Expert Homebuying Tips for Buying in a Seller’s Market

Buying a house is a big decision, but it can feel especially overwhelming to place an offer on a home less than 24 hours after seeing it for the first time. Plus you’re under pressure to outbid several other buyers — or risk losing the house.

While these circumstances might sound extraordinary, they’re not. With housing inventory nationwide at an all time-low — down 22% from last year according to the National Association of Realtors — it’s no wonder buyers are competing for the same few houses.

I was in this exact position last fall. Here are seven key takeaways from my experience buying in a seller’s market.

Get a Pre-Approval Letter

In order to be competitive in a hot seller’s market, you will need to line up your financing in advance.

Besides all the usual suspects, like saving up for a down payment and improving your credit score, you’ll also want to get a pre-approval letter from your bank. It states that a bank would approve you for a mortgage of a certain amount, and acts as a guarantee to the seller that you can actually afford to buy their house.

This is where it helps to know your budget up front.

“It’s important to understand that the strength of financing is a key consideration a seller takes into account when selecting an offer,” said real estate developer Bill Samuel.

No seller wants to risk accepting an offer that might fall through. Aand since pre-approval letters can take some time to get, have one ready before you find your dream house.

Be Friendly With Neighbors

This might sound crazy, but making a good impression on your new neighbors can actually make a difference when it comes time for a seller to review offers.

Since you’ll likely be visiting the home at least once before making an offer, be prepared to talk to any neighbors you might run into. In close-knit neighborhoods, or ones where people share resources (like an HOA), sellers might care a bit more about the type of person they sell the house to.

If you happen to meet a neighbor when visiting the home, introduce yourself and make a good impression. You never know how much their opinion of you might factor into any final decisions.

Submit an Offer Quickly

After you’ve seen a house, and decided you love it, be prepared to submit an offer quickly— as in, ASAP.

Work with your real estate agent to determine how many other offers the seller already has (or expects to get) and then be prepared to draft something up that day. In our case, we toured our home for the very first time at 11 a.m. on a Monday — it came on the market the evening before — and made an offer by 4 p.m. that same day.

If that sounds fast, it is. But by the time we submitted our offer, the seller already had three others. This is where it helps to have a great real estate agent on your side.

“Having a realtor who can get your offer submitted quickly is crucial,” said Erik Wright, owner of New Horizon Home Buyers. “You want to get your offer in front of the seller first, and make it strong. Purchase price is the obvious factor and in a competitive market, houses often go for over asking price. However, a strong offer has several factors and it depends on what’s most important to the seller.”

Work with your real estate agent to find out what matters most to the seller — is it money, closing quickly, something else entirely? Then make sure your offer addresses their needs.

Minimize Your Contingencies (Within Reason)

Another way to win over your seller (and prevail in any bidding wars) is by keeping your contingencies to a minimum.

Contingencies are the contractual stipulations buyers and sellers must meet before the deal can close. Unsurprisingly, sellers don’t like to have too many of them to deal with. Contingencies can include such things as requesting a seller to make certain repairs, getting a home inspection, or even the fact that you’ll need to sell your old house before being able to buy the new one.

“In a really aggressive seller’s market, a home buyer who has to sell a current property should do so before placing an offer on another home,” said Jason Gelios of Community Choice Realty. “Don’t always assume that the seller will take the highest price. Other conveniences can play a factor in gaining the seller’s attention, especially things like faster closing times and less restrictions.”

While my partner and I didn’t make the highest offer on our house, we did have the fewest contingencies — mainly, we didn’t ask too much of our seller in the way of repairs, or have another house to sell in order to afford the new one.

All that said, there are certain contingencies you should never forgo, and a home inspection is one of them. Getting your home inspected is hugely important, since inspectors will often find things even the sellers weren’t aware of. No matter how much you love a house, don’t be afraid of exercising your right to an inspection.

According to buyer protection laws in most states, sellers are required to report any findings in home inspections to subsequent buyers. In other words, if an inspector finds something wrong with the house, the seller will have to deal with it one way or another— either with you, or the next buyer should you choose to drop out of the deal.

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Make a Generous Earnest Money Deposit

When trying to woo your seller in a competitive market, it helps to make a generous earnest money deposit. An earnest money deposit is a good-faith deposit requested by the seller when you enter into a contract to buy the house and typically run anywhere from 1% to 3% of the sale price of the home.

