"As Is" Home - Deal or No Deal?

In this 8-part series, How to Find the Perfect Home for You and Your Budget, you’ll learn how to find a home that is the right fit for your lifestyle, needs and, most importantly, your budget. It takes you through every single step and show you how to avoid buyer’s remorse.  Your first home is most likely the stepping stone for your next home so you want to do it right and set yourself up financially to move up to your next home. For this last week, we examine what it means to deal with an “as is” home and if it’s something you should pursue. You’ve probably seen listings stating a home is being sold “as is.” Does that mean it’s a dump and not worth seeing? It can be hard to tell since there can be vast differences in the conditions of “as is” homes. These homes can sometimes be a good deal budget-wise, especially if it gets you into a neighborhood you’ve been eyeing. However, some “as is” homes come with more troublesome issues that could cost you more in the long run. If you do make an offer on such a home, you need to take certain steps to protect yourself.  Here’s how: Understand What “As Is” Means Basically, “as is” means the buyer will purchase the home from the seller in its current condition no matter what since the seller has no intentions to do any repairs to the property before they sell it. The home could be in pristine condition or it could be a major “fixer upper.” Smoke detectors are the only thing legally that need to be working properly! Know What’s Expected from Sellers Every jurisdiction has different laws when it comes to “as is” homes, and every home and every seller has their own story. You’ll need to be more of a detective if you want a complete picture of an “as is” home. Understand disclosure requirements for different jurisdictions. Some states require sellers to disclose any defects they know about in a home for sale. Maryland and the District require sellers to provide detailed disclosure documents. Virginia, on the other hand, is more of a “buyer beware” state. If sellers, however, know of something but didn’t disclose it, that is considered fraud and the sellers would be liable. Sometimes it is difficult to prove if sellers really were aware of any defects or questionable conditions. That’s why it is important to get any disclosures in writing to protect you in the long run from fraudulent information. Be proactive and ask about any repair history. Did the seller have water damage at one time and made repairs, which now aren’t obvious to the buyer or the inspector? You want to know as much about this home as possible, especially any water damage history. Take cautious steps if seller is a nonoccupant.  If the property was owned by someone who didn’t live in the home recently—whether it was a landlord who had been renting out the property, an estate selling for a deceased family member, or even a bank in a foreclosure sale, they can’t disclose something they didn’t know about. So be more vigilant since there could be more wrong with the property than what has been disclosed.  How to Protect Yourself Take additional steps to ensure you understand the true condition of a home, both apparent and “hidden.” That way you’ll have a better idea of negotiating and budgeting for this home. Make sure you get a qualified inspector. If you included a home inspection contingency in your offer (which you always should), you are given a window of time to get the house inspected. You can get a thorough idea of the home’s condition. Does it have a leaky roof, any water damage, serious foundation issues, and pest or termite history? The results will help you decide whether you will continue with the transaction or not. You can walk away if you aren’t comfortable with buying the home. Get bids from contractors. If there are necessary repairs to be made, contact contractors during this contingency period to have a better idea of future costs. These estimates could help you at the negotiating table to bring down the price of the home. Take It, Or Leave It Overall, an “as is” home could be a good deal as long as you take the proper steps to protect yourself. It could be the “perfect” home for you as long as you do your due diligence on your part and have a very thorough inspection by a professional. You’ll also want to completely understand what you’re getting yourself into if it is a home that will need lots of work.  Honestly ask yourself if you will have the time, the commitment, the patience, and the budget for undertaking any major repairs and making it more livable to your standards. But remember that you can “take it or leave it” and that’s the beauty of it. If you’re not comfortable, then you can always walk away if you’ve included the right contingencies in your offer with the seller. I hope you have enjoyed this How to Find the Perfect Home for You and Your Budget series. Here’s a recap and link to the previous articles: 12 Questions to Ask Yourself Before You Step Foot in an Open House  Before you do anything else, you must evaluate you wants and needs for a home with some self-analysis. Are You a House or Location Person? Buyers tend to lean one way or the other, and by knowing this you can streamline your home search either way. The 3 Steps Most Buyers Skip When Buying a Home You don’t want to mess up one of the biggest financial decisions of your life so don’t forget to do these 3 things. The “Backwards” But Right Way to Finance Your First Home Our way of financing a home will lead you to the right home for your budget.  How to Get Everything You Want in a Home Here’s how you can learn to balance your budget, location, and criteria so that you do get the “perfect” home for you. What YOU Need to Know About Buying for Schools Every first-time buyer needs to decide if “good schools” is on their criteria list, or not. Here’s how. If you are thinking about buying a home over the next few weeks, months or even a year or two from now, I’d love to help you find the perfect home for you and your budget.  I want you to have everything you’ve ever wanted in a home and I’d love to help you find it without blowing your budget.  Email me and let’s see what’s possible and how close we can get you to your own perfect home sweet home.

