Rockford Realty Group

FAQ

Buying Your Dream Home FAQs

1. Should I rent or buy a home?

If you’ve heard it once, you’ve heard it a million times: Buying a home is the smartest financial decision you can make! The old cliché is absolutely true. In almost every situation, you’ll get more bang for your buck if you buy a home.

Unless your rent is extremely low or you plan to move in less than three years, buying is probably the best choice. Why? First of all, home owners enjoy some valuable tax benefits. Secondly, if you lock in your monthly mortgage with a fixed rate loan, you’ll take comfort knowing that your housing expenses will not skyrocket in the future. Renters rarely have that advantage because their monthly rent could increase at any time. Thirdly, a home is smart investment that could yield a substantial profit when you decide to sell it down the road. That’s because the value of your home will likely increase over time.

Lastly, a home allows you to accumulate wealth and boost your overall net worth. Studies show that there is a gigantic gap between the average net worth of home owners versus that of renters. According to the Federal Reserves’ Survey of Consumer Finances, home owners with an annual income of $50,000 to $79,999 have an average net worth of $194,610. However, renters in that same income bracket have an average net worth of only $25,000. The numbers don’t lie—homeowners are typically wealthier than renters.

2. Why do I need a loan preapproval?

Every home buyer should get preapproved for a loan before they start shopping around for a home. Not only will it assure that you’ll be able to secure a loan when you find your dream home, but it will also give you negotiating leverage. If a seller knows you’ve already been approved for a loan, they’ll be more likely to take your offer seriously. Plus, if you’ve already been preapproved or prequalified for a certain amount, you won’t be tempted to buy a house you can’t realistically afford.

Not only does a preapproval make you more attractive to sellers, but you’ll also save loads of time during the closing process. Because your lender will complete the verification and underwriting steps during the preapproval process, you won’t have to go through those steps again at closing.

3. What’s the difference between the list price, the sales price and the appraisal value of a home?

The list price, or “advertised price,” is the amount the seller is asking for the house. Sellers often ask for more than what they actually hope to get—and sometimes, they ask for less. But for the most part, the list price is pretty close to what the seller wants. If you think the list price seems too high, take a look at comparable sales prices in the community. This will help you reach a fair price.

The sales price is the amount of money a buyer would realistically pay for a property. This price is often affected by market fluctuations and other factors.

On the other hand, the appraisal value is how much the property is worth according to a certified appraiser. An appraiser takes many factors into consideration, including the condition of the property, comparable sales in the area, projections for future value, any extra upgrades or additions the home may offer.

4. How can I make a strong offer on my dream home?

Making an offer on a home can be confusing, stressful and downright terrifying. However, with a knowledgeable real estate agent at your side, it is possible to make a strong offer that fits your budget.

Although you may be tempted to make a low-ball offer, it’s important to be realistic. Do some research, and work with your real estate agent to come up with a reasonable figure. Take a look at recent sale prices of other homes in the area. If local homes are selling very slowly and sitting on the market for months at a time, you should be able to offer less than the listed price. On the other hand, if homes are selling like hotcakes in the neighborhood, you’ll want to make a competitive offer to increase the likelihood that you’ll get the home. In this kind of scenario, you may even find yourself in a bidding war with other potential buyers.

If you’ve been pre-approved for home loan, include that information in the financing terms of your house offer. That way, the seller knows that you are a serious buyer who has the funds to back up a house purchase. This gives you a leg up on other potential buyers who have not have been pre- approved.

You should also include a property inspection clause in your home offer. Let’s say your offer is accepted, but upon inspection you find out that the house is infested with termites or the roof needs major repairs. Who will pay the thousands of dollars for repairs? With this clause in the contract, you will be able to reopen negotiations with the seller if you learn that the house needs work after inspection.

5. Why do I need a home inspection?

You can’t judge a book by its cover. This old saying holds true for houses, too. Even an incredibly beautiful house that appears to be in mint condition could be hiding some serious cracks in the foundation. That’s why before you purchase any home, you should hire a professional home inspector to meticulously examine the property. Buying a home is the biggest purchase most consumers ever face. As with any other major investment, you should know every tiny detail about the product you plan to buy before you sign on the dotted line.

Unfortunately, too many homebuyers think they can simply inspect the property themselves. When they don’t find any obvious issues with the property, they go ahead and purchase the house. A month or so down the road, many of these homeowners discover a major leak in the basement or termites in the attic. At this point, it’s too late. After all, you can’t return the home to the store. That’s why it’s critical to hire a professional home inspector. It takes a trained eye to spot these potential problems—and that’s exactly what a home inspector does.