When deciding how much of an earnest money deposit to include in your offer, keep in mind that whatever amount you give comes off the price of the home (and is returned to you if the deal falls through). In other words, there’s no reason to be cheap. If you can, go slightly above the seller’s requested deposit amount. Even if it’s just a little more than what they’re asking, that gesture of good faith might just be what gets you the house.

A row of houses on a cul de sac in a suburban neighborhood.

Offer Above Asking Price

Wait. Why would anyone make an offer that’s above asking price? Because the competition did it first, and in a hot seller’s market, offering above asking price is often what it takes to even be considered.

Upping your offer may not break the bank as much as you’re fearing. “With interest rates so low these days, offering more than what the seller is asking may not make a drastic difference in your overall monthly payments,” real estate agent Pavel Khaykin of Pavel Buys Houses said.

Let’s say the listing price on your dream home is $320,000 and you’re able to put down a 6% down payment. That leaves you with a mortgage of roughly $301,000. For a 30-year fixed mortgage at an interest rate of 3%, that translates into $1,269 monthly payments. Now let’s say you decide to bid a little higher on the home and offer $10,000 over asking price. This would only bump up your monthly payment (assuming you qualify for that low interest rate) by $42.

Lace Up Your Running Shoes

In a hot seller’s market, you’ve got to be ready to move fast. Often this is more of a change in mindset than anything else. When my partner and I first started looking at homes, we considered ourselves casual buyers — that is, until our dream home came on the market late one Sunday night. From there, things moved quickly. We saw the home, made an offer, were under contract by morning, and spent the next month and a half going through the process of closing on the house.

If you’re serious about finding your dream home in the next few months, the best thing you can do is know what you want from the outset, and get your ducks in a row to make a compelling offer when you find it. Maybe this means making a list of your must-haves in a house, and working to improve your credit score. It might also mean reaching out to a real estate agent before you need one, and getting that pre-approval letter in place.

Although inventory is low, new houses come on the market all the time.

Larissa Runkle is a contributor to The Penny Hoarder.

This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.

Source: thepennyhoarder.com

7 Key Home-Buying Numbers to Know When Shopping for a House

There’s a lot that goes into buying a new home, starting with finding the right one all the way down to finalizing the paperwork. Somewhere in that process, you’ll likely find yourself trying to decipher myriad new terms and figuring out what they mean for you.

We’ve compiled this list of seven key numbers you’ll need to know when buying a home — plus the details on how understanding these terms can help you land your dream home.

Here are seven all-important home-buying numbers to know.

1. Cost per Square Foot

One of the first numbers you’ll encounter when shopping for homes is cost per square foot. While this number is based on a relatively simple calculation, it’s an important one to understand since ultimately it helps you determine how much house you’re getting for your money.

“Cost per square foot is simply the list price divided by the number of livable square feet,” said Tyler Forte, founder & CEO of Felix Homes. “This number is important because it allows a homeowner to compare the relative price of homes that are different sizes.”

But there’s more to consider, he said. “While cost per square foot is an important metric, you should also consider the layout of the home. In many cases, a home with an open floor-plan may seem larger even if it has a smaller livable square footage.”

Forte defines livable square footage as any interior space that’s heated and cooled, which is why a garage wouldn’t necessarily fit the bill. One of the best ways to understand how much home you can afford is to break it down by cost per square foot, which will vary from city to city and neighborhood to neighborhood.

Work with your real estate agent to understand the differences in cost for various properties to map out what areas and homes are within budget.

2. Earnest Money Deposit

Once you’ve found a home you like enough to bid on, you’ll quickly start hearing about something called an earnest money deposit (EMD). This is a type of security deposit made from the buyer to the seller as a gesture of good faith.

The amount of the EMD is set by the seller, typically running anywhere from 1% to 2% of the home’s purchase price. The key thing to keep in mind about EMDs is that they represent your commitment to buying the home, and can be useful in making a compelling offer in a competitive sellers’ market.

“An earnest money deposit is very important because it’s the skin in the game from the home buyer,” said Realtor Jason Gelios of Community Choice Realty. “If a home buyer is up against other offers, the EMD can make or break them getting the home.”

“I’ve seen lower offers won due to a higher EMD amount, because sellers view the higher EMD as a more serious buyer,” he added.