What YOU Need to Know When Buying for Schools

In this 8-part series, How to Find the Perfect Home for You and Your Budget, you’ll learn how to find a home that is the right fit for your lifestyle, needs and, most importantly, your budget. We take you through every single step and show you how to avoid buyer’s remorse.  Your first home is most likely the stepping stone for your next home so you want to do it right and set yourself up financially to move up to your next home. One piece of criteria you must think long and hard about is whether “good schools” should be part of your criteria for a home. For some first-time buyers it is, for others, it’s the first piece of criteria that should be thrown out. When to Throw Out “Good Schools” Criteria When should you NOT have schools be part of your search criteria?  If you are a first-time home buyer and don’t plan to be living in your first home when your children are old enough to go to school, think twice about including it in your search criteria. For you, living in a “cool” part of town might be more important at this point in your life and that’s okay!  Own it and enjoy every minute of that it while you are in that stage of life.  For many of you, that sometimes means giving up  space to be closer to things like work or nightlife in order to stay within budget.  Taking that a little further into the future, if that means your first home is going to be too small to raise the family plan to have years from now, throw the “good schools” criteria out and get everything else you want.  You have decided that you’ll move when it comes time to send kids to school … and that’s okay!  Many first-time buyers do this and it makes their search so much easier so they can focus on a location without blowing the budget and not worry if they are buying into a “good” school district.  And, when it comes time for resale, you’ll find similar buyers just like you who aren’t buying for schools. When To Keep Good Schools As A “Must Have” If you are going to be buying your “forever” home as a first-time buyer, then YES, you definitely want school boundaries to be in your search criteria. That way you aren’t forced to move out of your home because you didn’t think far enough into the future.  This decision is CRUCIAL in your search for a first home.  Pause and really think about it.  How long do you plan on living in this next home?  Does school-aged children fit into that timeframe?  If you decide you are a homebuyer, first timer or not, who plans on living in your home when your kids are school aged, read on. We’ll tell you exactly how to think it all through and make the right decision.  “Buying for Schools” Checklist Agents can’t give their opinion. Many clients are surprised that agents can’t offer any opinions on the quality of the schools or school districts because of fair housing laws. So don’t get frustrated when you ask about schools. Even if we were allowed to comment on schools, my opinion about schools may be different than yours, so it’s best for you to decide what makes a “good” school for your little ones. Spend time researching schools and school districts. There are some good online resources where you can start learning about schools — https://www.niche.com/, www.greatschools.org, and www.schooldigger.com are a couple such resources. Remember that online ratings don’t always show the complete picture about a particular school or school district, and you should seek out other feedback too.  Talk to neighbors and friends, visit schools and meet with teachers and/or principals, and review test scores, graduation rates, and teacher-to-student ratios. Keep in mind that what you may deem as “good” may be slightly different from another family. Some families seek out smaller schools, more diverse schools, ones with more special services, more-community based, or are open to both public and/or private schools. You know what’s best for your kids and family. Spend time researching before you start house hunting. If schools are that important to you, don’t waste time house hunting without having done any research. Really get to know how the schools work in the general area you are considering. Our clients are often surprised that there are more options than they first thought. This can really be a game changer when it comes to your home-buying decision making and where you narrow down your search.  Don’t forget to confirm school boundary lines.  Always call the school administration yourself to find out what are the school boundaries and if your home’s location is within a certain parameter.  You should verify this information since it’s not always obvious or could be listed incorrectly by the seller. It’s not unusual that the school closest to your home may not be your school. Boundary lines do change from time to time … so always double check!  Know that boundaries can change.  Keep in mind that whatever the boundaries are now, they can and likely will change over the years.  As communities grow and change, school districts go back to the drawing board and alter school boundary lines as needed. Learn more about all of the school options available. It’s not always clear-cut when looking at public school districts about what is available for students outside your boundary line.  