6. How do I find a trustworthy home inspector?

Unfortunately, most states do not license home inspectors—which means you’ll have to do some homework to find a top-notch inspector. Ask family members, friends, colleagues or your realtor for recommendations.

Before hiring an inspector, you should also ask if they are a member of the American Society of Home Inspectors (ASHI). This national organization enforces a strict code of conduct and specific practice standards. ASHI also tests applicants and requires that all members have a certain amount of experience.

A good home inspector should be intimately familiar about construction practices in the area. They should also know which designs are built to last and which ones may fall apart at any moment. Plus, an inspector can pinpoint seemingly insignificant problems that could cause major headaches down the road.

7. How can I find an experienced real estate agent?

Ask your friends, family member and colleagues if they can recommend an excellent real estate agent. Be sure to ask them if they would work with the agent again. If the answer is yes, then you may have found your ideal realtor. You may also want to call a few highly regarded real estate firms and ask if they can recommend agents who work in the area where you want to buy.

8. Do I have to pay for my buyer agent’s services?

As a buyer, you typically do not have to pay for an agent’s services. Your agent will probably receive a percentage of the proceeds of the house sale. This means that your agent is technically a subagent of the seller.

However in some states, it’s legal for an agent to represent the buyer exclusively in the transaction and still receive a commission from the sellers. You also can hire and pay for a buyer’s broker. A buyer’s broker is an agent who legally and exclusively represents you.

9. How can I prepare financially to buy a home?

Before you dive into house-hunting, you should take a few steps to ensure that you’re financially prepared to buy. Here are three important financial tips for home buyers:

Check your credit score: Your credit score will determine whether or not you get approved for a loan and what kind of interest rate you receive. That’s why you should order a credit report before you start house-hunting. If you notice any errors on your report, be sure to notify the major credit bureaus and ask them to make corrections. If your credit score is low, now is the time to give it a boost. The fastest way to do that is to pay down your credit card debt.

Start saving: Before you start shopping around for a home, try to save up for a sizeable down payment. The goal is put down at least 20 percent so you can avoid paying mortgage insurance. Even if you have to cut way back on your spending or take on a second job, it will be well worth the effort. The higher your down payment is, the lower your house payments will be.

Budget wisely: Before you even start talking with mortgage lenders, you should carefully calculate your home buying budget. Ask yourself these questions: How much can I qualify for on a home loan? How much can I realistically afford to pay? If I were to face a family emergency, would I have enough money to cover it and the mortgage payments? Once you’ve determined your budget, you should shop around for a mortgage to see what various lenders can offer you.

10. Why do I need homeowners insurance?

Because your home is probably the biggest investment you’ll ever make, you’ll want to take measures to safeguard that valuable investment. The best way to protect your home investment is through homeowners insurance.

However, you shouldn’t settle for just any insurance policy. The type and amount of insurance you need depends on your specific home, what’s in it and your personal requirements.

Before you purchase a homeowners insurance policy, read all the fine print so you know exactly what the policy covers. Homeowners insurance generally covers damages to your home and “other structures” on your property, such as a shed, detached garage, gazebo or pool. A standard homeowners policy typically protects against fire, lightning, wind, storms, hail, explosions, riots, aircraft wrecks, vehicle crashes, smoke, vandalism, theft, breaking glass, falling objects, weight of snow or sleet, collapsing buildings, freezing of plumbing fixtures, electrical damage and water damage from plumbing, heating or air conditioning systems.

11. What’s the difference between the “market value” and the “replacement cost” of a home?

While you may be tempted to purchase just enough homeowners insurance to cover the market or resale value of your home, this may not be enough. While the market value may be enough coverage for some homeowners, that’s typically not the case.

Your home’s market value is not the same thing as what’s known as its “replacement cost.” The replacement cost of your home is the amount of money you would need to rebuild your home to its previous condition if a loss were to occur. This amount is different from your home’s market value, purchase price or the outstanding amount of your mortgage loan.

When property values are low, the market value of your home is probably much lower than its replacement value. Therefore, you should not always use the market value to determine how much insurance coverage you need.