The money you put toward your EMD comes off the purchase price for the home, so there’s no reason to be stingy. If you really love the house and have the available cash, you might even consider offering more than the deposit amount your seller is asking. Either way, be sure to start saving up for your EMD early and factor it into any other cash you set aside for your down payment.

3. Interest Rates

Since most home purchases involve a mortgage, you’ll want to familiarize yourself with current interest rates. Interest rates dictate how much you’ll pay your lender every year to borrow the amount of your mortgage, so you’ll want to shop around for the best deal.

“Your interest rate is the annual percentage rate you will be charged by the lender, and the lower the rate you receive, the lower your monthly payment,” said real estate developer Bill Samuel of Blue Ladder Development. “You should speak with a handful of lenders when starting the process and get a rate quote from each one.”

While interest rates are mostly determined by your creditworthiness (aka credit score) and the type of loan you’re getting, they’ll still vary between lenders. Even a half-point difference in rates can amount to a big difference in your monthly mortgage payment — as well as the grand total you pay for your house.

FROM THE HOME BUYING FORUM
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See more in Home Buying or ask a money question

4. Credit Score

Speaking of credit scores, you’ll want to know yours before you get serious about buying a home. Since your credit score helps determine the type of mortgage (and mortgage rate) you qualify for, you need to meet the basic minimum credit score requirements before diving headlong into buying a home.

Forte broke down the term a little more: “A credit score is the numerical grade a rating agency assigns to you,” he says. “Commonly referred to as a FICO score, this grade is made up of many factors such as credit utilization, and the length of your credit history.”

If your credit score is low (under 600), spend some time figuring out why and how you can boost it. Just remember, the better your credit score, the better your interest rate — and the more money you’ll save in the long run.

5. Debt-to-Income Ratio

Another personal finance term that comes into play when buying a home is your debt-to-income ratio (DTI). Much like creditworthiness, this number is used by lenders to determine how much of a loan you qualify for and at what rate.

“When looking to get approved for a mortgage, a buyer should know what their debt-to-income ratio is,” said Gelios. “This is the amount of debt you owe per month as compared to your gross monthly income.”

For example, if you earn $6,000 per month but have to pay $3,000 in bills, this would be a debt-to-income ratio of 50%. Gelios says lenders typically view any DTI above 40% as high risk, and with good reason. If over half of your income is accounted for in bills, that would make it significantly harder to make a big mortgage payment every month.

Understanding your DTI isn’t just good for lenders, it also helps put your personal finances in perspective when deciding how much house you can afford.

6. Down Payment

The all-important down payment: Many homebuyers use this number to help them determine when they’re actually “ready” to buy a home — based on how much of a down payment they have saved up.

“A down payment is the amount you contribute to the transaction in cash,” said Forte. “Most home purchases are a combination of cash in the form of a down payment and a loan from a mortgage company.”

The old rule of thumb on home purchases was to put down 20%. If that sounds like a lot of money, it is. (Home price $250,000, time 20% = $50,000. Ouch.) For many buyers, a 20% down payment just isn’t feasible — and that’s okay. Forte said the down payment can be as low as 3% of the sales price with a conventional loan, although 10% is more typical.

Remember that any amount you pay up front will ultimately save you money in interest on your mortgage — and putting more money down will lower your monthly payment. Take some time to calculate what your monthly mortgage payment will be based on various down payments. That way you’ll know exactly what to expect and how much of a down payment you should aim to save up.

Pro Tip

Keep in mind that for any down payment of less than 20%, you may be required to pay private mortgage insurance (PMI), another expense that adds to your monthly payment. 

7. Property Taxes & Other Expenses

Long before you close on a home, you need to be ready for ongoing expenses such as property taxes, homeowner’s insurance and any potential HOA fees. These expenses tend to slip through the cracks, but it’s important to know about them before you become a homeowner.

“One of the most overlooked and underestimated numbers when buyers actually locate a home and win an offer on it is the tax amount,” said Gelios. “Too many times, I’ve seen real estate agents list what the seller is paying in taxes at that time. If time allows, a home buyer should contact the municipality and ask for a rough estimate as to what the taxes will be if they closed on the home in X month.”

Since taxes almost always increase when homes change ownership, it’s good to get an updated quote before those payments become your responsibility.

This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.

