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Nov. 19, 2020

What’s Your Home Buying Power?

 

If you’re in the market for a new home, piece of land or investment property, one of the first questions you’ll probably ask is, “What can we afford?” Many buyers become so caught up in how much they can afford that they don’t realize their total buying powerthat is, the total amount of purchasing potential they actually have.

 

Buying Power Defined

Your buying power is comprised of the total amount of money you have available each month for a mortgage payment. This means the money you have each month after fixed bills and expenses. Any money you’ve saved for a down payment, the proceeds from the sale of your current home, if applicable, and the amount of money you’re qualified to borrow all impact your buying power as well. When you take all of this into account, you may find you are able to purchase a larger home or a home in a more desirable neighborhood, or you might realize you should be looking for homes in a lower price range.

 

What About Housing Affordability?

Housing affordability is a metric used by real estate experts to assess whether or not the average family earning an average wage could qualify for a mortgage on the average home.1 Although this figure is essential to creating a comprehensive overview of the real estate market, it’s not a factor you should consider in your home search. What may be considered affordable to you based on your income and other factors may be different than what’s affordable to the average buyer.

 

Why Buying Power Matters

A common misunderstanding is that a home’s list price determines whether or not you can purchase it. Sometimes buyers are basing their decision on what they want to pay each month for a mortgage payment.  There's more to it than that. 

Of course it’s important to look at the price tag, but additionally it’s essential to consider what your monthly payment will be if you own the home. After all, the purchase price doesn’t include the housing-related expenses, such as annual property taxes, homeowner insurance, associated monthly fees and any maintenance or repairs. Figuring out the payment will prevent you from overestimating or underestimating your buying power. After all, you’ll live with your monthly payment, not the sales price.

 

Once you have clarity on your buying power, you’ll be able to buy the home you want, instead of settling for a home because you feel it’s the only one you can afford. It will also prevent you from becoming “house poor,” a common term for someone who’s put all their money toward the down payment, leaving them nothing left over for fees outside of their monthly house payment. Both scenarios can negatively impact the lifestyle you want to live. Understanding your buying power can help you get the home you want without sacrificing the lifestyle you desire.

 

If you haven’t sold your current home yet, a Comparative Market Assessment (CMA) will give you a general idea of how much you may get for your home based on what other homes have sold for in your area. Contact our team for a FREE CMA, we are happy to churn that you for you.

 

Calculating Your Buying Power

You might be wondering, “How do I know what my buying power is?” Buying power is calculated by adding the money you’ve saved for a down payment and/or the money you made from selling your home (minus fees and mortgage payoff) to all of your sources of income and investments that could be used to make your monthly payment. Make sure to include your monthly pay, commissions or tips, dividends from investments, payments from rental properties or other monthly income you receive as well as the loan amount you’re willing to finance and qualify for.

 

Most lenders advised buyers to spend no more than 35 to 45 percent of their pretax income on housing, meaning all your income and sources of revenue prior to paying taxes. Make sure you factor in not only your mortgage payment, but also property tax and home insurance to the cost of housing.2 However, other financial experts advise spending no more than a very conservative 25 percent of your after-tax income on your housing expenses.2  Whether you plan to spend the average, play it conservative or split the difference is up to you. There are programs with different parameters, but this is a good general guide to start with.

 

Traditionally, mortgage lenders have targeted the ideal housing expense amount to be a ratio of 28 percent or less.3

 

However, these figures bring up an important point: you don’t have to spend all of your savings and available monthly income on a mortgage payment. It’s important to set money aside for regular home maintenance, unexpected repairs and monthly fees, such as a condominium or homeowners association fee. While the above ratios are commonly accepted, a lender will look at your total financial picture when they decide how much they’re willing to lend. It may be tempting to take out a large loan in order to purchase the home of your dreams, but keep in mind the less money you have to borrow, the stronger your buying power may be.

 

4 Things That Impact Buying Power

1. Credit score. A great score can help you lock into a lower interest rate.

 

2. Debt-to-income ratio. The lower the ratio, the better risk you may be to lenders as long as you have an established credit history.

 

3. Assets, including the documentation of where the money for the purchase is coming from and the mix of your investments.

 

4. Down payment. The more you’re able to put down, the less you will have to borrow. With a down payment of 20 percent or more, you won’t have to purchase private mortgage insurance (PMI) and you may also be able to negotiate a lower interest rate.

 

How to Save for a Down Payment

If you’re thinking of buying a home one day, one of the first steps to take is to start saving for a down payment. Here are some tips to make saving easier.

 

First-time buyers:

1. Set a savings goal. One way to figure out how much to save is to use the average sales price for homes that are similar to what you want and figure out your target down payment percentage. For example, if homes are selling for $200,000 in your area and you want to put 20 percent down, you’ll have to save $40,000. Set a goal to save that amount within a specific time frame; just keep in mind the longer you save, the more the average selling price will change. Although the majority of buyers saved for six months or less, 29 percent of all buyers (and 31 percent of first-time buyers) saved for more than two years for a down payment.4

 

2. Cut back on expenses. Review your monthly expenses and look for ways to save. Twenty-nine percent of buyers cut spending on non-essentials items and 22 percent cut spending on entertainment while they were saving for a home.4 Think about items you can live without or cut back on temporarily while you’re saving.

