item, and cut out the product name, nutritional facts and expiration date. Tape them to the inside of your clear container and then seal the food.
2. The pantry shelves. Arrange the food on your shelves to help keep your resolutions. Make “first choice” shelves for the food that you want to stay on that diet. Make shelves that are for the kids snacks or foods that you’re just not going to have on a regular basis anymore… You get the idea –some shelves are just for the once a week treat. Some are for every day.
3. The pantry. If you like to buy in bulk, put the bulk of your paper goods in another location, perhaps a closet or the garage, and place only what you need in your pantry— restock as needed.
4. The kitchen. When storing pots, pans and other durable items, stack them on their sides like files. This simple step not only creates more room, it also allows you to see exactly what you need. Caddies or sorters from a shelf or container store are great tools for vertical organizing
5. The dresser. Place clothing in drawers vertically (not the traditional horizontal piles) because it not only maximizes space, it allows you to find items more quickly. You can purchase wooden planks or plastic planks to use as dividers. This way you can see all of your clothes at once when you open the drawer.
6. The closet. If your shoes don’t have a place they end up in a pile taking up valuable space. Place shoes and accessories in clear plastic containers so you can see everything and tape their photo to the inside of their container with photo facing out. This little step gives you triple duty: more space, you can find it easily and better still you can put it away in the exact same spot for next time that hot date rolls around…
7. Use color to keep it straight. Organize your closet and drawers dark to light. It can be great way to find out that you really have way too many black blouses… and you can keep your resolution of being a kinder gentler you by donating the extras!
8. The kids’ rooms. Purchase bed raisers for under-the-bed storage. You can store everything from shoes, laundry basket, books and any bulky items that might otherwise clutter their room.
9. The baby’s closet. Is there room to add another bar? Take advantage of the fact that baby clothing is smaller and if you can, add an additional bar to hang the clothing to maximize space. You can purchase premade closet organizers that you can customize to make the most out of baby’s closet.
10.The best trick to more space in your home, less is more! So if you find you have extra things laying around, throw a reverse housewarming party! You will be starting a new party trend. Set aside your unwanted items and instead of having your friends bring a housewarming gift, they are to pick one of your items and take it home with them. This is a great way to reunite with friends, find your unwanted things a good home, and de-clutter all at the same time!
Now that the clutter around you is cleared your mind will be clearer to meet all those 2016 goals!
The size of new homes rose last year, suggesting Americans’ love of space remains strong but making new homes less affordable for a bigger swath of buyers.
The average size climbed to about 2,720 square feet in 2015 from about 2,660 square feet the previous year, according to data released by the National Association of Home Builders at its annual trade show.
Almost half of the homes started last year had four or more bedrooms, and one out of four had garages with room for three or more cars.
That isn’t necessarily a sign of strength in the housing market, however.
Home sizes have grown lately because new construction has been tilted toward the high end. Builders do aim to draw young buyers in at lower price points, so that there is a market for some of their more expensive products over the long term. But they haven’t made more starter homes in recent years mainly because of land prices, construction costs and lack of available mortgages for less-affluent buyers.
Those potential buyers, who may also be younger, help bring down the average size of new homes because they tend to live in smaller spaces than their older counterparts. They have been slow to purchase homes because they are struggling to save for down payments or be approved for mortgages.
The average price of new homes for sale in 2015 climbed to $351,000, up $100,000 from 2009.
The average new-home size bottomed during the 2008 financial crisis at about 2,360 square feet and climbed sharply before leveling out in 2014 and then jumping again in 2015. Rose Quint, assistant vice president of survey research at the home builders association, said she expected square footage might begin to decline as more first-time buyers came back into the market.
“Last year I was expecting, and I wasn’t alone, that the average size of homes would actually fall … because there were new measures that were supposed to bring in a wave of first-time home buyers,” Ms. Quint said. “That didn’t happen.”
Measures to help entice younger buyers into the market included lowering fees on loans from the Federal Housing Administration, which tend to be more appealing to first-time buyers because they have lower down-payment requirements.
The share of first-time buyers of U.S. homes fell to 32% of all purchasers in 2015 from 33% the previous year, according to the National Association of Realtors, its lowest level in three decades.
A major topic of conversation at this year’s International Builders’ Show was how to entice younger buyers to begin purchasing homes again. Ideas ranged from more communal amenities, such as pools and clubhouses, to mimicking high-end rentals to smaller homes with more outdoor space that tend to be cheaper.