Your homeowners insurance company can calculate the replacement cost of your home based on the following:

  • Square footage of your home
  • Type and quality of your home’s construction
  • Any updates, special features or add-ons to your home
  • Quality and cost of materials used in your home

As you shop around for homeowners insurance, ask each insurance company for a policy quote that includes the full replacement cost of your home.

12. Do I need to purchase additional homeowners insurance?

If you have particularly valuable jewelry, artwork or collectibles in your home, you may want to opt for additional homeowners insurance protection. You may assume your valuables are fully covered by your homeowners insurance, but that’s not always the case. It all comes down to what’s called the “sublimit”—this is the limit on the amount the insurance company will pay for specific types of personal property. Although your policy’s total personal property limit may be $75,000, the sublimit for jewelry may be as low as $1,500.

Read through your contract and find your policy’s sublimit for artwork, jewelry and collectibles. If your valuables are worth more than the sublimit, you may want to purchase additional insurance to cover it. You can purchase what’s called a “floater” and have this worked into your homeowners policy. Insurance floaters typically cover one specific item, so if you have multiple valuables, you may need to purchase floaters for each item you want to insure.

Most homeowners policies also include personal liability and medical expense coverage. Generally, your homeowners insurance company will pay up to $100,000 on a legitimate civil claim against you for an injury that occurred on your property. However, this still may not be enough to cover a major lawsuit.

You might consider purchasing a personal umbrella liability policy, which can offer additional protection. This type of policy offers a higher level of liability coverage and ensures that you and your family’s assets will be protected if someone sues you for damages. Umbrella policies typically pay up to a predetermined limit, which is usually $1 million, for liability claims made against you and your family.

13. What is a foreclosure?

When a homeowner is behind on their mortgage payments, the bank will record a notice of default against the property. If the owner still fails to pay, the bank holds a trustee sale, and the property is sold to the highest bidder. The financial institution will usually set the price of the foreclosure at the loan amount.

While homebuyers can score an incredible deal on a foreclosure, buying a foreclosure property can be extremely complicated, risky and frustrating. Typically, you have to buy a foreclosure “as is,” which means there is no warranty on the condition of the property. If you find serious issues with the home, you cannot request repairs from the seller.

14. How much home can I afford?

During the mortgage preapproval process, your lender will contact your bank, your employer, the credit bureaus and other financial institutions to verify your income, assets, debts and credit history. Based on this and other information, they will estimate how much mortgage you can afford. If everything checks out and the lender sees you as a low risk, they will issue you a letter stating that the loan of a certain amount is approved for a specified amount of time.

Generally, lenders don’t want you to spend more than 28 percent of your gross monthly income on a mortgage payment. Lenders will also look at the housing expense-to-income ratio, which is determined by calculating your projected monthly mortgage cost, property taxes, hazard insurance and HOA dues. Your expense-to-income ratio should fall somewhere between 28 and 33 percent. If it’s much higher, you probably cannot afford the house.

15. How much will I have to pay in closing costs?

Closing costs can vary widely depending on a number of factors. These costs can quickly add up and push you way over-budget on your home purchase. That’s why you should find out ahead of time how much you’ll have to pay.

Ask your mortgage lender for a good-faith estimate. Lenders are required to provide one of these closing costs estimates within three days of receiving your mortgage application. However, do not accept a verbal estimate—insist that they send it in writing.

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Selling Your Home FAQs

1. How can I price my home to sell?

In today’s unpredictable real estate market, it can be a challenge to figure out the perfect listing price for your home. However, with the help of an experienced real estate agent, you can make sure the price is right. Take a look at recent sales prices on comparable homes in your neighborhood and ask your real estate agent for frequent updates. If other homes in your neighborhood are selling for much less than your asking price, it’s probably time to lower your listing price.

Whatever you do, don’t start off with a sky-high price just to see what happens. Far too many homeowners make the mistake of starting off with an inflated listing price, assuming they can adjust the price later. This tactic almost always backfires. Generally, homes get the most attention from agents and potential buyers for the first 30 days after they are put on the market. That means you have a 30-day window of opportunity to catch their eye. Don’t waste those four golden weeks testing the waters with an overblown price tag. It’s best to get the price right the first time around.

2. How do I know if my listing price is too high?

If your house has been sitting on the market for a couple of months with zero interest, it may be time to cut your asking price. Let’s say you’ve had a handful of showings since your home has been on the market, but you haven’t gotten any offers. Could it be the purple carpet in the family room or the lime green kitchen countertops? Maybe. But more likely there haven’t been any offers because your price needs to come down. Some experts say if you’ve had 10 showings without an offer, your home is probably overpriced.