 

3. Look for ways to boost your income. Get a side job or sell items online or at a garage sale to increase your income in a short amount of time. Be sure to save any windfalls you get, including your annual income tax refund or work bonuses.

 

4.  Check out home-buying programs. Your state, county or local government may offer special programs, such as grants, for first-time buyers to use.

 

5. Ask your family. Thirteen percent of all buyers, and 24 percent of first-time buyers, were given money from family or friends to use toward the down payment of their home.4

 

Repeat buyers:

More than 52 percent of repeat buyers used the proceeds from the sale of their primary residence toward the down payment on their next home.4 Similarly, 76 percent tapped into their savings accounts.4 If you’re thinking of buying another home, here are more ways to save more money, in addition to the tips listed above:

 

1. Rent a room. If you have an income flat (or mother-in-law unit) attached to your home, rent it out and channel the income into a high-interest savings account.

 

2. Make your money work for you. If you don’t plan to buy for at least five years, invest it and let the compound interest work for you. Discuss this option with your financial planner or broker to see if this is ideal for you and your goals.

 

3. Tap into your 401(k). If you have a 401(k) plan, you may be allowed to borrow a portion of it, the lessor of up to $50,000 or half of its value, for your down payment. Remember, it’s a loan so you’ll have to pay it back. If you leave or lose your job before you’ve repaid the loan, you’ll have between 60 to 90 days to repay the balance or face stiff taxes and penalties.

 

If you want to buy an investment property

Whether you’re buying a second home or a rental property, here are a couple tips to save for a down payment.

 

1. Tap into your equity. If you’ve paid off or paid down your mortgage on your primary home, you may be able to tap into your equity to purchase another property. Contact your lender to learn more about a HELOC or home equity loan.

 

2. Get a partner. Find a friend or relative who’s willing to purchase property with you. Typically, you’ll split the costs and profits equally. Just make sure to work with an attorney to create a partnership agreement to fit your situation.

 

 

Work Out Your Buying Potential

What’s your buying potential? Fill out this worksheet to get an estimate.

 

Housing Expense Ratio:

1. Monthly income before taxes

$

2. Multiply line 1 by 0.28

X 0.28

3. Monthly mortgage payment (PITI) should not exceed this amount

= $

4. Monthly income before taxes

$

5. Multiply line 4 by 0.36

X 0.36

6. Total monthly payments on all debts (including mortgage) should not exceed this amount

= $

7.  Subtract the total monthly payments on all outstanding debts (e.g., car loans, credit cards, student loans, etc.)

- $

8. The monthly mortgage payment should not exceed this amount

$

9. Look at line 3 and line 8. The lower figure is an estimate of the maximum mortgage payment in consideration of your income and debts.

$

10. Multiply line 9 by 0.80

X 0.80

11. This equals portion of your mortgage payment that is the principal and interest only

$

12. Use the table below to see the size of the loan you may be able to obtain with this monthly mortgage payment.

 

Source: Iowa State University Extension, What is your house-buying power?

 

Monthly Payment on 30-Year Fixed Rate Mortgage

Loan amount

3%

3.5%

4%

4.5%

5%

5.5%

6%

$50,000

211

225

239

253

268

284

300

$75,000

316

337

358

380

402

426

450

$100,000

421

449

477

506

536

568

600

$150,000

632

674

716

759

804

852

900

$200,000

842

898

954

1012

1072

1136

1200

$250,000

1052

1123

1193

1265

1340

1420

1500

$300,000

1263

1347

1431

1518

1608

1704

1800

 

Didn’t see your desired loan amount? Use the table below to estimate your monthly payment (principal and interest) per $1,000 of your loan. To figure out an estimated loan payment, multiply the factor by the number of thousands in the amount of your mortgage.

 

For example, if you intend to borrow $400,000, with a loan term of 30 years at 4% interest, multiply 4.77x 400 = $1908 per month.

 

Interest Rate

15-Year Term

30-Year Term

 

Monthly Payment

Monthly Payment

3%

6.90

4.21

3.5%

7.14

4.49

4%

7.39

4.77

4.5%

7.64

5.06

5%

7.90

5.36

5.5%

8.18

5.68

6%

8.44

6.00

Source: HSH.com http://www.hsh.com/mopaytable-print.html)

 

Don’t forget to factor in property taxes and insurance. These are often added to your principal and interest of your mortgage paymentthe money used to pay down the balance of your loan and the charge for borrowing the money. Since these numbers vary, contact your county assessor’s office for the current property tax rate and your insurer for a home insurance quote. Once you have these figures, divide each by 12 to estimate how much they’ll add to the above payment amounts.

 

Do you want a clearer picture of your buying power? Would you like to see what kind of homes you can get with your buying power? Give us a call!

 

Sources: 1. National Association of REALTORS https://www.nar.realtor/topics/housing-affordability-index/methodology

                2. Moneyunder30.com https://www.moneyunder30.com/percentage-income-mortgage-payments

                3. Credit.com https://www.credit.com/loans/mortgage-questions/how-to-determine-your-monthly-housing-budget/

                4. National Association of REALTORS, 2016 Profile of Home Buyers and Sellers

                5. Iowa State University Extension, What is your house-buying power? https://store.extension.iastate.edu/product/pm1460-pdf

                6. HSH.com http://www.hsh.com/mopaytable-print.html

 

 

 

 

 

 

Sept. 30, 2020

Buyer Survival Kit: Seller's Market Hacks for Buyers

How to get your offer accepted in a seller's market

Within the past several months, nearly every property I've put an offer in for a buyer has had multiple offers.  But we were the winning bid on every single one of them!  How did this happen?  By using my Buyer's Cheat Sheet and working closely together my clients were armed and ready.  In a seller's market with low inventory (hello, southwest Montana) there are a few things a buyer needs to know and have ready at their disposal.  So when the right property surfaces...BOOM!  We are on it like ducks on a junebug.