“It’s a little bit concerning,” said Jeff Roos, a regional president for Lennar Corp. He said the company is looking at integrating technology and designs that appeal to younger buyers. “As the millennials get older they’ll see the value of buying versus renting.”
Want a Beach Home This Summer? Better Get Started Now
It happens every year: Right around the time we finally throw out the desiccated Christmas tree, put away the broken toys, and get back into the swing of work, we look up to find ourselves deep in the dark, dank, bone-chilling portion of winter that never seems to end. So it’s the perfect time to start the search for sandier and sunnier pastures!
It may seem counterintuitive as you’re snowblowing your front walk or drying out your socks, but now is a great time to begin thinking about buying a beachfront home that you can use throughout the summer—or rent out to pay the mortgage and then some.
“Buyers have more choice and more leverage in negotiations in the off-season,” says our chief economist, Jonathan Smoke. “So even though total inventory is lower, there are far fewer buyers for what is on the market, and that gives buyers an upper hand.”
And the off-season is a much better time to engage local contractors to take care of any repairs or upgrades—especially critical if you’re thinking of leasing the place out, Smoke points out. Taking action before the peak season will ensure it can capture as much of the peak rental revenue as possible.
To find the nation’s hottest (figuratively speaking) beach towns, our sand- and surf-deprived data team looked up cities and towns within 2 miles from a coast, using data from NOAA’s National Ocean Service, and filtered out the ones that are on inlets or without direct access to a beach. We excluded cities with over 100,000 population to focus on the ones that have a “small town” vibe, which left us with more than 1,000 beach towns. Then we cherry-picked from these to fit the criteria below.
Whew, we could use a beach vacation right now!
To figure out which of these towns were drawing would-be buyers, we aggregated page view data on realtor.com® in December 2015 to pinpoint where people are actually checking out houses online. With the homes in Hawaii and Southern California busting most people’s budgets, all eyeballs are now on the Sunshine State.
The housing market in Southwest Florida has been red-hot for the past few years, but Sarasota (No.1) is getting blistering. (Don’t want to put down your own cash? Enter the HGTV Dream House sweepstakes, and you could win an amazing waterfront retreat in Merritt Island, FL. Use our link to get a bonus entry!)
Of course, coastal communities vary as widely as the people who vacation in them. That’s why we crunched the numbers further to come up with the top 10 beach towns for four types of vacationers. So slip on the Havaianas, slather on some SPF 50, and let’s get to the beach!
For the active vacationer: Water sports madness
So you say you’ll die of boredom lying out on the (beautiful, relaxing) sand every day? No problem! For those who believe an aquatic vacation means diving, water skiing, kayaking, or some other frantic but fun pursuit, we searched TripAdvisor.com for beach towns offering the most outdoor activities.
The Florida Keys island chain is truly the U.S. mecca of water sports: riding the waves in the Gulf of Mexico, parasailing while overlooking the deep blue water, swimming with dolphins. And that’s all before breakfast! The same goes to many other Florida cities, including Destin and Panama City Beach, with well-established water sports businesses and lots of local experts to help you get your action-packed groove on.
Honorable mention: Chula Vista, CA. If you see people spiking volleyballs like professionals in this San Diego–area beach town, they probablyare professionals. At the Chula Vista Olympic Training Center, more than 100 nationally ranked athletes hone their skills in beach volleyball, canoe/kayak, and cycling. Don’t be shy if Olympic athletes ask you to join their game!
For the swimmer: Pristine waters
The U.S. counts a total of 6,020 miles of beaches, according to theEnvironmental Protection Agency, but if you’ve ever been to a major city beach on a summer weekend, you know that some are little more than trash- and bacteria-filled parking lots. For those who enjoy a daily plunge in the water that isn’t followed by a round of antibiotics, the Natural Resources Defense Council collected water quality data from coastal counties and came up with a list of “super beaches.” We narrowed its list down a bit more to those that actually have a decent supply of homes for sale.
It may be a surprise to some, but the infamous Jersey Shore includes some of the country’s cleanest beaches. (Clearly, Snooki and pals are long gone.) If you enjoy small-town charm and a laid-back lifestyle, Avalon and Stone Harbor in New Jersey are among your best bets. But be sure to check out the price tags before calling an agent, because they are not cheap.