However, don’t lower your price in small increments. If you’re going to bring down the asking price, you need to lower it by at least $5,000 to catch the attention of prospective home buyers.

Of course, it’s much more effective to get your asking price right the first time around. If your home has been on the market for many months and you keep lowering your price, buyers may assume there’s something wrong with your house.

3. Why is “curb appeal” so important?

Home selling is all about first impressions—and every buyer’s first impression of your home is their view from the curb. Even if you have a newly renovated kitchen, all-new flooring and updated bathrooms, you’ll never get prospective buyers through the front door if your home doesn’t have curb appeal. If the paint on your front door is chipping, the front porch is sagging and the yard is overgrown with knee-high weeds, buyers will drive right past your house without a second glance.

This is why it’s so important to beautify the outside of your home before you put it on the market. Keep the front yard well-manicured, plant a few flowers and apply a fresh coat of paint to the front door and shudders. Look around at homes that have recently sold in your area, and compare the exterior of your home to theirs. You should also ask your real estate agent for suggestions on how to boost your home’s curb appeal.

4. Where can I find home sales stats for my area?

It’s smart to take a look at recent sales prices on comparable homes in your area. This will help you make sure you set a realistic listing price for your home. To find housing statistics for the entire nation, visit www.census.gov. To search recent home sale prices in your immediate area, visit domania.com.

However, if you want the most up-to-date, accurate information about home sales in your area, you should contact your statewide association of Realtors or talk to an experienced real estate agent. Licensed realtors can gain access to these statistics much sooner than the general public. Your real estate agent can tell you how much a home sold for almost immediately after it sells.

5. How can I get my home ready to sell?

If you’re about to put your house on the market, you’ll want to make sure it’s in tip-top shape. Homes that are clean, orderly and well-maintained are more likely to sell quickly than those that are messy, unorganized or in disrepair. Here are a few steps you should take to ensure your home in pristine selling condition:

Take care of all the major repairs that buyers could easily notice. For example, if you have a broken window, a damaged roof or leaky faucet, fix it before you put the house on the market.

  • Amp up your home’s curb appeal. Clean your mailbox, paint your front door, pull the weeds, mow the lawn, spread new mulch in your islands and plant some flowers. A beautiful exterior creates a great first impression for potential buyers.
  • Clean all your windows and keep your blinds and curtains open to let in plenty of sunlight.
  • Clean your entire house from top to bottom, including furniture, walls, ceilings and floors. You may even considering hiring a professional to clean your carpets. It’s especially important to scrub your kitchen and bathrooms, as buyers often pay the most attention to these areas.
  • Make sure all of your lights, kitchen and laundry appliances are in working order.
  • Get rid of bad smells. Nothing will turn a buyer away more quickly than a smelly home. Put the litter box away and use plenty of air freshener around the house. You may even want to bake a batch of chocolate chip cookies before each open house or showing. Nothing is more welcoming than a home filled with smell of fresh-baked cookies.
  • Clean out and organize all of your closets and cabinets. Homebuyers will often peek in every closet, cabinet and pantry, so make sure everything is clean and orderly.

6. Do I need to take care of every single repair before I put my home on the market?

If you want to sell quickly and make the most money possible on your home, you should take care of all the minor repairs and most of the major repairs before you put your property on the market. The majority of buyers include an inspection clause in their purchase contract. That means if an inspector finds problems with your home, the buyer can back out of the contract or request that you repair the defects. If you are trying to sell in a buyer’s market, you should probably make as many repairs as possible. This will increase your chances of selling quickly for top dollar.

7. How can I find a great listing agent?

Your friends, family members and colleagues may be able to recommend an excellent real estate agent. Ask them if they would work with the agent again. If the answer is yes, then you may have found your ideal realtor. You may also want to call a few highly regarded real estate firms and ask if they can recommend agents who work in your area.

As a seller, you should interview at least three different agents before you make your final decision. Each agent should give you a comparative market analysis of home prices in your local area and tell you how he or she works with clients. Ask each agent how much you should ask for your home, and find out what kind of marketing he or she plans to do to promote your property.