It's a crazy market all across the country right now.  But as I always tell my clients, someone has to get the property. Why can't it be you?

Here's my cheat sheet for getting a competitive edge:

Know what a seller's market is.

You've heard the terms buyers market and sellers market thrown around, but what do they mean?  Here's why it's a seller's market right now:

  • Properties are selling quickly at multiple price points
  • Many are selling for over list price with multiple offers
  • Many properties under contract have a back-up offer in place (sometimes more than one)
  • Very few properties come on market within a week's time

Get your paperwork in order.

Buyers have often been tracking homes and the market in general using the internet long before they choose their agent.  This is helpful, but unless you take the next step and meet with a lender, you'll be behind the eight ball when you find the perfect home, and there's a good chance not having the right paperwork to accompany an offer can leave you empty handed and out of luck.   Meet with a lender (or ask me for local referrals) to get a mortgage pre-approval letter showing your information has been reviewed and you are eligible for a mortgage to purchase the property.  Paying all cash?  Alert your banker that you'll be needing a proof of funds.  I recommend asking them to draft one so it's ready to customize with a property address without much delay.  This way the seller, their agent and your agent all know you have skin in the game.  Many agents (hello) won't show properties without confirmation you've spoken with a lender in a busy market.  It's a waste of everyone's time.

Make a  commitment to be ready at a moment's notice.

I'm not suggesting you put life and work aside to devote yourself full-time to finding the perfect home.  But, just allotting an afternoon on weekend's or calling multiple listing agents for info on a property will definitely NOT get you the property you want in a low inventory seller's market. When you commit to working with an agent who will get you that home, they are setting aside time in their schedule to meet your needs.  When the right property surfaces, be ready to see it as quickly as possible.  (Stay tuned for my upcoming Buyer Success Story where we made this happen).

Remove the "if's."

In slower markets (or with clients that haven't been properly coached by their agent),  buyers often believe they can rely on contingencies to think things through:  I like it but if there's a problem with this or that in the inspection, or I'll move forward if my lender can get me the terms I want...you get the idea, right?  they do so only with contingencies. For instance, they’ll buy the home if the inspection goes well or if they can secure financing. But in a seller’s market, it may behoove you to drop one or two of these caveats to stand out to sellers, who generally would prefer as few hurdles on the way to closing as possible.

Your agent should be able to coach you on what contingencies you can leave out and what are crucial, based on your situation.

Understand you are not large and in charge.

Back in the olden days (whenever they were for you) buyers came into negotiations expecting to bargain.  "Let's start here (insert low number) to get the ball rolling and see what happens."  In a seller's active market, there is often little room for negotiating on price.  There are exceptions, when a property is overpriced or has flaws discovered later, but most properties are ending up in multiple bid situations in less than 24-48 hours of going on market (remember my suggestion about being ready to jump?) and often go for well over asking price.

Widen your search.

Not just geographically, but in other ways.  Perhaps there's a clogged intersection that people avoid nearby, or some easy updates you could hire a handyman to do that scare away the non-handy buyers.  Go to open houses, talk to friends and colleagues (and your trusty agent) about referrals and general costs if you see items cropping up on properties.  This will help keep you nimble and ready to jump, as you'll be armed with real information to help with your decision.

Make your agent work.

In a hot market, it's easy to get discouraged or feel like you may overpay for a property.   Ask your agent to run comparable research for properties you are interested in.  This is researching sold, pending and currently active properties that are similar in style and location.  This will give you good solid information on how prices are moving.

When you find a place that fits the bill, you'll both be able to assess it quickly.  If they are just showing you properties and waiting for you to decide, find another agent.  They should be able to brainstorm different scenarios and options to help you make a clear decision.  That's the fun part for me!

 

 Contact me to sign up for my Direct Access Program for buyers and more tips on buying property in Montana, as well as this cheat sheet in PDF form. 

 

 

 

______________

Some information for this post provided courtesy of http://realtormag.realtor.org/daily-news/

Sept. 29, 2020

Move-Up Home vs. Second Home: Which One Is The Right Way To Go?

The pandemic has changed the way many of us live, work, and attend school—and those changes have greatly impacted our priorities when it comes to choosing a home.

 

According to a recent survey by The Harris Poll, 75% of respondents who have begun working remotely would like to continue doing so—and 66% would strongly consider moving if they no longer had to commute as often. Some of the top reasons were:

 

  • To gain a dedicated office space (31%)
  • A larger home (30%)
  • More rooms overall (29%).1 

 

And now that virtual school has become a reality for many families, the need for additional space has only intensified. A growing number of buyers are choosing homes further from town as they seek out more room and less congestion. In fact, a recent survey found that nearly 40% of urban dwellers had considered leaving the city because of the COVID-19 outbreak.2

 

But not everyone is permanently sold on suburban or rural life. Instead, some people are beginning to research what it would take to purchase a second home as a co-primary residence or frequent getaway. 