Each district can have varying options and it’s worth your time to find out more information. There may be “special” schools your kids might be able to apply to and attend, such as magnet schools or charter schools. There could be “special choice” school zones that you didn’t know about initially that could change your entire housing search. Don’t rule out private or religious-based schools either and take the time to find out about costs, scholarships, and other requirements. Expect to pay a higher price tag for some school districts.  Typically, a better school district means higher home prices (and possibly higher property taxes). So keep in mind the cost to move into a neighborhood with schools that have a good reputation. If you’re facing a higher price tag, then you may have to seek out other financing or adjust your criteria (i.e., living in smaller house or on a busy road).  But, on the other hand, you’ll likely have an easier time selling this more expensive home when it’s time to move. You’ll have to decide if it’s worth the extra expense. Next week is the final article in the How to Find the Perfect Home for You and Your Budget series.  If you’ve been thinking about buying a fixer upper just to get into a certain neighborhood, then “As Is” Home – Deal or No Deal is for you. Find out the pros and cons of buying a home where the seller plans to sell it just the way it is.

How to Get Everything You Want in a Home

In this 8-part series, How to Find the Perfect Home for You and Your Budget, you’ll learn how to find a home that is the right fit for your lifestyle, needs and, most importantly, your budget. It takes you through every single step and shows you how to avoid buyer’s remorse.  Your first home is most likely the stepping stone for your next home so you want to do it right and set yourself up financially to move up to your next home. So far in this series, you’ve decided on a monthly budget, narrowed down a location, and decided on your criteria for a new home … but you haven’t been able to go house hunting just yet! You may think that’s crazy, but it isn’t. It’s important to first figure out your answers to each of these three items before you start looking at homes or you could end up with the wrong home for you. The Backwards (But Right!) Way to Finance Your First Home; Are You a “House” or a “Location” Person?; and Questions to Answer Before You Step Foot in an Open House.) These three – budget, location, and criteria — are intertwined and play a key role in finding the “perfect” home for you.  You can get everything you want in a home by understanding how these three items influence each other and need to balance each other out. Here’s your homework before you go house hunting: Know where you are with the specifics for each one of the three — budget, location, and criteria ; and  Know how each one can affect or influence the others in your search for a home. (This is very important!) How each is linked is essential when looking for a home that is affordable, meets your needs, and will satisfy most of your wants. Confused? Here are more details on this process below. The 3 Buckets – Budget, Location, and Criteria  When you’re asked to “get in alignment” at this point in the home-buying process, it’s based on an analogy of 3 buckets. Each and every factor that you can think of when you are buying a home fits into one of these 3 buckets:             1.) Budget             2.) Location 3.) Criteria (The first two are obvious but for “criteria”, it’s things like how big, how many bedrooms, how long you plan to live there, condition, etc.  Aspects about the home itself you require.)  Each bucket doesn’t have to be equal in “weight” but the total weight combined of the 3 buckets must be aligned or balance the scale they sit on … that is your ultimate goal. Put simply, these three categories—budget, location and criteria—need to be in alignment in order for you to find the right home, in the right location, and be within your budget. Fill Your 3 Buckets in the Right Order First and foremost, you must understand what you are putting in each bucket and make sure you use this order: budget, location, criteria.  That way you’ll be able to house hunt with a plan and a purpose! This order is crucial and that’s why you should first figure out your budget bucket for a new home.  Now it’s your turn — BEGIN with what you want to pay per month, THEN know how much cash you have for the purchase, and THEN bring that information to your real estate agent and lender to have them tell you what your price range should be.  NOT the other way around, which is what most people do — they decide on a purchase price first and then figure out what that means per month.  Doing it that way is a recipe for getting a home that’s too expensive or not something you’ll like.  It’s understandable if you’ll push back on this, but trust this process! It will take you where you want to be in living your best homeowner life! Of all the buckets, it’s important to get this one figured out before you start looking for a home. And then don’t change it until you’ve exhausted adjusting your location and criteria first before deciding to alter your budget. Next, focus on the location bucket.  