After you have interviewed all three agents, choose the pro that seems like the best fit for you. Remember, the agent who wants to list your home for the highest price is not always the best choice. Choose an agent who is realistic, honest , hard-working and straightforward

8. Once my house is on the market, how can I keep it show-ready?

When your house is on the market, you should be ready to give potential buyers access to your home at a moment’s notice. Your real estate agent should try to give you as much advance notice as possible, but sometimes this is simply not possible. You may still have some spontaneous house showings because buyers may be in the neighborhood looking at other homes.

Try to keep your house clean, smelling fresh and tidy at all times. While buyers can’t expect to show up on your doorstep and walk in without any warning, you should never turn anyone away at the door. After all, you could essentially be turning away an offer. So, if realtor and potential buyer calls or shows up for a last-minute showing, just ask them politely to give you a few minutes to straighten up.

9. Why should I work with a real estate agent to sell my house?

There are many benefits to working with an agent instead of trying to sell your house on your own. Here are just a few advantages realtors have to offer:

  • Agents are educated and experienced. The real estate business can be complicated and frustrating. If you’re working with a pro, you won’t have to know all the ins and outs of the real estate business.
  • They act as a buffer. If you try to sell by owner, you’ll have to deal with all the phone calls and emails from potential buyers first-hand. However, if you work with an agent, he or she can filter out the casual home-shoppers and make sure that only serious buyers are coming to look at your property. This will save you loads of time and headaches.
  • Agents have insider info. A real estate pro can gain access to the most recent home sales stats in your neighborhood and give you insider information on competing homes in your area.
  • They are master negotiators. Because real estate pros are skilled at the art of negotiation, they will be able to negotiate the best price for your home.
  • Agents are not emotionally connected to your home. It’s often difficult for a home owner to sell their own home because their emotions get in the way. A real estate agent can offer you and objective, educated opinion about your house listing and ensure that you make the smartest decisions.
  • They handle all the paperwork. A purchase agreement can be 10 pages or longer, and that does not include the disclosures. One tiny mistake could cost you thousands of dollars or even land you in court. A real estate agent can handle all of this confusing paperwork for you, and they’ll make sure all the information is absolutely accurate

10. If I receive multiple offers, do I have to disclose the terms of other offers?

No. If you receive multiple offers on your home, you are not legally obligated to disclose the terms of other offers to another prospective buyer.

11. If my neighbor’s home is looking shabby, will this decrease the value of my home?

Although a neglectful neighbor may not decrease the actual value of your home, it can definitely have an impact on a buyer’s impression of your home. If your next door neighbor has a broken down car on blocks in the driveway, a yard full of knee-high weeds or a noisy home-based business, this can greatly decrease your chances of selling your home.

Fortunately, there are a few things you can do about a lax neighbor. First of all, most local laws require that “junk vehicles” either remain enclosed in a garage or stored behind a fence, out of view. Most cities also prohibit any car from being parked in the same place on a city street for certain length of time. If your neighbor runs a repair shop or another business that produces loud noises, he may be breaking noise-control ordinances.

Do your research on local laws and ordinances to find out if your neighbor is breaking any of them. If so, give your neighbor a copy of the relevant ordinances or laws, and ask politely if he can correct the problem. It that still doesn’t work, you may need to contact your local police department.

12. What is a Comparative Market Analysis?

A comparative market analysis (CMA) is a report that tells you how much your home is probably worth. As a seller, you can use the information from a CMA to figure out the most appropriate listing price for your home.

A real estate agent can offer you a free CMA before you put your home on the market. These reports are generally about 50 pages long and generally includes the following:

  • Active listings: These are the homes that are currently for sale in your area.
  • Pending listings: These are formerly active listings that are under contract but have not yet closed.
  • Sold listings: This includes homes that have closed within the past six months in your area. The sold listings are very important because they will help you determine your market value, which will in turn help you figure out the best listing price. These are the comparable sales that an appraiser would use when appraising your home.
  • Off-Market, Withdrawn or Canceled listings: These are properties that were taken off the market for one reason or another. Generally, sellers take their homes off the market because the asking price was too high. These listings may give you an idea of how much is too much to ask for your home.
  • Expired listings: These are the listings that did not sell within a certain amount of time (generally 90 days), so they ultimately expired. These listings generally represent overpriced homes, as well.