Source: thepennyhoarder.com

How to Find a Home in ID

Idaho has some of the best potatoes in the world, but it has more to offer than just that. It’s also dubbed the Gem State, with over 70 precious and semi-precious stones found within its bedrock and streams. The real gems of Idaho are its national parks, friendly people, and a range of real estate deals for buyers looking to maximize value without breaking the bank.

Finding an amazing home in Idaho is easy if you know what to look for and have the top tools and professionals on your side.

What to Look for in an Idaho Home

In Idaho, you can have your pick of beautiful homes and properties with stunning natural backdrops. To narrow down your list, you may want to keep a few things in mind.

Proximity to Employment

The capital of Idaho, Boise, is a major draw for many homebuyers due to its impressive list of corporate and boutique employment opportunities. If you’ve already landed a job at a powerhouse like Boise’s Micron, Hewlett-Packard, Clearwater, IDACORP, or St. Luke’s you will want to look for a home in or around the Boise area. If you haven’t scored a job yet, being close to the city can only help your search and prospects.

With the Homie app, you can narrow down your search using the city or town of your current or future job. Whether you are looking in Boise’s Bench or North End, Garden City, Meridian, Nampa, Caldwell, Kuna or some other area, you can find what you are looking for. You can then collaborate with a Homie agent to decide which homes you may want to make an offer on in Boise.

The Lot the Home Sits On

Even though much of Idaho’s real estate sits on predictable, easy-to-manage land, in some cases, a property could have hidden issues. Keep an eye out for the following when evaluating where your home sits:

  • Setback regulations that may limit where and if you can put on an addition
  • Easements put in place that may limit what you can do
  • How fences, hedges, trees, and other things at the edges of the property sit in relation to the actual, registered boundaries of the lot

Check the Available Utilities

Particularly in the more rural areas of Idaho, you will want to double-check the utilities at your disposal. In the more urban sections of the state, you may have multiple options for handling sewage, as well as heating your home. However, other parts of the state have far fewer choices. It’s best to decide ahead of time how you will deal with:

  • A septic system instead of a town sewer
  • Limited heating fuel options—and the extra expense that may involve
  • Getting a back-up energy source in case there’s a blackout due to a storm and crews are delayed in fixing it

In most cases, any inconveniences can be overcome with a little planning. The more rural sections of Idaho more than make up for it with their natural beauty.

Energy Efficiency

Idaho’s temps can dip below zero degrees Fahrenheit in the winter and push the mercury above 100 degrees in the summer months. To keep comfy, whether you want to be cozy or cool, it’s important to try to find a home that’s energy-efficient. Focus on both the insulation and the mechanical system.

If there’s no information available for the insulation used in the home, you can often gauge its efficiency based on the thickness of the walls. Two-by-six construction tends to be better at maintaining inside temps than two-by-four walls. Likewise, single-pane windows allow more heat loss or gain than a modern dual pane window filled with argon. A quick trip to the attic can reveal the kind of insulation between the roof and living spaces below.

The Importance of Using an Agent

Enlisting the assistance of a Homie agent can make the buying process easier and save you thousands of dollars, not to mention peace of mind. Here are some of the top advantages of using a Homie agent instead of trying to DIY your home purchase.

Getting the Best Deal

Making the right offer is a fine art and skill. Often, a homebuyer may have a number they think reflects the value of the home, but even a thoughtful figure may be skewed by a number of subjective factors. With an agent from Homie, you’ll get a dedicated professional that knows the local area, how its prices have fluctuated over the years, and how well homes tend to hold value.

A local agent from Homie also knows how long properties tend to stay on the market in a given area, as well as the infrastructure and municipal projects in the works that may influence the value—present or future—or a home. With this store of data and insights, a Homie agent can help you nail the best offer and earn you a great deal.

Work With Experienced Professionals

When you work with Homie, you not only get to work with some of the top agents, but Homie also helps you find the best providers for all your needs through Homie Marketplace. The Marketplace is a list of partners that we know do amazing work in things like home inspections, warranties, and moving services.

Finding trusted professionals for each part of the home buying process is essential. A good home inspector will tell you what types of repairs your potential home needs. This important information to have so your agent can help you negotiate a fair price.

You’ll also want a good home warranty to protect against any unexpected issues that might come up after you move in. Instead of hunting all over the place to find each of the providers you need, our Homie team will help connect you with the right people.