Where do you want to live, and why?  What characteristics of that location are important to you?  For example, if you love walkability and an easy commute by bike every day, there are plenty of neighborhoods that fit that particular need, even if it’s not the one you originally had in mind. If you’re more of a “house person,” then you can be a bit more flexible with your location since you’re more interested in a home’s aesthetics. Third, focus on the criteria bucket.  What do you really need in a home?  How long do you plan on living there?  What do you want your life to be like during that time period and how will your new home influence this life? Remember, you should have gone through each of these and “filled” each bucket up. Alignment = The Perfect Home for You and Your Budget Next, you need to make sure that there is alignment between each of the three buckets so they don’t spill over into “no-house land.” For example—if you won’t compromise on location and can’t change your budget, then you must focus on the “criteria” bucket.  That means, you might want to consider a fixer upper or a two bedroom plus a basement instead of three bedrooms on the same level. That way you can still have the location and budget that you want most. Can you see how you need to make adjustments and that each “bucket” influences the others? Approaching your home search in this very organized and methodical way may sound silly or boring, but it works.  It’s absolutely normal to have this give and take, and you’ll be in your new “home sweet home” in no time! Still Feeling Frustrated? If you ever feel like giving up or are frustrated by the entire home-buying process, don’t forget to think about your home search in this way … three buckets that need to be aligned or balanced on a scale. Still feeling stuck?  Ask yourself what you can let go of.  Do you really have to have every single thing on your list in this first home?   And, if you are still running into trouble, ask yourself how long you’ll be living in this first home. That can add some clarity to what you put in each bucket.  For example, it will help define what you really need in this first home in terms of criteria and location, and what can wait for when it’s time to move on up to the next home. Knowing the timeline of how long you want to live in your first home can often help you decide whether or not schools are a factor. That’s a topic that will be covered next week. Stay tuned!     You’ve learned how to put it all together by aligning three very important “buckets.”  Now you can start house hunting for a home that is perfect for you and for your budget. We’re not done yet with this series though. Next up, What YOU Need to Know When Buying for Schools — this is something every buyer should take into account whether they have kids or not!  

The Backwards (But Right!) Way to FInance Your First Home

In this 8-part series, How to Find the Perfect Home for You and Your Budget, you’ll learn how to find a home that is the right fit for your lifestyle, needs and, most importantly, your budget. It takes you through every single step and shows you how to avoid buyer’s remorse.  Your first home is most likely the stepping stone for your next home so you want to do it right and set yourself up financially to move up to your next home. When it comes to getting a mortgage to buy your first home, many buyers decide on the price point of the house they want to buy before talking to a lender.  They’ll say something like — “We are going to buy a home for $500,000” — and then they head out to open houses in that price range. Even though that’s how it seems like it should be done and how many people do it, that’s not at all the way to start your home-buying experience. In fact, if you go about financing your first home this way, you’ll not only have a miserable experience, but it also could cause you to buy the wrong home!  Follow these Four Steps — You’ll be all set and on the right path if you follow the 4 steps below. And keep reading since you don’t want to miss the BONUS section — with even more tips on getting the right mortgage for your budget. FIRST, decide what you want to pay PER MONTH before you talk to the lender. This is the most important decision you’ll make when it comes to buying your first home.  Everything else will fall into place once you make this decision.  Decide this before you talk with any lenders, before you start searching for homes online, and before you start going to open houses. Why? The reason is twofold. Most lenders will approve you for more than you want to spend.  Whatever you are approved to spend on a home is irrelevant.  Most people are approved to buy way more house than they actually want to spend.  This often comes as a surprise, since most people feel like they won’t be approved for enough. But that’s typically not the case; it’s actually the opposite! Most people are approved to spend way more than they want to shell out every month for a home. That’s why you should start the conversation with your lender not by asking them what you are approved to buy, but rather telling them what you feel comfortable paying per month for your new home (inclusive of condo fees, if any, taxes and insurance).  