13. What is the best way to measure my home against comparable sales in the area?

Comparable sales are homes that most closely resemble your home. For example, if you own a single- story home, you shouldn’t compare your property to a three-story home. When your real estate agent provides a comparative market analysis (CMA), you should select the homes from the list that are the most similar to your home in size, age, location and condition, including:

  • Square footage: Look at the homes that are closest in square footage to your home. Appraisers compare homes based on square footage, and so should you.
  • Age of construction: Compare your house with other homes that were built within the same few years. For example, if your house was built in 1995, you should compare your home with to those built between 1990 and 1999. For the most part, newer homes sell for more.
  • Similar upgrades: If you own a completely remodeled home with a pool, you should compare your property to homes with similar features. However, if you own a fixer-upper, you should not compare your property to recently updated homes.
  • Bedrooms and bathrooms: If you own a 3-bedroom, 2-bathroom house, compare your home to other 3/2 homes. A home with one bathroom is worth less than a home with two or more bathrooms.
  • Location: Try to compare your house with homes in the same general area or location. For example, a water-front home is worth much more than a home that sits on railroad tracks.

14. What should I do with my pet while my house on the market?

Homebuyers typically do not like to see cats and dogs running around a home they’re viewing. Some are afraid of animals while others assume a home filled with pets isn’t clean. Therefore, you should remove your pets from your home during each house showing or open house. Take Fluffy and Fido for a ride in the car. If that’s not possible because you work outside of the home, consider sending your dog to Doggie Daycare during the day or boarding your pets temporarily. You could also ask a friend or family member if your pet can live with them until you sell your home.

15. How can I get my home ready for inspection?

The majority of buyers include an inspection clause in their purchase contract. That means that shortly after your home is under contract, a home inspector will be coming your way. Here are a few ways to prepare your home for inspection:

  • Clean up. Although it may seem silly, a clean home is usually perceived as a well-maintained home.
  • Be on time. The home inspector will almost definitely arrive on time and maybe a little early. Try to have your house ready at least 30 minutes before the appointment time.
  • Leave your utilities connected. Even if you’ve already moved out of the house, you should leave all the utilities so the inspector can check the stove, dishwasher, A/C, etc.
  • Leave keys and remotes. If you have a remote control for your garage or keys to electrical boxes, be sure to leave these behind for the inspector.
  • Clear out spaces around the water heaters and furnaces. Remove boxes and other clutter from around the furnace, air conditioner and water heaters. The inspector will need at least three to four feet of working space to examine these items.
  • Prepare to be out of the house for at least three hours. As the seller, you should not be present for the inspection. The buyers will want to ask the inspectors questions they may not feel comfortable asking in your presence. Make plans to be out of the house for at least three hours, and take your children and pets with you. If you cannot take your pets, be sure to crate them so they don’t get in the inspector’s way.

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Home Mortgage and Financing FAQs

1. What is the first step I should take in the home loan process?

When you’re searching for a home loan, the first thing you should do is get prequalified or preapproved. This will ensure that you’ll be able to secure a loan when you find the home you want to buy. Plus, you’ll have a better idea of how much house you can afford.

Not only does a preapproval make you more attractive to sellers, but you’ll also save loads of time during the closing process. Because your lender will complete the verification and underwriting steps during the preapproval process, you won’t have to go through those steps again at closing.

2. How do I find the best lender?

Take time to shop around and find the best possible interest rate and loan terms. You should talk to a minimum of three different lenders before you make your final decision. Ask your realtor, friends and family members if they can recommend a good lender. Whatever you do, do not settle for the first company that offers you a loan. Find a trustworthy, reliable lender that is the best fit for you.

3. How much will I have to pay in closing costs?

There are countless fees and closing costs associated with mortgage loans. These fees can add up quickly and easily push you over budget. Make sure your lender provides you with a Good Faith Estimate, and take time to read all the fine print. Ask plenty of questions about any fees you don’t understand or consult an attorney for further explanation.

4. How can I lock-in an interest rate on my home loan?

If you expect interest rates to rise in the near future, you should ask your lender for a mortgage rate lock-in when you apply for the loan. This ensures that the rate the lender offers you will stay the same for certain period of time (usually 30 to 60 days.) That way, if you buy a home within the next month or two, you’ll be guaranteed the same mortgage rates that are available today. Once you lock in your rate, ask your lender for a contract or statement including your interest rate and the amount of time the rate will stay the same.

5. What’s the difference between a fixed-rate mortgage and an adjustable rate mortgage (ARM)?

A fixed-rate mortgage has an interest rate that locked in throughout the life of the loan (usually 15 to 30 years.) On the other hand, an adjustable rate mortgage (or ARM) has interest rates that vary over the life of the loan. With an ARM, your interest rates can change every six to 12 months or even monthly. Typically, an ARM’s interest rates are tied to an economic index, such as the national mortgage rate. When rates are high, your rate will increase. When rates are low, your rate will drop.