For the sun worshipper: Perfect weather
Yes, rain is part of the cycle of life, but no one goes to the beach to enjoy wet weather, amirite? Especially if your idea of a beach vacation is centered on lying corpselike in the sun (this is not a bad thing), the weather should be your No. 1 concern. To ensure you get the maximum days out of your beach stay, here’s the list of towns with the best weather, ranked by the number of sunny days and average water temperature.
Topping the list is Kahului, HI, with 273 sunny days and an average water temperature of 78 degrees Fahrenheit.
It looks like Southern California should take over the title of “Sunshine State” from Florida, as it has five beach towns on the list with an annual average of 280 sunny days. But four Florida cities still make a good showing because of the high water temperature.
Port Aransas, TX, a town of fewer than 4,000 residents featuring mostly natural beaches, is also emerging as an off-the-radar seaside resort town.
For the partier: The best nightlife
What’s that you say? You want to have some fun? Like, stay out all night, dance, lose your cellphone and house keys fun? If you’ve come to Miami Beach to party, you’ve come to the right place. On any given night, nearly 300 nightspots open just in Miami Beach, a separate city from Miami, according to Yelp. From A-list celebrity clubs in South Beach, to dive bars on Ocean Drive, to music venues for some live Latin beats, there’s something for everyone.
And beyond Miami Beach, Florida’s other spring break cities also made the list. Hanging out with hordes of slobbering college kids might not be your idea of a great time, but know this: For a month each year, you’ll be sure to find a rental market.
Is it really 2016 already? For those of you who happen to be planning on buying a home in the new year—or even just trying to—there’s a whole lot to celebrate. Why? A variety of financial vectors have dovetailed to make this the perfect storm for home buyers to get out there and make an (winning) offer. Here are six home-buying reasons to be thankful while ringing in the new year:
Reason No. 1: Interest rates are still at record lows
“Remember 18.5% in the ’80s?” asks Tom Postilio, a real estate broker with Douglas Elliman Real Estate and a star of HGTV’s “Selling New York.”“It is likely that we’ll never see interest rates this low again. So while prices are high in some markets, the savings in interest payments could easily amount to hundreds of thousands of dollars over the life of the mortgage.”
“In most metropolitan cities, monthly rent is comparable to that of a monthly mortgage payment, sometimes more,” says Heather Garriock, mortgage agent for The Mortgage Group. “Doesn’t it make more sense to put those monthly chunks of money into your own appreciating asset rather than handing it over to your landlord and saying goodbye to it forever?”
Reason No. 3: Home prices are stabilizing
For the first time in years, prices that have been climbing steadily upward are stabilizing, restoring a level playing field that helps buyers drive a harder bargain with sellers, even in heated markets.
“Local markets vary, but generally we are experiencing a cooling period,” says Postilio. “At this moment, buyers have the opportunity to capitalize on this.”
Reason No. 4: Down payments don’t need to break the bank
Probably the biggest obstacle that prevents renters from becoming homeowners is pulling together a down payment. But today, that chunk of change can be smaller, thanks to a variety of programs to help home buyers. For instance, the new Fannie Mae and Freddie Mac Home Possible Advantage Program allows for a 3% down payment for credit scores as low as 620.
Reason No. 5: Mortgage insurance is a deal, too
If you do decide to put less than 20% down on a home, you are then required to have mortgage insurance (basically in case you default). A workaround to handle this, however, is to take out a loan from the Federal Housing Administration—a government mortgage insurer that backs loans with down payments as low as 3.5% and credit scores as low as 580. The fees are way down from 1.35% to 0.85% of the mortgage balance, meaning your monthly mortgage total will be significantly lower if you fund it this way. In fact, the FHA predicts this 37% annual premium cut will bring 250,000 first-time buyers into the market. Why not be one of them?
Reason No. 6: You’ll reap major tax breaks
Tax laws continue to favor homeowners, so you’re not just buying a place to live—you’re getting a tax break! The biggest one is that unless your home loan is more than $1 million, you can deduct all the monthly interest you are paying on that loan. Homeowners may also deduct certain home-related expenses and home property taxes.
Resolve to Give Up These 8 Money Wasters for a Down Payment Before 2017
The presents are unwrapped, the holiday decorations are packed up (or not, we won’t tell), and the ball has dropped on the end of 2015. It’s time to make some New Year’s resolutions—homeowner-style.
You can make 2016 the year of the down payment. Really.