 

Let’s explore each option to help you determine which one is right for you.

 

 

WHY CHOOSE A MOVE-UP HOME?

 

A move-up home is typically a larger or nicer home, or a home with a floor plan better suited to your new lifestyle. It’s a great option for families or individuals who simply need more space, a better location, or want features their current home doesn’t offer—like a dedicated home office. 

 

Most move-up buyers choose to sell their current home and use the proceeds as a down payment on their next one. If you’re struggling with a lack of functional or outdoor space in your current home, a move-up home can greatly improve your everyday life. And with mortgage rates at their lowest level in history, you may be surprised how much home you can afford to buy without increasing your monthly payment.3,4

 

To learn more about mortgage rates, contact us for a free copy of our recent report! 

“Lowest Mortgage Rates in History: What It Means for Homeowners and Buyers”

 

One major benefit of choosing a move-up home is that you can typically afford a nicer place if you spend your entire budget on one property. However, if you’re longing for that vacation vibe, a second home may be a better choice for you.

 

 

WHY CHOOSE A SECOND HOME?

 

Once reserved for the ultra-wealthy, second homes have become more mainstream. Home sales are surging in many resort and bedroom communities as city dwellers search for a place to escape the crowds and quarantine in comfort.5 With air travel on hold for many families, some are channeling their vacation budgets into vacation homes that can be utilized throughout the year. 

 

A second home can also be a good option if you’re preparing for retirement. By purchasing your retirement home now, you can lock in a low interest rate, start paying down the mortgage, and begin enjoying the perks of retirement living while you’re still fit and active. Plus, it’s easier to qualify for a mortgage while you’re employed, although you may be charged a slightly higher interest rate than on a primary home loan.6

 

One advantage of choosing a second home is that you can offset a portion of the costs—and in some cases turn a profit—by renting it out on a platform like Airbnb or Vrbo. However, be sure to consult with a real estate professional or rental management company to get a realistic sense of the property’s true income potential.

 

 

WHICH ONE IS RIGHT FOR ME?

 

You may read this and think: I’d really like both a move-up home AND a second home! But if you’re dealing with a limited budget (aren’t we all?), you’ll probably need to make a choice.  These three tactics can help you decide which option is right for you.

 

1. Determine Your Time and Financial Budget

 

You may meet the bank’s qualifications to purchase a home, but do you have the time, energy, and financial resources to maintain it? This is an important question to ask yourself, no matter what type of home you choose.

 

Most buyers realize that a second home will mean double mortgages, utilities, taxes, and insurance. But consider all the extra time and expense that goes into maintaining two properties. Two lawns to mow. Two houses to clean. Two sets of systems and appliances that can malfunction. Second homes aren’t always a vacation. Make sure you’re prepared for the labor and carrying costs that go into maintaining another residence.

 

Of course, some move-up homes require more work than a second home. For example, if your move-up option is a major fixer-upper, you’ll probably invest more energy and capital than you would on a small vacation condo by the beach. Have an honest discussion about how much time and money you want to spend on your new property. Would a move-up home or a second home be a better fit given your parameters?

 

2. Rank Your Priorities

 

If you’re still undecided, make a wish list of the characteristics you’d like in your new home. Then rank each item from most to least important. This exercise can help you determine your “must-have” features—and which ones you may need to sacrifice or delay. Here’s a sample to help you get started:

 

          FEATURE

  • Dedicated home office
  • Extra bedroom
  • Pool
  • Walk to the beach
  • Big backyard
  • Close to friends and family
  • Short commute to the office
  • Investment potential

 

 

3. Explore Your Options

 

Once you’ve determined your parameters and priorities, it’s time to begin your home search. 

If you’re still not sure whether a move-up home or a second home is right for you, we can help.

 

Contact us to schedule a free consultation. We’ll discuss your options and help you assess the pros and cons of each, given your unique circumstances. 

 

We can also send you property listings for both move-up homes and second homes within your budget so you can better envision each scenario. Sometimes, viewing listings of homes that meet your criteria can make the decision clear.

 

 

LET’S GET MOVING

 

Whether you’re ready to make a move or need help weighing your options, we’d love to help. We can determine your current home’s value and show you local properties that fit within your budget. Or, if your heart is set on a second home in another market, we can refer you to an agent in your dream locale. 

 

Sources:

1. Zillow -

https://www.zillow.com/research/coronavirus-remote-work-suburbs-27046/ 

2. The Harris Poll -

https://theharrispoll.com/should-you-flee-your-city-almost-40-have-considered-it-during-the-pandemic/

3. MarketWatch -

https://www.marketwatch.com/story/mortgage-rates-keeping-falling-so-will-they-finally-drop-to-0-2020-08-13

4. Toronto Star -

https://www.thestar.com/business/2020/08/07/you-can-get-a-fixed-rate-as-low-as-184-per-cent-which-is-unbelievable-low-mortgage-rates-driving-up-home-prices.html

5. Kiplinger -

https://www.kiplinger.com/real-estate/buying-a-home/601091/timely-reasons-to-buy-a-vacation-home

6. The Press-Enterprise -

https://www.pe.com/2018/11/17/5-tips-on-when-should-you-buy-a-retirement-house-hint-before-you-quit-work/

 

Feb. 19, 2020

Don’t Get Burned – Get a Home Inspection to Save Money on Your Next Purchase

Okay, you made one of the most important decisions in your life: you’re buying a home! You found your ideal home. It’s in your desired neighborhood, close to everything you love, you dig its design and feel, and you’re ready to finalize the deal.