If mortgage rates are extremely low when you’re buying a home, you should probably choose a fixed rate loan. That way, your rate will be locked in at this low level for the life of your loan. On the other hand, if interest rates are very high and you think they will decrease soon, you may consider an ARM. However, this is an extremely complicated decision, so you may want to discuss your options with your real estate agent or a financial advisor.

6. Should I choose a 15 or 30-year home loan?

It really depends on your unique situation. The difference in payments on a 15-year fixed-rate loan and a 30-year fixed-rate loan will depend on your loan amount and interest rate. For example, if you have a $100,000 loan at a 7.25% interest rate, your monthly payments for a 15-year loan would come out to $912.86 vs. a monthly payment of $682.18 for a 30-year loan.

However, you could save a bundle in the long run with 15-year-loan. Because the period of amortization is half that of a 30-year loan, you will pay significantly less interest over the life of a 15- year loan. On the other hand, if your income status were to change, you may have a hard time paying the higher monthly mortgage of a 15-year loan.

Of course, there are many other factors to consider as you decide whether a 15 or 30-year loan is the best option for you. Talk to a financial professional to discuss the pros and cons of each.

7. What is PMI?

You are required to pay Private Mortgage Insurance (PMI) if your down payment on a home is less than 20 percent of the total purchase price. PMI is a type of insurance that protects the lender against the risk of your default—which is what happens if you can no longer make your monthly mortgage payments.

Although the cost of PMI varies depending on your mortgage company, premiums typically run about 0.5 percent of the loan amount for the first year of the loan. PMI premiums usually decrease after the first year.

In most cases, you can stop paying PMI when your equity reaches 20 percent (and your loan-to-value ratio falls below 80 percent). If your loan closed after July 29, 1999, the Homeowners Protection Act requires that PMI be dropped when your loan-to-value ratio reaches 78 percent of the home’s original value. You may also be able to stop paying PMI if you improve your property and refinance at a loan- to-value ratio of 80 percent or less.

8. How much should I save up for a down payment on my home?

This really depends on your unique situation. Most real estate experts say that you should put down as much as possible—and at least 20 percent of the purchase price of the home to avoid paying PMI. The larger your down payment is, the lower your monthly payment will be. Plus, when you make a healthy down payment, you greatly reduce the amount of debt you’ll have to finance through the loan.

On the other hand, some experts say you should put down as little as possible so you can take full advantage of home owner tax benefits. Because mortgage interest and property taxes are fully tax deductible from state and federal income taxes, the more you pay each month, the more you’ll save on taxes. Not to mention that if you drain your personal savings for the down payment on your home, you’ll have no cash reserves left for emergencies or home improvements.

If you are not sure how much to save for a down payment, discuss your options with a financial advisor.

9. Can I get a home loan with no down payment?

Yes, you can get a home loan with zero down payment, but some real estate experts say this may not be the smartest choice. First of all, it can be extremely difficult to find a legitimate lender who offers no down payment loans. Secondly, you may run the risk of getting caught up in a mortgage scam.

However, some builders will offer zero down payment loans in hopes of selling new homes in a slow- moving community. Also, if a seller is desperate to sell their home, they may offer to finance the full purchase price so you don’t have to put any money down.

Additionally, the Department of Veterans Affairs (VA) offers a loan program that allows buyers who are veterans to receive a legitimate no down payment loan. Through this valuable loan program, veterans can get a no-down loan and still avoid paying PMI.

10. Who qualifies for a VA loan?

Millions of veterans and military personnel are qualified to receive a Department of Veterans Affairs home loan. There are several different eligibility requirements you must meet to qualify for a VA Loan. You may qualify if you fall into one of the following categories:

  • Active-duty Veterans honorably discharged during WWII or later
  • Active-duty Veterans with at least 90 consecutive days of service during a major conflict
  • Peacetime Veterans and active-duty personnel with at least 180 days of consecutive service
  • Enlisted Veterans whose service began after 1980, or officers whose service began after 1981, and who have served at least 2 years
  • National Guard and selected Reserve members

If you want to apply for a VA loan, you’ll first have to complete a Certificate of Eligibility. If you are not sure whether or not you qualify, talk to a mortgage broker or a VA Loan Specialist. You can also call the U.S. Department of Veterans Affairs directly at (800) 827-1000 or visit homeloans.va.gov

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Real Estate As An Investment FAQs

1. Is buying a vacation home a good investment?

Not only is owning a vacation home enjoyable, but it can also be a great investment. When you’re not staying in the home, you may be able rent it out to vacationers for a significant profit.