By cutting a few things from your budget this year, you can speed up your progress toward having a down payment by the time those holiday decorations come back out of the closet. You probably knew these were splurges eating up your discretionary income, but did you know just how much? Don’t worry—we’ll do the painful math for you so you know what to kick to the curb in 2016.
1. Skip the latte
Annual savings: $876 (plus taxes!)
A medium latte at Starbucks costs $3.65. If you stop by every day before work, that adds up So, suffer through the free coffee at work and think instead of the new kitchen where you can create your own coffee bar.
2. Cut the gym membership
Annual savings: $696
The average monthly cost of a gym membership is $58 a month, or $696 a year, and that’s assuming you’re already a member and not paying sign-up fees as well. Not to mention that most of our good intentions taper off sometime in February and we end up paying for something we’re not even using.
We’re not telling you to stop exercising. But try getting creative with your routine instead. Enjoy the great outdoors! Walk on your lunch break! Ride your bike! You’ll bag a surprising amount of cash toward your down payment.
3. Cancel the cable
Annual savings: $1,189
Cable gets more expensive every year. In 2015, cable customers paid an average of $99.10 a month, or $1,189.20 for the year, according to theLeichtman Research Group. If you drop the cable in favor of, say, Netflix at $7.99 per month, you’ll save $91.11 per month—or $1,093.32 for the year—and get commercial-free original shows.
4. While you’re at it, drop a streaming service
Annual savings: Nearly $100
You don’t really need to subscribe to all the streaming channels at once. If you have Netfix, Hulu, and Amazon Prime, you’re paying roughly $25 a month. If you drop Amazon Prime, you could save $99 a year. If you drop Hulu or Netflix, you could save $95.88 a year. Tip: Hulu allows you to put your subscription on hold. So if you find yourself having less time for binge-watching, try suspending your Hulu account until you have more time for it and save yourself that dough.
5. Lower your mega smartphone plan
Annual savings: Up to $300
Did you get one of those unlimited everything plans when you bought your phone and never changed it—even after you realized you don’t talk on the phone that much and Candy Crush Saga doesn’t use much data? If you switch to a lower plan—or at least drop a couple of gigs of data—you could save $10 to $25 a month.
6. Pack a lunch instead of buying it
Annual savings: $1,714
Taking a sack lunch to work might make you feel like you’re back in elementary school, but let’s do the math on how much it saves on your lunch costs. The average daily cost for the American worker who bought lunch from a restaurant in 2015 was $11.14, according to Statista. That amount adds up to about $56 a week, or $2,674 a year. If you can make a sack lunch for $4 a day, you will spend about $20 a week, $80 a month, or $960 a year—an annual savings of about $1,714.
7. Quit drinking
Annual savings: $3,168
If you’re an avid social drinker, you may not realize how much those $10 cocktails are adding up.
Say you go out three times a week, ordering at least two cocktails at $10 each plus the standard $1 tip per drink. That adds up to $66 a week, $264 a month, and—wait for it—a whopping $3,168 a year.
8. Go to the cleaners less often
Annual savings: $1,354
Are you still taking most of your clothes to the cleaners? Costs of dry cleaning or laundering items can vary a lot. A survey by Consumers’ Checkbookdetermined the average price of laundering a men’s dress shirt was $1.87, laundering men’s khaki slacks was $5.57, and dry-cleaning a two-piece suit was $11.13. If you take in two pairs of slacks ($11.14), five shirts ($9.35), and a suit every week, you’ll pay about $31.63 a week before taxes, which can add up to about $1,645 a year. Based on those numbers, if you wash your own slacks and shirts and reduce by half the number of times you have your suit dry cleaned, you could save up to $1,354 a year.
Best of all, you won’t miss the things you cut (OK, maybe some), but you’ll rack up a truckload of money in 12 short months. In fact, drop everything from this list and you could bank nearly $9,400 by the end of the year. Take that, down payment!
You’ve found a home you love … only how are you going to pay for it? If you are like most Americans, you’ll need to get a home loan—also known as a mortgage. Paying for a home is a bit more complicated than slapping down a credit card or a pile of cash. OK, a lot more complicated. But that’s why we’re here—to guide you through those murky financial waters!
When you and the seller agree to a price, you will need to make a down payment—the lump sum in cash that you can afford to pay at the time of purchase.