The lender can then work backward to determine the correlating sales price and tell you if you would be approved for that amount. They will need one other piece of information from you in order to provide a price point, which we will discuss when talking about cash for your transaction (see #3 below). If you plan to buy a condo or anything else with a monthly HOA fee, your correlating purchase price will differ since you need to include this amount. For example, the monthly payment for a $500,000 condo with a condo fee of $300 per month is going to be a completely different monthly payment than a house with no HOA fee.  The difference in purchase price may be as much as $50,000 or more—that’s a huge difference in purchase price you need to account for!! Not sure how to determine an affordable monthly payment?  Conservative advice is to spend about 30 percent of your income on housing.  In areas that have high costs of living such as New York, San Francisco and the DC area, that number can creep up to 40 percent and still be okay.  Ask yourself if what you want to spend per month is in that range. If it is, you are A-okay. You should also be looking at your monthly budget so you can compare future home expenses to your current rent expenses. That will help you determine an affordable mortgage payment.  Again, focus on your monthly mortgage payment rather than fixating on one big sales number or price range.  It’s easier to comprehend since most of us budget for monthly expenses already, and will help you take into account any HOA fees, etc.  Decide how much cash you want to spend on the transaction. In addition to what you want to spend per month, you need to know how much cash you want to spend on your purchase.  As we mentioned above, this is the second piece of information your lender needs in order to determine your price point. You most likely will need cash for down payment and closing costs, unless you have been approved for some first-time buyer programs. Decide upfront how much cash you can put towards your home purchase. Will it include a gift from family?  A loan from your 401k?  Some things to keep in mind when you are thinking about how much cash you want to allocate to your home purchase: Start with a dollar figure, not a percentage. You can work in percentages later when you have a sense of your purchase price. You may be able to spend a little less cash to hit one of the points that lenders like to see. For example, if you have around 10% to put down, then putting 12% down won’t change your interest rate or really help anything from a loan standpoint. So you could save that extra 2% for moving expenses since it will do you more good as cash in hand than cash in your home. Closing costs are going to run you between 2.5% and 3% of your home price. Be sure to set aside some of your cash for closing costs, not just for down payment. Your lender can help you with this. Don’t worry so much about putting 20% down.  There is a very traditional mindset that says you must put 20% down in order to avoid mortgage insurance. Although that is accurate, these days there are many great loan programs, especially for first-time home buyers, that ease up on the private mortgage insurance (PMI) payments. Now you’re ready with your two important figures! You are all set to meet with a lender. You should now understand the two things that will help them determine your price range: What you want to pay per month.  How much cash you want to spend on your purchase.  You can always make adjustments later on and see how that will change the price point, but start with some figures you are comfortable with in terms of monthly payment and cash for your purchase. BONUS SECTION – More Information on Getting the Right Mortgage When it comes to adjustments once you receive your price point from your lender, keep these tips in mind: 1. Mortgage “Rules of Thumb” These are additional guidelines that you can use to help determine your mortgage payments. Remember, you still want to have some cash left over and not be wiped clean each month. You can afford 30% more in mortgage versus your current rent without changing your lifestyle. To figure this out, multiply your current rent by 1.33 to arrive at an affordable mortgage payment. For example, if you currently pay $1,500 per month in rent, you should be able to comfortably afford a $2,000 mortgage payment after factoring in the tax benefits of homeownership. Every $10,000 change in your loan amount, whether that’s through increasing or decreasing your price point or increasing or decreasing your down payment will only change your monthly payment by about $50-$80 per month (depending on your purchase price, the lower the price, the lower the change in the monthly payment for every $10,000 change). Yep, that’s all! So, don’t worry as much about saving another year or two for an additional $10,000 to put down if you can swing an extra $50-80 per month instead.  It’s not one-size-fits-all when it comes to mortgages, and working with a lender to go over the options available is important. Make sure you are looking at the entire loan picture — the program, the time period you are going to own the home, and the terms of the loan; and how all of that creates the best financial position for you.  