Some people wait to buy a home until they have 20% down payment to avoid paying the mortgage insurance which is required by lenders when the loan-to-value ratio is greater than 80%, with the exception of VA loans.
To illustrate a typical situation, let’s assume that buyers have $10,000 for a down payment on a $200,000 home. They could purchase it today with a 95% loan or save another $30,000 in order to get an 80% loan without mortgage insurance.
If it took three years to save the additional down payment, the $200,000 home at 3% appreciation would cost $218,545. A 20% down payment on the increased sales price would be $43,709, less the $10,000 the buyers currently have leaves them $33,709 to save which would amount to $936.36 a month. They would secure a $174,836 mortgage at the then current mortgage rates, which in all likelihood, will be higher than today’s rates.
The alternative is for the buyer to purchase the home today with a 95% loan at today’s low interest rates plus approximately $85 a month for mortgage insurance depending on their credit score. At the end of three years, the unpaid balance would be $179,548. Assuming the home will be worth the same $218,545, the buyer’s equity would be almost $39,000. To reduce the mortgage to the same amount as the first example, the buyer would need to make an additional $125 a month principal contribution above the normal payment. Then, the mortgage would have an unpaid balance at the end of three years of $174,775.
When there is sufficient equity in the home, the mortgage insurance is no longer required. Some lenders may drop the mortgage insurance requirement with an appraisal to provide proof. In other situations, it may require refinancing to eliminate the insurance. Call to discuss options that may be available to you.
Having a dust-free home isn’t difficult, but it takes a serious commitment and a housekeeping strategy that addresses the dust and its causes. Whether your motive is cleanliness or to eliminate the cause of some allergies and asthma symptoms, it will be worth it.
- Try to dust your home at least twice a week. Dust the tallest items and work your way down. Dust picture frames, blinds, baseboards and anything that stands out from the wall.
- Feather dusters can spread more dust than they collect compared to microfiber cloths that attracts dust because they have an electrostatic charge.
- Filters on heating and air-conditioning systems should be changed often not only to remove dust from the air but to increase the efficiency of the units themselves. Special HEPA filters can improve the overall indoor air quality.
- Frequently changing the bag or emptying the container in your vacuum is helpful in eliminating dust.
- Vacuum the floors at least once a week. Vacuum under furniture and periodically, move appliances to clean behind and underneath. Use the proper attachments to vacuum upholstered furniture and under cushions.
- Eliminate dust magnets like carpet, heavy drapes and upholstered furniture. Consider hard surface flooring like wood or tile instead of carpet.
- Keep windows closed to keep dust out.
- Clean your pillows and drapes.
- Damp mopping and dusting with plain water helps hold the dust and is environmentally friendly.
- A humidifier can eliminate static electricity which holds dust.
- Air purifiers circulate air and capture dust and other pollutants.
Fair market value is the price that real estate would sell for on the open market without any unusual forces being involved. The definition is relatively simple but there certainly different methods of determining what it is.
A homeowner could order an appraisal before they put their home on the market but would incur the expense of an appraisal and more likely than not, it won’t or can’t be used by the buyer or their lender. The advantage is that an appraisal is a professional approach by a disinterested party to establish value.
Licensed appraisers use three approaches to value: the market data, the replacement cost and the income approach. The appraiser can put more weight on one approach than another based on his/her assessment of what would be appropriate.
The replacement cost looks at what it would cost to rebuild the property today less the depreciation it has experienced by age and wear and tear plus the value of the lot.
The income approach uses a capitalization rate based on the net operating income of a property to determine value. It is more applicable to commercial properties than it is for homes used by homeowners and not rented.
The market data approach relies on recent sales of similar properties near the subject. The appraiser will make monetary adjustments for differences in the comparables that are used to create a more accurate comparison.
Real estate agents use a similar approach to determine fair market value by performing a Competitive Market Analysis, CMA. Like the market data approach of an appraisal, it looks at recent sales of similar properties, it also considers properties currently for sale and what homes were unsuccessful in their attempt to sell. This approach is sensitive to supply and demand and may be more reactive to rapidly rising or declining markets.
Both appraisals and CMAs have a distinct advantage because of the personal opinion as a professional compared to online website estimates using raw data and mathematical formulas. Regardless of which method is used, it is an estimate. Obviously, some estimates are more accurate based on the experience of the person making the estimate. A price is placed on the property by the seller but value is ultimately determined by the buyer when a final sale is achieved.
Becoming debt free is as much a part of the American Dream as owning a home but there certainly can be conflicting circumstances that make the decision to pay off your mortgage early unclear.