But, whoa … wait a minute! Buying a home isn’t like buying a toaster. If you discover something’s wrong with your new home, you can’t return it for a refund or an even exchange. You’re stuck with your buying decision. Purchasing a home is an important investment and should be treated as such. Therefore, before finalizing anything, your “ideal” home needs an inspection to protect you from throwing your hard-earned money into a money pit.

A home inspection is a professional visual examination of the home’s roof, plumbing, heating and cooling system, electrical systems, and foundation.

There are really two types of home of inspections. There is a general home inspection and a specialized inspection. Most general inspections cost between $267 and $370. The cost of the specialized inspection varies from type to type. If the inspector recommends a specialized inspection, take that advice because buying a home is the single most important investment you’ll make and you want extra assurance that you’re making a wise investment.

By having your prospective new home inspected, you can:

  • Negotiate with the home seller and get the home sale-ready at no cost to you
  • Prevent your insurance rates from rising
  • Opt-out of the purchase before you make a costly mistake
  • Save money in the short and long run

How Much Money Can a Home Inspection Save You?

A home inspection helps to find potential expenses beyond the sales price, which puts homebuyers in a powerful position for negotiation. If there are any issues discovered during the home inspection, buyers can stipulate that the sellers either repair them before closing or help cover the costs in some other way. If the sellers do not want to front the money to complete the repairs, buyers could negotiate a drop in the overall sales price of the home!

Perhaps even more importantly, a home inspection buys you peace of mind. Your first days and months in a new home will set the tone for your life there, and you don’t want to taint that time with worries about hidden problems and potential money pits.

To help you understand how much money a home inspection can save you, here are some numbers from HomeAdvisor to drive the point home … so to speak.

Roof – Roofing problems are one of the most common issues found by home inspections. Roof repair can range between $316 and $1046, but to replace a roof entirely can cost between $4,660 and $8,950.

Plumbing – Don’t underestimate the plumbing. Small leaks can cause damage that costs between $1,041 and $3,488 to repair. Your home inspector will look for visible problems with the plumbing such as leaky faucets, water stains around sinks and the shower, and noisy pipes. Stains on walls, ceilings, and warped floors show plumbing problems.

Heating and Cooling – Ensuring the home’s heating and cooling system is working properly is very important. Your home inspector will make you aware of any problems with the existing system and let know you whether the system is past its prime and needs replacing. You don’t want to throw down $3,919 to replace an aged furnace. Nor do you want to spend $5,238 replacing an ill-working air conditioner. Replacing and repairing a water heater gets pricey too. Wouldn’t you rather use your savings for a vacation?

Electrical Systems – When thinking of the electrical system, no problem is better than even a small problem. Electrical problems might seem small, but they can blossom into thousand-dollar catastrophes. Make sure your home inspector examines the electric meter, wires, circuit breaker, switches, and the GCFI outlets and electrical outlets.

Foundation – If your home inspector sees that the house is sinking, that means water is seeping into the foundation; cracks in walls, sticking windows, and sagging floor also indicate foundational problems. The foundation is so important that if the general inspection report shows foundation problems, lenders will not lend money on the home until those issues are solved. Foundation repairs can reach as high as $5,880 to repair.

As you can see, a small investment of a few hundred dollars for a general home inspection can save you tons of money and future headaches. To save even more money, you might consider investing in a specialized home inspection as well. A specialized inspection gets down to the nitty-gritty of all the trouble spots the general home inspection might have located.

How Much Money Can a Specialized Inspection Save You?

A general home inspection can trigger a need for a specialized inspection because the general home inspector spotted something off about the roof, sewer system, the heating and cooling system, and the foundation. If humidity is high where you’re buying your home, a pest inspection is recommended. Usually, a pest inspection will check for mold as well as pests. Most homebuyers have a Radon test done to ensure air quality.

Roof – Roof specialists examine the chimney and the flashing surrounding it. They also look at the level of wear and tear of the roof. They can tell you how long the roof will last before a new one is needed. They’ll inspect the downspouts and gutters. The average cost of a roof inspection is about $223. Most roof inspections will cost between $121 and $324.

Sewer System – Making sure your sewer system has no problems should happen before the closing because what might look like a small problem can turn into a large problem in the future. If any issues pop up, you can negotiate with the seller about needed repairs or replacements before closing. Cost of inspection will vary; on the low side, it might cost you around $95, and on the high side, it might cost you $790. Compare these numbers to repairing a septic tank, which can cost, on average, $1,435 (though it could reach as high as $4,459), and you can see that the cost of an inspection is worth it when you catch the problem before you buy.

Heating and Cooling System – A HVAC specialist will check the ducts for blockage and for consistent maintenance of the unit. The repairs needed might be small or they might be big, but this small investment will save you headaches and lots of money down the road.

Foundation – A foundation specialist will pinpoint the exact problem with the foundation. The specialist will look at the grade or slope of the home. The ground should slope away from the home in all directions a half inch per foot. Most homeowners have spent between $1,763 and $5,880 to repair their foundation. And the average cost to re-slope a lawn is at $1,705. Most homeowners paid between $933 and $2,558 to re-slope their lawn.