Traditionally, down payments are 20% of the purchase price, so if you are buying a home for $500,000, your typical down payment would be $100,000. In some red-hot markets, buyers expect higher down payments, sometimes as much as 40%. Don’t have that much money lying around? You might have to do some searching. The days of no-cash-down mortgages are mostly a thing of the past—and for good reason (We’re looking at you, subprime mortgage crisis). You can still find mortgages that require less than a 20% investment, but be warned: You will typically pay for that privilege down the road with a higher interest rate (see more below).
Miracle of miracles, you’ve made your down payment. Yay! The rest of the money you still owe on your home is called the principal. This is what you will be paying off, monthly, over the lifetime of the mortgage, which can last anywhere from five to 30 years—usually 30.
Nothing is free, especially when you are using someone else’s money. Just like your car or college loan, you will pay back the money you borrowed from your lender (most likely a bank) with interest—a percentage of the principal that you borrowed. Right now, interest rates are hanging around 4% for 30-year, fixed-rate mortgages (more on what that means later).
If you don’t like surprises—like a sudden jump in your mortgage’s interest rate—then this type of mortgage is for you. Once you lock in your interest rate with your lender, that’s it: The rate remains fixed—your monthly payments will remain the same for the life of the mortgage. This can be good or bad, but it will always be predictable. While shopping around for the lowest rate, you will notice that interest on fixed-rate mortgages is almost always higher initially than on adjustable-rate mortgages (see below). But over the long run, avoiding the uncertainty of sudden rate hikes might be worth the peace of mind.
Adjustable-Rate Mortgage (ARM)
This type of mortgage does exactly what it says: Its interest rate will be adjusted by thelender in accordance with current interest rates, after an introductory period that could be three, five, seven or 10 years. The good news? The initial ARM interest rate is usually lower than that of a fixed-rate mortgage, and if average interest rates are low, your interest rate and the amount you pay every month will be, too. The bad news? If interest rates go up, well, so does your interest rate and payments, once the introductory period is over. While ARMs make some home buyers leery (they were involved in many of the mortgage defaults of the mid to late 2000s), there are times when it makes sense to get one. And these days, some adjustable-rate mortgages have a cap that limits how high your rate can go, reducing your risk.
If you want an ARM but want to avoid the heart attack that comes with skyrocketing interest rates, you can ask for a cap. The cap limits how high the bank can nudge up the interest rate on your loan, thus limiting your monthly payments (and blood pressure). You may pay a bit more for this privilege.
While you are negotiating the terms and conditions of your mortgage—no matter the type—lenders keep reacting to changes in the financial markets by changing interest rates. So, what looked like a reasonable rate when you submitted your loan application two days ago may no longer look like a deal you can afford. To keep a rate that you like, you will want to lock it in with the bank. A rate lock will remain in effect until closing, but only if you close by an agreed-upon deadline, typically 60 days.
Your down payment isn’t the only chunk of change you’ll need to pony up. When you arrive at the closing—the day you sign all the paperwork and the keys exchange hands—you are responsible for paying closing costs. Those are the various fees for the services and processing necessary to make your mortgage happen. So, bring your checkbook and a decent pen! You shouldn’t be blindsided by the amount of the closing costs, because within three days of receiving your loan application the lender must provide you with a three-page “loan estimate” that lays out the various fees. While you can’t avoid closing costs, there are ways to reduce them.
Points are part of those aforementioned closing costs charged by your lender, calculated as a percentage of the principal. One point equals 1% of your loan (or $3,000 on a $300,000 mortgage), two points equal 2% ($6,000), etc. As you can tell, these are the kinds of points you don’t really want to rack up. But if they can help you clinch the deal on your dream home, they are so worth it.
If you find you are in need of guidance or further explanation, please always feel free to contact me Steve! 617-372-1870
The Importance of Prequalifying and Being Preapproved for a Loan
Now we’ll focus on prequalifying and obtaining preapproval for a loan and how essential these are to the home buying process.
After you have an idea of the location and type of home you want to live in, it’s time to start putting things into action. While you begin to look for local realtors and think about what you really want in a real estate agent, also start the loan prequalification and preapproval process. Finding out the loan amount you qualify for and the monthly payment amount you are able to afford will help you further narrow down your house hunt.
First of all, there is a difference between prequalification and preapproval for a loan. According to the Consumer Financial Protection Bureau, a “prequalification is a lender’s estimate of how much you could be eligible to borrow based on information you supply.” This refers to information about your employment, income, housing situation, any possible debt, reserves and the cash available for a down payment. A prequalification does not guarantee you will be approved for the loan, is not a commitment between you and the lender and is usually free. On the other hand, preapproval means “that the lender is ready to make you a mortgage loan based on the information and documentation you provided at the time you requested a preapproval.” This will state for how long the preapproval is valid and any conditions you must meet to actually receive the loan.