Familiarity With Legal and Paperwork Requirements

There’s a lot more to buying a home than writing a check and grabbing the keys. The legal landscape can get tricky, particularly when it comes to the paperwork. Even well-meaning sellers can include clauses in the contract that could put you at a disadvantage.

Work With a Homie

If you’re digging for an Idaho real estate gem, a Homie professional can help you as you prospect for your prize. Whether you’re looking for the perfect starter home, an upgrade as your family grows, or a lovely investment property, your Homie agent will help you score a great deal and have a smooth process. Click here to start working with Homie to find your Boise home today!

For more tips on home buying, check out the articles below!

4 Ways to Outsmart the Competition When Buying a Home
5 Tips to Help You Afford Your First Home
Common Home Buying Fears and How To Overcome Them

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The post How to Find a Home in ID appeared first on Homie Blog.

Source: homie.com

How To Tour a House Today: Tips To Make the Most of Virtual or In-Person Showings

schedule a home tourd3sign / Getty Images

Touring a house is like going on a first date: It’s your chance to get a sense of whether this home is the one. Can you envision baking cookies in that kitchen, or cracking a beer on that back deck?

But in this day and age, with so many houses to see and so little time before they get snapped up, the prospect of finding this dream home in the real estate haystack can sometimes feel a bit overwhelming. Add in the coronavirus pandemic, and the idea of checking out houses all around town might feel unsafe, too.

But here’s the good news: The rules on how to tour a house have changed in ways that can save time, lower your exposure to COVID-19, and curb your workload and stress levels, too. Here’s what you need to know to ace your house-hunting game for the modern day.

How to schedule a home tour

Most home buyers start their house hunt online—that’s a given. But once you spot a home you love, what’s next?

In the olden days of real estate, a home tour would kick off with several rounds of phone/email tag. You’d call your real estate agent, who would then contact the home’s listing agent, and once they’d talked you’d get looped in to when you can finally see the house. Talk about complicated! And that’s for just one house; most home buyers are juggling multiple home tours.

But today, the process is much simpler. For one, many real estate listings have a button you can click on to learn more about a property, sans the annoying phone games. On some listings, you can schedule a tour simply by clicking on your preferred day and time to visit. (See the Schedule a Tour option on the right side of the sample listing below.)

In short, the process of scheduling a tour can now happen in a few seconds, no harder than ordering lunch on Seamless. After you submit your information, you’ll be assigned a local real estate agent, who will reach out to you directly to confirm your tour time and format. (More on your options there next.)

Select the date, time, and format of your next home tour.

Realtor.com

Should I schedule a virtual tour or visit in person?

It wasn’t long ago when the only way to tour a house would be to visit in person. But today, you also have the option to take a virtual tour. You just schedule a tour as you usually would, but request a virtual home showing where a real estate agent shows you around the house via a live video stream on Google Hangouts, FaceTime, Zoom, or other app.

So should you opt for a virtual tour, or go for the real thing? According to many real estate experts, a virtual tour is the faster, easier, and safest place to start. While buying a home “sight unseen” as they say is a risky move few are willing to take (although it is done now more than ever), virtual tours are still a great way to whittle down your options and spend less time running around town.

“Virtual tours can act as a clearinghouse for buyers to narrow down their search,” says Jack Smith, a real estate agent with Shorewest Realtors in Milwaukee. From there, if you like what you see, you can proceed to an in-person tour to get a closer look.

What to look for on a home tour

Whether you’re conducting a virtual or in-person tour, it’s important to get to know every nook and cranny of the property. Breezing from room to room is not enough—particularly if you’re doing a remote tour where small details might be out of view.

As such, you’ll want to check out some less obvious features to make sure the house is in good shape. Here are some areas to home in on that many buyers might miss:

  • The HVAC and hot water systems: The age and quality of these big-ticket systems can make or break your budget, so while they’re not quite as fun as that gigantic kitchen island or the bonus room above the garage, they should be top priorities during your tour, even if you plan to hire an experienced home inspector.
  • The exterior: Don’t limit your tour to the house itself. Be sure to check out the garage, front and back yards, and any structures on the property such as swimming pools or gardening sheds.
  • The neighborhood at large: You’re not just buying a home, but the neighborhood. Try to see the homes surrounding the one for sale to get a sense of what your life there would be like. Tons of traffic whizzing by might be a deterrent if you have kids or a dog; nearby restaurants and bars might be nice but will add to ambient noise. To get to know this area better, check out local neighborhood apps like Nextdoor.com.