Pest Inspection – We don't typically have the pest issues that other milder climates have, but sometimes in older homes, rodent intrusion can be an issue.  Since it gets so cold in Montana, they'll seek out warm places whenever possible.  Your home inspection will look at the perimeter inside and out to look for any issues.

Radon Test – Radon is a naturally occurring invisible odorless gas that is the second leading cause of cancer. A radon test is a good test to have done as a good habit. The cost of radon test is low and its cost varies from state to state. Here’smore information about Radon.

Steps You Can Take to Save Money Using a Home Inspection

To help yourself save with a home inspection, you will need to:

Attend the inspection – Attending the inspection is important because it’s an opportunity for you to ask questions.

Check utilities – Checking utilities let’s know the energy efficiency of your potential home.

Hire a Qualified Home Inspector – We can recommend bona-fide home inspectors to you. You can compare our recommendation with all inspectors who belong to the American Society of Home Inspectors. While the decision of who you work with is always yours, we can educate you so that you make a wise homebuying decision.

 

Feb. 9, 2020

Understanding Residential Appraisals

The appraisal.  

Everyone waits for it to arrive on the lender's desk.  As days tick by, a slight sense of dread covers the land.  It's hard to put a finger on why, because there is so much mystery and uncertainty around the appraisal process. 

No one has any control over who does the appraisal, when it will be delivered, or even whether or not the appraiser is familiar with the area.  It's a big piece of the puzzle.

This PDF explains the process in detail, which can be helpful in interpreting your appraisal when it arrives in your inbox.

Have questions?  Email us.

Nov. 11, 2019

Home Programs Vets Should Know About

Today we honor the veterans that have sacrificed for this country. To help honor these sacrifices, special programs were put in place to aid vets in getting and keeping a home. Unfortunately, not all veterans know these programs exist. Even for those who do, it can be confusing to determine which option matches their situation.  

To help sort out some of the confusion, here are a few of the most common home programs that vets might be interested in. As requirements and availability can change over time, be sure to find out more before attempting to apply for any specific program. (We have awesome lenders we regularly work with that specialize in working with Veterans, just ask us).

 

VA Home Loans

One of the most well-known and commonly used home programs for vets are VA home loans. These loans are subsidized by the Veterans Administration itself, similar to HUD home loans or rural loans subsidized by the Department of Agriculture. Thanks to the VA subsidy, vets can qualify for better-than-average interest rates and may be able to reduce or eliminate down payments or closing costs as well. Houses must meet the livability requirements of the VA to be purchased with a VA home loan, so make sure you use an agent (hi there!) and lender (got that too) that are familiar with some of the not so obvious requirements to keep things from going sideways.

 

Loan Forbearance

One problem that vets sometimes face is getting behind on mortgage payments and running the risk of losing their home. The VA offers loan forbearance programs that can help with this. While this doesn’t serve as loan forgiveness, the forbearance does temporarily stop repayments to give veterans more time to catch up. There are no penalties accrued during the forbearance period – and pending foreclosures won’t move forward while the loan is in forbearance. Once the forbearance period ends, the vet can begin making payments again at their normal rate.

 

Loan Modifications

VA-backed loan modifications are another option for vets that are struggling with their mortgage payment. These modifications can make changes to the interest rate, interest type or even the repayment period of the loan to reduce the amount of the monthly payment. There are a few different types of loan modifications available for vets ranging from basic loan refinancing to specialized repayment plans designed to keep vets in their homes when times are tough. The specific terms of the modification will depend on the specific program or plan that the veteran uses to modify their loan.

 

In-Home Care Programs

For veterans who were injured in service or who experience other chronic health issues, the VA offers programs to aid in getting in-home care. These programs pay out directly to the care provider and may also cover the cost of specialized care equipment or home modifications that are necessary to help the vets get through their day. These programs may be a good option for injured vets who need minor remodeling for medical reasons but who are unable to get it done on a fixed income.

 

VA Disability Status

It is important to point out that some VA programs require a veteran to have disability status before they can qualify. Disability through the VA can take a while to certify, so vets who have ongoing mobility or health issues should apply early before applying for other programs. Some programs may have options available while a disability decision is still pending, but there are at least a few VA programs that can’t do anything for you unless you’re already certified as disabled by the VA.

 

Finding the Right Program

If you’re struggling to navigate the complexities of some of these programs, we'd be happy to connect you to local mortgage and loan experts out there who can help you. We are ready to help!

 

Nov. 2, 2019

5 Steps To Finding Your Next Home

 

Whether you’re a first-time buyer or a seasoned homeowner, shopping for a new home can feel daunting. In fact, 56% of buyers said that “finding the right property” was the most difficult step in the home buying process.1

 

Buying a home is a significant commitment of both time and money. And a home purchase has the power to improve both your current quality of life and your future financial security, so the stakes are high.

 

Follow these five steps—and complete the corresponding worksheet offered below—to assess your priorities, streamline your search, and choose your next home with confidence.

 

STEP 1: Set Your Goals and Priorities

This seems obvious, but in my experience I've found this step is often overlooked.  Many people jump in with a very loose list of what they want, figuring the right house will appear and all answers will immediately become clear.  Take a minute (or a few) and consider WHY you want to move. Do you need more space? Access to better schools? Less maintenance? Or are you tired of throwing money away on rent when you could be building equity? Pinpointing the reasons why you want to move can help you assess your priorities for your home search.  Your agent can then translate that information and integrate it into the process so it's more efficient.