You should think of the loan summary and price points your lender gives you as rough drafts until you find an option that suites your specific finances and situation. The loan your friend gets is not the one you should necessarily get. These days, when it comes to financing your first home, there are SO MANY loan options available that you really need to focus on what’s best for your particular financial situation and goals. Know your credit score since your score will also affect your mortgage interest rate. Your credit score is a major factor for lenders when determining your risk.  That means your score plays a big part in the type of loan you will be offered and its interest rate. The higher your score, the lower your rate. Remember, a credit score has nothing to do with your income or investments. It’s based on how you’ve handled your credit card payments and other loan payments, like your car or student loan.  It also takes into account if you’ve declared bankruptcy, have a tax lien, or you’re being sought by a collection agency. Having a score of 680 and above means you’ll have more options, lower interest rate, less down payment requirements. 620-660 is considered a fair score and lenders may work with you but may require more documentation to determine if they should take a risk and give you a loan. Below 620 is considered a poor score and many lenders will deny your loan application completely. You may have access to only one or two loan options, such as a FHA loan or a subprime adjustable rate mortgage (ARM). If you need to improve your rate, you may need to delay getting your home until it’s higher. 2. See if you qualify for any first-time homebuyer assistance programs. Many programs are for moderate-income buyers and offer down payment assistance and/or cover closing costs. This is “free” money and that means you might use less from your savings than you thought.  3. Try to determine how long you plan to own this home.  Consider your current and future finances and also where you will be in 5 or more years.  There are several loan products that may be better for you than a “go-to” 30-year fixed loan. If you don’t plan on owning for more than 5 or 6 years, you might want to consider an adjustable-rate mortgage (ARM). Today’s versions are much more straight-forward, conservative, and safer for homeowners than the ones in the past.  These loans typically offer a substantially lower interest rate, saving you thousands of dollars while you live there. 4. Carefully consider options if you need to pay points to get a lower interest rate. Your lender may tell you that if you pay one point, your interest rate will be lower than if you pay zero points. And even lower, if you pay 2 points.  A point is equal to 1% of your mortgage amount (or $1,000 for every $100,000).  So points are basically an “upfront payment of interest” at closing for usually 30-year fixed loans. Rather than pay it over the life of your loan, you can pay a large chunk when you get the loan.  As a buyer, you will need to weigh the pros and cons in getting the lower rate and paying for points upfront.  Since interest rates are relitivly high right now, you may not want to pay the points as you might be planning to refinance when and if rates come down soon. You’ll never recoup the costs of your upfront payment over the life of the loan even if lower monthly payments may seem tempting.  However, if you plan to live in your home for many years or interest rates go up, then the benefit of the lower rate will kick in and save you money in the long run.   5. Keep an eye out for hidden fees or additional costs along the way. Don’t be fooled by advertised rates! Behind that rate could be a long list of fees, points, or closing costs. Ask the lender to break down the fees and give you the total amount for closing the loan. Avoid penalties for lock-in extensions. Some lenders will increase your interest rate slightly if you need to lock in your loan for 60 days or more. Make sure you know any requirements before signing any paperwork. It’s another reason to get all of your finances and paperwork in order before you apply for a loan. Review fees for FHA loans. Don’t always assume a FHA loan will be cheaper or better. Not only do you pay an upfront premium for mortgage insurance (1.75% of the loan amount), but you’ll also pay a recurring annual cost of up to 1.35% of the outstanding loan amount (added to the monthly payment) for the life of the loan. Review the pros and cons of these loans carefully. Mortgage disclosure forms have been simplified.  They do a much better job of disclosing a loan’s terms and cost to borrowers. Make sure you carefully review the Loan Estimate, given three business days after application, and the Closing Disclosure, given three business days before closing. You’re off to a great start now that you know the best way to go about financing your first home. Now it’s time to show you how your budget, location, and your criteria for a home  come together as a “roadmap” in your search for the perfect home. Next week’s article, Putting It All Together explains how these three factors are intertwined and will lead you to your new home!