The advantages of paying off debt early is increased cash flow, less interest paid and a higher credit score. The disadvantages are lower cash flow available as discretionary funds for meals, entertainment and other things. If the ultimate goal is financial security, is it worth the intermediate sacrifice?
Whether you pay off your mortgage early is a personal decision that may be right for one person and not for another. Consider the following before you get started:
Reasons you should
- Peace of mind knowing that you don’t have a mortgage
- You’ll save interest regardless of how low your mortgage rate is
- Lowering your housing costs before you retire
Reasons you shouldn’t
- You can invest at a higher rate than your mortgage
- You have other debt at a higher rate than your mortgage that needs to be paid off
- You might need the money in the future and want to remain liquid
- You might not qualify for a mortgage currently
- You should pay off other debt with higher interest rates
- Your employer has a matching retirement plan that would benefit you more
- You have more urgent financial needs like emergency fund, life, health and disability insurance
- You expect high inflation and the value of your mortgage debt will decrease
Use this Mortgage Accelerator to determine how quick you can pay off your mortgage.
There are two negotiation periods in some home sales. The primary negotiation takes place when the contract is agreed upon that includes the price, closing and possession. Buyers and sellers alike feel relieved once this first round has resulted in an agreement but there may be more negotiations to come if there are contingencies for financing, inspections or other things.
The purpose of an inspection is for the buyer to receive an objective evaluation about the condition of the home and its components to identify existing defects and potential problems. The expense for inspections can be several hundred dollars and it’s reasonable for buyers to not want to spend the money before they find out if they can come to terms with the seller. From a different perspective, sellers want to know quickly if the buyer is going to reject the home due to the inspections.
Sometimes, buyers will expect sellers to make all of the repairs listed on the report and this is where the second round of negotiations begins. If the seller refuses, the negotiations can go back and forth until the other party accepts the offer on the table or the contract falls apart.
When purchasing a new home from a builder, it is expected for everything to be in working order; after all, it is new. However, it is reasonable to expect that existing homes, that are not new, have a different standard. While it’s understandable that buyers would want to be aware about major items that are not in “working order”, normal wear and tear of components based on its age should be expected.
In a highly competitive seller’s market, buyers might do whatever they can to get their contract accepted, realizing that there is another place to negotiate when they’re not competing with other buyers’ offers to purchase.
For this to be a WIN-WIN negotiation, both seller and buyer must feel good about the transaction. Neither party should feel that they have been taken advantage of.
It’s surprising to realize that most people spend more time planning their next vacation or cell phone purchase than they do on their own retirement. Let’s look at a hypothetical situation where you have $35,000 to invest for your retirement in 15 years. Have you compared where you might have the best opportunity?
The safest place to put it might be a certificate of deposit because it’s insured but unfortunately, rates would be less than 2%. The value would grow to $47,233.26 at the end of the 15 year holding period.
Investing in a mutual fund has more risk but also a greater opportunity to earn a higher rate of return. An estimated 7% return would project an accumulated value of $99,713.14.
Using the $35,000 for a 20% down payment and closing costs on a $150,000 rental home could realize much higher proceeds. Using a familiar investment analysis spreadsheet, the $35,000 could grow to a future wealth position of $153,302. This analysis considers leverage, 3% appreciation, re-investing cash flows, 7% sales expenses and paying applicable taxes which the previous examples do not.
The rate of return on these three examples are 2% for the CD, 7% for the mutual fund and a comparable 14.19% return on the rental. As the rate of return increases on investments, additional risk is reasonable.
Most people are much more familiar with homes than they are with mutual funds, bonds and other similar investments. The same REALTOR® who helped you with your home can help you invest in a rental home.
“If you waste my time, don’t expect me to hang out with you very long.” This could have been said by a buyer or seller or a real estate agent. Time is valuable and no one wants to waste their time.
Most people can’t put their lives on-hold while they’re trying to buy or sell a home. Whether they have a family, a couple or single, life continues and the time constraints of moving can become burdensome.
Your agent is committed to helping you save time while making the experience memorable. They know the process and the potential problem areas and can help you move through them.
To preserve your time and your agent’s, please consider the following:
- If your plans to buy or sell change, let your agent know.
- Be on time for appointments or if it is necessary, cancel them with as much notice as possible.
- Get pre-approved through a trusted mortgage professional.
- Cooperate with your loan professional by providing all requested documentation.
- Don’t wander into builder or REALTOR® open houses without your agent. If you find yourself in that situation, immediately notify them that you have an agent.