Don’t forget to think about how your circumstances might change over the next few years. Do you expect to switch jobs? Have more children? Get a pet? A good rule of thumb is to choose a house that will meet your needs for at least the next five to seven years.2  

 

STEP 2: Determine Your Budget

 

Many financial professionals recommend following the “28/36 Rule” to determine how much you can afford to spend on a home. It sounds complicated, but it's actually quite simple.  The rule states that you should spend no more than 28% of your gross monthly income on housing expenses (e.g., mortgage, taxes, insurance) and a maximum of 36% of your gross monthly income on your total debt obligations (i.e., housing expenses PLUS any other debt obligations, like car loans, student loans, credit card debt, etc.).3

 

Of course, the 28/36 rule only provides a rough guideline. It varies depending on projected income and where you live.  Getting pre-qualified or pre-approved for a mortgage BEFORE you begin shopping for homes is a non-negotiable for getting a true and accurate idea of how much you can borrow. Add your pre-approved mortgage amount to your downpayment to find out your maximum purchasing potential.

 

 

STEP 3: Choose a Location

 

When it comes to real estate, WHERE you choose to buy is just as important as WHAT you choose to buy.  Do you prefer a rural, urban, or suburban setting? How long of a commute are you willing to make? Which neighborhoods feed into your favorite schools? These decisions will impact your day-to-day life while you live in the home.  Drive through these neighborhoods, or better yet bike or walk them at different times of day to get a feel for noise levels and traffic.

Another important factor to consider is how the area is likely to appreciate over time. Choosing the right neighborhood can raise the profit potential of your home when it comes time to sell. 4

 

STEP 4: Decide Which Features You Need (and Want) in a Home

Start with the basics, like your ideal number of bedrooms, bathrooms, and square footage. Do you prefer a one-story or two-story layout? Do you want a big yard, or is a smaller outdoor space OK for now in exchange for a better location.

Keep in mind, you may not find a home with all of your “wants,” or even all of your “needs” … at least not at a price you can afford. The reality is, most of us have to make a few compromises when it comes to buying a home.  It's important to acknowledge that the price is NOT a feature.  For example, you can't say I want to be close to coffee shops and shopping, have a garage and large yard, four bedrooms and stay in X price range.  The other items are features and factors, not the price, since it becomes impossible to obtain unless you prioritize your list.

Some buyers will opt for a longer commute to get a larger, newer home with the big yard. Others will sacrifice hardwood floors or an updated kitchen so that their kids can attend their desired school and they can be near amenities. 

 

If you’re faced with a tough choice about how or what to compromise in your home search, return to STEP 1. What were your original goals and motivations for moving? Reminding yourself of your true priorities can often provide the clarity that you need.

 

STEP 5: Meet with a Real Estate Agent (insert friendly MT Good Life face here 😊)

A good real estate agent can remove much of the stress and uncertainty from the home search process. From setting goals to finding the right lender fit to selecting the best neighborhood to meet your needs, we will be there to assist you every step of the way.  Having an honest devil's advocate on your side will help protect you through the process.

After meeting, we can set up a customized search that alerts you as soon as a new listing you might like goes live. Better yet, we get notified about many of the hottest homes even BEFORE they hit the market.  Zillow can't do that, and neither can that part-time agent that sells a house or two on the side after hours.

 

Although we’ve listed it here as STEP 5, the reality is, it’s never too early (or too late) to contact an agent about buying a home. Whether you plan to buy today, next month, or next year, there are steps you can (and should) be taking to prepare for your purchase.  We just closed with a client we've been working with for two years.  We' re not going anywhere, so let's talk now so you can plan for later, whenever that is for you!

Call us today to schedule a free consultation!

 

 

 

The above references an opinion and is for informational purposes only.  It is not intended to be financial advice. Consult a financial professional for advice regarding your individual needs.

 

 

 

Sources:

 

NAR 2019 Home Buyers & Sellers Generational Trends Report – https://www.nar.realtor/sites/default/files/documents/2019-home-buyers-and-sellers-generational-trends-report-08-16-2019.pdf

Architectural Digest – https://www.architecturaldigest.com/story/this-is-how-long-you-should-live-in-your-house-before-selling-it

Investopedia – https://www.investopedia.com/terms/t/twenty-eight-thirty-six-rule.asp

Money Talks News – https://www.moneytalksnews.com/20-clues-youre-buying-home-the-right-neighborhood/

 

 

 

Sept. 16, 2019

Things to Avoid *AFTER* Applying for a Mortgage

Congratulations! You’ve found a home to buy and have applied for a mortgage! You’re undoubtedly excited about the opportunity to decorate your new home, but before you make any large purchases, move your money around, or make any big-time life changes, consult your loan officer – someone who will be able to tell you how your decisions will impact your home loan.

 

Below is a list of Things You Shouldn’t Do After Applying for a Mortgage. Some may seem obvious, but some may not.

 

1. Don’t Change Jobs or the Way You Are Paid at Your Job. Your loan officer must be able to track the source and amount of your annual income. If possible, you’ll want to avoid changing from salary to commission or becoming self-employed during this time as well.

 

2. Don’t Deposit Cash into Your Bank Accounts. Lenders need to source your money, and cash is not really traceable. Before you deposit any amount of cash into your accounts, discuss the proper way to document your transactions with your loan officer.