A Pre-Qualification Letter isn’t necessarily what you’ll need to make an offer, but it’s nice to know the price range you’ll be working with as you continue searching for your dream house. This step is important insofar as it determines if you’re even eligible for a loan.
Getting preapproved, on the other hand, is of the utmost importance and has many advantages. First of all, some real estate agents won’t take on buyer clients who aren’t preapproved, meaning you may not have the final say when picking who will represent your home buying interests. Being preapproved will also make you look better to a seller; s/he will know that his/her time isn’t being wasted on an offer that may not go through.
Getting preapproved is similar to applying for a loan, but takes place before you have selected a property. Once you have the preapproval, you can house shop with confidence, knowing that you’ve been financially cleared.
The first step in the preapproval process is to find a lender. This person is going to help you finance the home of your dreams, so look for an experienced professional who will guide you through the process. Begin by doing your research on and offline. Ask for recommendations from friends, family, coworkers and your realtor; find out who they’ve used and the quality of their experience. Once you have some reliable recommendations, look at reviews, ratings and whether the lenders you’re considering are licensed, online. Check out websites like BankRate.com where you can find information on various lenders. Other notable sites include QuickenLoans, which has strict but efficient loan programs. There’s also the FHA, which makes it easier to qualify for a loan and work with minimal down payments.
Unfortunately, not all lenders are honest. So, if a promised rate or costs are too good to be true, they probably are. Some lenders will say anything to get you to commit to a loan, then hike the rate or unfairly adjust additional costs. If this happens, you may lose out on the home of your dreams because when it comes time to close, it’s too late to find another loan.
Once you’ve narrowed down the list of potential lender candidates, sit down with two or three of them to find out which one is truly a good fit for you and your needs. Ask what each lending option means for you, who will service your loan, and the lender’s average turnaround time. The latter inquiry will help you avoid picking a lender who may have a history of delayed loans.
Remember that a lender can make or break your experience—s/he can make a transaction a piece of cake or a total nightmare. According to Jim Droz, a top real estate agent, the most important things to consider are a lender’s honesty, efficiency and reputation. Always prioritize reputation over rate.
Once you’ve secured a lender, it’s time to get preapproved. In order to become preapproved, you will need to complete an official mortgage application and supply the lender with all of the pertinent information (outlined above), allowing him/her to perform an extensive check on your credit score and financial history. This process will allow the lender to give you a specific mortgage amount for which you qualify as well as the interest rate on the loan.
By completing this process, you’re one step closer to obtaining an actual mortgage. This especially comes in handy when you find the perfect home—you can move quickly, avoiding an offer being contingent on you obtaining financing. Not only will this save you time in a competitive market, it will give the seller more confidence in your offer.
Once you’ve found the perfect house, the spaces for “property” you left blank in your mortgage application will be filled in with your future address, and your preapproval will become a complete mortgage application.
A last-minute problem with financing can quickly delay a closing on a home sale. Here are two of the most common financing problems that can surface:
Failure to disclose key financial information. One of the biggest reasons for a financial issue is the failure of the buyer to disclose key financial information, The New York Times reports. Buyers who are not forthright about their financial circumstances can face a delay. Lenders will quickly find borrowers who are behind on child support obligations or real estate taxes, for example.
Running up credit as a mortgage application is pending. Buyers may go out and purchase new furniture or a car prior to closing on a home, but doing so, could cause them a delay to the closing of their home sale. Lenders will recheck borrowers’ credit right before the closing date. If new debt obligations suddenly appear, that can be a red flag to a lender. Prior to making any large purchases prior to closing, borrowers should check with their lender, says Douglas Rotella, an executive vice president and loan originator with HomeBridge Financial Services.
In some metro markets, a delay to securing financing could mean missing out on a home. For example, in hot markets like California’s Silicon Valley, sellers may even balk at deals that are contingent on a mortgage approval, says Mia Simon, a real estate professional with Redfin’s Silicon Valley office. Nearly every home is getting multiple offers there so buyers must go beyond pre-approval and receive a loan commitment before they submit an offer, she says. The loan commitment indicates that the borrower’s paperwork has passed underwriting and the only thing necessary for final approval is the appraisal and verifying the borrower’s employment.