What role does a real estate agent play in a home tour?

A real estate agent can serve as an excellent sounding board when touring a house. Plus, if you’re conducting a virtual tour, your agent may be able to visit the property on your behalf and answer any lingering questions you have, says Tony Mariotti, a real estate agent with RubyHome in Los Angeles.

“Buyers have asked us to check the number of electrical outlets and data ports in a room they intend to use as an office,” Mariotti says. “We’ve also measured and ‘reality checked’ rooms that looked big in listing photos due to wide-angle lenses.”

What to ask when touring houses

During a home tour, you’ll want to delve deeper by asking your real estate agent questions about the house. Here are some topics to hit.

  • How old is the home? How old are the various systems and structural elements, like the roof and the water heater?
  • Has any renovation work been done? If so, were the proper permits pulled and can I see them? Was the work performed by a licensed contractor, electrician, plumber, etc.?
  • Are there any previous insurance claims that could affect insurability? Are there any special insurance policies required for the home?
  • What were the average costs of utilities (water, electric, gas, sewer, and trash) over the past 12 months?
  • What is the home’s listing history, including any price reductions or contracts that fell through? Why did the seller drop the price? Why did the home fall out of contract?
  • Are there homeowners association fees? If so, what do they cover? How are the fees billed?

How home buyers can make the most out of touring homes

When touring bunches of homes, it can be hard to remember which house had that spa bathroom or sunroom you adored. To keep one home tour from blurring with the next, keep a notebook where you can make notes and reminders to help keep all the homes straight. Give each house a name if that helps you, and be sure to highlight any important concerns that jumped out during the tour.

And lest you get swept up swooning over home features that won’t really matter that much in the long run (e.g., that outdoor hot tub is nice but not all that necessary), it may help to write down a list of your top house-hunting priorities.

“Buyers should have a list of their ‘must haves,’ their ‘like to haves,’ and things they are willing to compromise on in a property,” says Cara Ameer, a real estate agent with Coldwell Banker in California and Florida.

Similar to dating, you should probably just accept that you can’t have it all, and that some flexibility will be needed if you want your house hunt to end anytime soon.

The post How To Tour a House Today: Tips To Make the Most of Virtual or In-Person Showings appeared first on Real Estate News & Insights | realtor.com®.

Source: realtor.com

How Much Cash Do You Really Need to Buy a Home?

Are you ready to buy a home? You’re not alone—in 2019, more than five million people bought an existing home. And that doesn’t even include the number of people who purchased new construction.

The point is, the housing market is always bustling and busy. And if it’s your first time buying a home, it might seem a bit daunting. You might have a couple of questions—how much money do you need to buy a home? And how can you even get those funds?

Overwhelmed? Don’t be. We’re here to guide you towards saving up, so hopefully you’ll be able to afford your dream home. Keep reading to learn more!

How Much Do You Need for a Down Payment?

Let’s start with one of the first payments you might have to make—a down payment. When someone takes out a mortgage loan, they’ll put down a percentage of the home’s price. That’s the down payment.

You might’ve heard that down payments are about 20% of the total cost of your new home. That can be true, but it really just depends on your mortgage. There are mortgage options that require little to no down payment, and how much you need often depends on your eligibility for different programs. Here are some different loan options:

1. USDA Mortgage

The USDA guarantees mortgages for eligible buyers primarily in rural areas. These loans do not have down payment requirements. To qualify for a USDA loan:

  • The property must meet eligibility requirements as to where it’s located.
  • Your household must fall within the income requirements, which depend on your state.
  • You must meet credit, income and other requirements of the lender, though they may be less rigorous than loans not backed by a government entity.

2. Conventional Mortgage

Conventional mortgages are financed through traditional lenders and not through a government entity. Depending on your credit and other factors, you may not need to put down 20% on such loans. Some lenders may allow as little as a five percent down payment, for example. But you’ll have to pay private mortgage insurance (PMI) if you put down less than 20%.