 

3. Don’t Make Any Large Purchases Like a New Car or Furniture for Your New Home. New debt comes with it, including new monthly obligations. New obligations create new qualifications. People with new debt have higher debt to income ratios…higher ratios make for riskier loans…and sometimes qualified borrowers no longer qualify.

 

4. Don’t Co-Sign Other Loans for Anyone. When you co-sign, you are obligated. As we mentioned, with that obligation comes higher ratios as well. Even if you swear you will not be the one making the payments, your lender will have to count the payments against you.

 

5. Don’t Change Bank Accounts. Remember, lenders need to source and track assets. That task is significantly easier when there is consistency among your accounts. Before you even transfer any money, talk to your loan officer.

 

6. Don’t Apply for New Credit. It doesn’t matter whether it’s a new credit card or a new car. When you have your credit report run by organizations in multiple financial channels (mortgage, credit card, auto, etc.), your FICO® score will be affected. Lower credit scores can determine your interest rate and maybe even your eligibility for approval.

 

7. Don’t Close Any Credit Accounts. Many clients erroneously believe that having less available credit makes them less risky and more likely to be approved. Wrong. A major component of your score is your length and depth of credit history (as opposed to just your payment history) and your total usage of credit as a percentage of available credit. Closing accounts has a negative impact on both of those determinants in your score.

 

Bottom Line

Any blip in income, assets, or credit should be reviewed and executed in a way that ensures your home loan can still be approved. The best advice is to fully disclose and discuss your plans with your loan officer before you do anything financial in nature. They are there to guide you through the process.

 

Related posts on our blog:

Our Buyers Guide to Mortgage Pre-approval

Top 12 Apps for Homeowners & Renters

Understanding Residential Appraisals

Sept. 14, 2019

What Is the Probability That Home Values Sink?

With the current uncertainty about the economy triggered by a potential trade war, some people are telling themselves to wait to purchase their first home or move-up to their dream house because they think or hope home prices will drop over the next few years. However, the experts disagree with this perspective.

So do I.  And there lies the rub.  How to tell you, without sounding like a pushy, anxious real estate agent, that NOW is always a better time to buy.  Let me try to explain myself.  First with a chart!

Here is a table showing the predicted levels of appreciation from six major housing sources:

As you see, every source believes home prices will continue to appreciate (albeit at lower levels than we have seen over the last several years). But, not one source is calling for residential real estate values to depreciate. Hello there answers!

So there you are.  Waiting for prices to fall before purchasing a home needs to account for the probability of that happening anytime soon to be very low. With mortgage rates still at near historic lows, even with the most recent blips, now is very much the time to act.  If you are using random advice cobbled from conversations about spooked friends who are upset they missed out, take care to acknowledge your sources.  Don't just take our word for it, look at even more data, to make a truly informed decision.

Want more of the goodness?  Sign up to receive our regular market reports, or if you would like to sell and change your lifestyle (downsize, upsize, move out to the mountains, whatevs), just shoot us a quick note and we'll get you set up.

More on this topic:

What's Your Homebuying Power?

The Compound Effect:  Building Your Household Wealth

The Impact of Homeownership on Civic Involvement

Aug. 13, 2019

5 Real Estate Reality TV Myths Explained

Have you ever found yourself flipping through channels, only to find yourself suddenly glued to the couch in the middle of an HGTV binge session? Watching entire seasons of shows like “Property Brothers,” “Fixer Upper,” and “Love It or List It,” all in one sitting.  Time wasted?  Read on...

When you’re in the middle of your next real estate-themed TV show marathon, you might be inclined to start to think everything you see on the screen must be how it works in real life. However, you may need a reality check. I know this is an unpopular opinion, but hear me out for just a moment.

Reality TV Show Myths vs. Real Life:

Myth #1: Buyers look at 3 homes and decide to purchase one of them.

Truth: There may be buyers who fall in love and buy the first home they see, and that's OK when you're working with a skilled agent who can advise you and be the devil's advocate if needed, but according to the National Association of Realtors, the average homebuyer tours 10 homes as a part of their search.  

 

Myth #2: The houses the buyers are touring are still for sale.

Truth: Everything is staged for TV. Many of the homes shown are already sold and are off the market. 

 

Myth #3: The buyers haven’t made a purchase decision yet.

Truth: Since there is no way to show the entire buying process in a 30-minute show, TV producers often choose buyers who are further along in the process and have already chosen a home to buy. This is the confusing part where you may think that making decisions happens must faster than it actually does.

 

Myth #4: If you list your home for sale, it will ALWAYS sell at the open house.

Truth: Of course, this would be great! Open houses can be an important tool to provide exposure to buyers in your area, but they are only one piece of the overall marketing of your home. Keep in mind, most serious buyers schedule appointments through their agents, with most homes being sold during regular showing appointments.

 

Myth #5: Homeowners decide to sell their homes after a 5-minute conversation.

Truth: Similar to the buyers portrayed on the shows, many of the sellers have already spent hours or even months deliberating the decision to list their homes and move on with their lives and goals.

 

Bottom Line

Having an experienced agent on your side while navigating the real estate market is the best way to guarantee you can make the home of your dreams a true reality with realistic expectations.  Let's meet up!

Contact us to schedule some coffee or tea at our office near downtown Bozeman!

 

Related:

Look at your home through buyer's eyes

Staging case study