- Only talk to the other party through your agent until after closing.
Your agent is working to help you meet your goals. Things work best when it’s like a partnership where each party mutually respects the other and their resources including their time.
Listing photos may be one of the most important marketing efforts that lead to a potential buyer.
Nearly, all buyers use the Internet during the home search process. They usually start looking at homes online before they contact an agent. It’s far more efficient to screen properties by looking at the pictures that have been posted than to make appointments with each homeowner, drive all over town and waste a lot of time looking at homes that would never meet a buyer’s criteria.
- There needs to be enough pictures of a property to adequately represent the home; most websites allow for at least 24 and more may be needed if it is a large home.
- Take horizontal shots to accommodate the format of most listing websites.
- The pictures should be well-lit so that it is easy to see all of the features of the room. Natural light is preferred over the limitations of flash.
- They should be taken with a wide-angle lens so that you can see the majority of the room in one picture.
- Large rooms can be taken from different angles to give the buyers a different perspective.
- Rooms should be set if not staged prior to taking the pictures so they will give the buyer an idea of what the room might look like with their own things in it.
- Arrange pictures in website to help buyers visualize the floorplan as if walking through it.
- Think about using a tripod; professionals do to absolutely hold the camera still.
- They should definitely not be “photoshopped” to modify factual elements like removing power lines.
Everyone occasionally takes a great picture but it doesn’t make them a photographer. Since the photography can be one of the most important marketing efforts, consider using a professional photographer to show the home to its best advantage.
It has been said that change is the only constant. Most of the financial experts have been expecting interest rates to increase along with home prices. While homes, in most markets, have definitely seen increases over the past five years, the mortgage rates today are actually lower than they were a year ago.
If the interest rates were to increase by 1% over the next year while homes appreciated at 6% during the same time frame, a $250,000 home would go up by $15,000 and the payment would be $211.53 more each month for as long as the owner had the mortgage. The increased payments alone would amount to $17,769 for the next seven years.
When facing a decision to postpone a purchase for a year, a legitimate question to ask oneself would be: “how will it feel to have to pay more to live in basically the same home a year from now?”
It is easy to understand that if the price of a $250,000 home goes up by 6%, it increases the price by $15,000. A slightly more difficult concept to realize is that if the interest rate were to go up by ½%, it is approximately equal to a 5% increase in price. A 1% increase in mortgage rates would approximately equal a 10% change in price. This means that if a home goes up in price by 6% and the interest rate goes up by 1%, it is equivalent to the price of the home going up by a little more than 16%.
Use the Cost of Waiting to Buy calculator to estimate what it might cost to wait to purchase based on your own estimates of what interest rates and prices will do in the next year.
While all contracts must have certain required elements, mutual assent, consideration, capacity and legality, there are some things that increase its chance of being accepted.
The seller generally wants the highest possible price with the fewest inconveniences in the shortest period of time. In the same way, the buyer generally wants the lowest possible price with the fewest inconveniences in the shortest period of time.
The perspective of the principal can change depending on how these different parts of an agreement are structured.
- Offer Price – While the price of the home seems to be the major point of contention in a home negotiation, the seller’s net proceeds and the buyer’s mortgage payment may actually be more critical.
- Financing – 86% of buyers financed their recent home purchase as opposed to the 14% who paid cash. Some financing has higher fees than other types of financing and in some instances, sellers must pay the additional charges on behalf of the buyer.
- Seller-paid closing costs – paying all or part of a buyer’s closing cost requires less cash outlay for the purchaser and makes it easier or more appealing for them to buy the home.
- Seller-paid buydown – prepaying interest to the lender on behalf of the buyer gives them lower payments for the first one, two or three years even though they must qualify at the note rate of the fixed-rate mortgage.
- Personal property – seller may agree to include existing or new personal property like washer, dryer or refrigerator.
- Improvements – seller may agree to make modifications to the existing condition of the home like floor covering, countertops, appliances, painting or other things.
- Earnest Money – more money gives the seller a sense that the transaction is more likely to close while putting the least amount at risk is generally, more appealing to the buyer.
- Timing – depending on which party is more flexible, sometimes an earlier or later closing or a position on occupancy can be an offsetting consideration that can balance the differing terms.
- Contingencies or lack thereof – requirements that must be satisfied before the contract can be closed.
The training and experience of a skilled negotiator can benefit both buyers and sellers to save time, avoid difficulties and bring all parties to an agreement. Your real estate professional should be able to help you structure a good offer and negotiate a win-win situation.