3. FHA Mortgage

FHA loans, like USDA loans, are partially guaranteed by a government agency. In this case, it’s the Federal Housing Administration (FHA). A down payment on these loans may be as low as 3.5%. Requirements for an FHA loan can include:

  • You’re purchasing a primary home.
  • The home in question meets certain requirements related to value and cost.
  • A debt-to-income ratio between 43% and 56.9%.
  • You meet other credit requirements, though these may not be as strict as with conventional loans.

How much do you need to make to buy a $200K house?

Given the above information, here’s what your down payment might look like on a home worth $200,000:

  • USDA loan: Potentially $0
  • Conventional loan: From $10,000 to $40,000
  • FHA Loan: As low as $7,000

These are just some options for mortgages with low down payment requirements. Working with a broker or shopping around online can help you find the right mortgage. In addition to the down payment, you do need to ensure that you can afford the mortgage and make the monthly payments.

Don’t Forget the Cash You’ll Need for Closing

Closing costs are typically between three and six percent of your mortgage’s principal. That’s how much you’re borrowing, so the less you put down, the more your closing costs might be.

Here’s a range of closing costs assuming a cost of three percent of the low range home purchase, when buying with less than 20% down:

  • For a home purchase between $500,000 and $600,000, you’ll need at least $15,000 for closing costs
  • Between $300,000 and $500,000, at least $9,000 for closing costs
  • Between $150,000 and $300,000, at least $4,500 for closing costs

Where Can You Get the Money to Buy a Home?

These numbers should give you an idea of how much cash you’ll need for a home purchase. Acceptable sources for procuring cash to close on a house can be one or any of the following:

  • Stocks
  • Bonds
  • IRA
  • 401(k)
  • Checking/ savings
  • A money market account
  • Retirement account
  • Gift money

The key here is that the money needs to be documented. You have to be able to prove you had it and didn’t borrow it simply for the purpose of making your down payment or covering closing costs.

Don’t have cash available from any of the above-mentioned sources? There are other sources you can use as long as they can be paper-trailed, such as your tax refund or a security deposit refund on your current home rental.

Plan for Other Important Costs

While down payments and closing costs are the biggest out-of-pocket expenses involved in buying a home with a mortgage, you may need to cover other costs. There might be some additional home buying and moving-in costs. Those could include inspections, the cost of any necessary repairs not covered by the sellers and moving fees.

Are You Ready to Buy a Home?

Saving up the right amount of money is just one step in buying a home. You must also ensure your credit score is in order. Lenders look at different credit scores when they consider someone for a mortgage. Sign up for ExtraCredit to get a look at 28 of your FICO Scores to understand how lenders might see you as a borrower. Once you check your scores, you can decide whether you need to build your score or start shopping for your mortgage.

Sign up for ExtraCredit today!

The post How Much Cash Do You Really Need to Buy a Home? appeared first on Credit.com.

Source: credit.com

What Is Title Insurance, and How Much Does Title Insurance Cost?

title insurancebarisonal/iStock.com

Buying a home often entails also buying various types of insurance to protect your property, and one type you might need to get is called title insurance.

When you buy a home, you “take title” to it and establish legal ownership. A title insurance policy protects you against the possibility that someone else might have a claim on your home. In essence, it ensures that a homeowner and their lender will be okay in the event that the seller or previous owners didn’t have absolute ownership of the house. (It sounds crazy, but sometimes it turns out that the homeowner is not the only one with rights to a home!)

If you need a mortgage to buy real estate, your lender will likely require you to buy a title policy from a title insurance company. Although it’s a cost home buyers incur, getting a title policy from a title insurance company is critical to establishing peace of mind.

Let’s examine the ins and outs of title insurance, why home buyers need it, how much you can expect to pay, and how you can save on a title insurance policy.

What is title insurance?

Holding a title insurance policy means you and your mortgage lender are protected against any financial loss or title issues due to liens, disputes between prior owners over wills, clerical problems in courthouse documents, or fraudulent claims against the property or forged signatures.

A title search will be performed by your title or settlement company to uncover any issues with your title that could give you legal troubles down the line.

The title company then insures your claim to the property’s title. If anything is missed during the search or there are lawsuits questioning your legal ownership of the property after closing, your title insurance policy will cover the costs of resolving the problem.

Why a title search is required with a mortgage

When getting a mortgage to buy real estate, you’ll find that most lenders will typically require that you get a title search before you close the deal with your escrow company. Basically this would mean you’ll have to hire a title company to search local records on your property. Some of the issues they’re looking for include the following:

  • Disputes between prior owners over wills: If your property was inherited and then sold by the heirs, there could be other heirs contesting the will and claiming ownership of your property.
  • Liens for unpaid property taxes.
  • Liens for contractors who worked on the home but were never paid.
  • Clerical problems in courthouse documents: Believe it or not, a simple typo can lead to title claim problems.
  • Fraudulent claims against the property or forged signatures: For example, if a group of heirs can’t get a holdout to agree to sell the home, it’s possible that someone will forge a signature on a quit claim deed.

While most homeowners will never need to use their title insurance, its existence offers protection against a potentially aggravating—and very expensive—financial loss.

Lender’s title insurance vs. owner’s title insurance

There are two types of title insurance: lender’s and owner’s. Almost every lender will require you to pay for a lender’s title insurance policy. This protects the lender—not you—from incurring any costs if a title dispute pops up after closing.

Owner’s title insurance is usually optional, but it’s highly recommended. Without it, you’ll be left footing the bill for all the costs of resolving a title claim, which could be thousands or even hundreds of thousands of dollars. Even though it can feel like you’re hemorrhaging cash when you’re closing on a house, a title insurance policy is one of those things that can save you money in the long run.

“When you consider the benefits of title insurance and some of the unique aspects of title insurance relative to other kinds of insurance, it is clear why it’s risky and ill-advised to purchase real estate without a title insurance policy,” says Brian Tormey of TitleVest in New York City.

You can purchase basic or enhanced owner’s title insurance, with the enhanced insurance policy offering more coverage for things like mechanic’s liens or boundary disputes.

While your title insurance covers you for things such as mistakes in the legal description of your property or human error, be aware that it will have some exclusions—particularly in cases where violations of building codes occur after you bought your home.

How much does title insurance cost?

The average cost of title insurance is around $1,000 per policy, but that amount varies widely from state to state and depends on the price of your home.

Title insurance premiums can vary from a couple of hundred dollars to a couple of thousand dollars. Some factors that can affect the cost of your premium include the title search, examination, and expected cost of any title defects.

“In general, each policy price is based on the purchase amount of the home or the total amount of the loan,” explains Tormey. “Title insurance is a highly regulated industry, so title insurance policy types and costs will vary from state to state. Each state’s Department of Insurance can provide information on the pricing regulations in their state.”

In some states such as Texas and Florida, title insurance premiums are fixed by the government, so you will pay exactly the same amount no matter what. Other states such as California and New Mexico have unfixed premiums, which means that buyers can shop around. Iowa actually underwrites the insurance itself, resulting in the lowest premiums in the country: $110 for properties costing up to $500,000.

Unlike other types of insurance, a title insurance policy is paid with a single premium during escrow while closing for your mortgage. If you’re buying a real estate resale or refinancing, you may be eligible for a “reissue” rate, which could offer a substantial discount off the regular premium—because the title policy is already in effect, and the title research has already been completed.

Here’s a calculator that can help you figure out the cost for your area and purchase price.

How to save on title insurance

In some states, title insurance premiums are the same no matter who you work with, but in the majority of states, you can save money by shopping around. Even in states with highly regulated title insurance industries, there are ways to save. Here are some ways to lower your title insurance costs.

  • Shop around. If premiums are unregulated in your state, find the company that offers the best deals. Just make sure you’re not sacrificing customer service to save a few dollars: Resolving a title issue can be stressful, and you want a company that will help you through the process. Read reviews and talk to your real estate agent for recommendations.
  • Bundle. Some companies will offer a discount if you bundle your lender’s and owner’s policies.
  • Negotiate add-ons. Even if the premium itself is fixed, there are almost always other fees built into your total premium price. See if there is any wiggle room with those items. They may be optional, or the insurance company might be open to discounting them.
  • Negotiate with the seller. Closing costs are always open to negotiation, and picking up the tab for the title insurance might be worth it to a seller who’s highly motivated to close the deal. But be wary of using this tactic in a competitive market.

 

Michele Lerner contributed to this article.

The post What Is Title Insurance, and How Much Does Title Insurance Cost? appeared first on Real Estate News & Insights | realtor.com®.

Source: realtor.com