There are also tax advantages to owning a second a home. Both interest and property taxes on a second home are tax deductible. However, you must stay in your vacation home for a certain number of days for the IRS to consider it a second home. If you use your second home as a vacation rental and a second home, you’ll have to spend at least 14 days a year in the home or 10 percent of the time it was rented—whichever length is greater. If you do not spend any time in your vacation home for a year, the IRS will consider it a rental property if you rent it or an investment property if you leave it empty. In that case, it will not qualify as a second home for the purpose of the home mortgage interest deduction.

Additionally, some people buy vacation homes in hopes of making it their permanent residence after they retire. This could be a wise investment considering that a waterfront home that costs $500,000 today could run upwards of $2 million 10 to 15 years from now.

Of course, owning two homes can also be extremely expensive, considering that you have to make two monthly mortgage payments, pay two sets of property taxes and cover utilities and maintenance costs for both homes. Therefore, it’s important to do your homework and ensure that a vacation home fits into your overall budget.

2. Is a condo a good real estate investment?

In recent years, condominiums have often proven to be just as profitable of an investment as single- family homes. In some parts of the nation, condos can even be more profitable than single-family homes. Some experts say the nation’s changing demographics, including increasing numbers of empty nesters and first-time property buyers in high-priced markets, have caused condos to skyrocket in popularity.

However, single family homes are still the preferred investment for many home buyers. While condos can be a great investment and good way to build equity, you have to remember that you are purchasing a property that is part of a building you do not own. While you are responsible for maintenance and repairs on the inside of your condo, the maintenance and repairs for the outside of the building and surrounding grounds are handled by the governing association. That means, when it comes to the overall appearance and value of the condo, you are often at the mercy of the association. Plus, condominium associations often charge sky-high monthly fees, running as much as $150 a month or more.

However, every town is different, so it’s important to do research on the specific market where you plan to buy.

3. Should I buy a one-bedroom condo as an investment?

It depends on your specific market. If you are buying in an expensive market with many single home buyers, such as Manhattan or San Francisco, a one-bedroom condos could be a great investment. However in most markets, a condo with two or more bedrooms is a much smarter investment. Talk to a real estate professional to find out what sells in your specific area.

4. How much rent should I charge?

If you are renting out a property for the first time, it can be challenging to figure out how much to charge for rent. It’s important to do your homework and find out what other renters in your area are charging for comparable homes.

When you apply for a loan to buy a rental income property, your lender will require you to have an area rent survey completed by a certified appraiser. The appraiser will consider factors like what the property has rented for in the past, the condition of the building, the location and the current housing market. The resulting rent survey will help you determine how much rent you should charge.

5. What is a lease option?

A lease option is a contract a renter signs that gives him or her the option to purchase the rental property within a specified amount of time. With most lease options, a portion of the rent is applied to the future down payment on the property. These contracts are extremely popular with buyers who do not have enough money saved up for a down payment and closing costs.

Lease options offer many advantages for sellers, especially in a slow real estate market. First of all, lease options typically include a higher monthly rent. Additionally, they offer top-market value for the property and tax-free use until the lease option expires or the renter purchases the property.

If you are considering setting up a lease option, talk to a real estate professional or a real estate attorney. There are also many books and articles dedicated to the topic of lease options.

6. How do I know if a real estate investment program is a scam?

You’ve probably seen countless real estate investment ads that make lofty promises of quick and easy riches for any investor. However, there’s really no such thing as a get-rich-quick real estate investment. Investing in real estate takes a great deal of skill, know-how and hard work.

So, if you see an ad for a get-rich-quick real estate investment, it’s probably a scam. Many of these programs want you to give them money up front—which is usually a bad sign. Others simply offer advice on how to buy government foreclosure properties. However, you can find most of this information for free by doing online research or calling government offices directly.

In other words, if a real estate investment sounds too good to be true, it probably is.

7. How can I find a good fixer-upper or distressed property?

Depending on where they are located, distressed properties or fixer-uppers are often great real estate investments. You can find these kind of properties in almost any community, including wealthier neighborhoods.

The key is to find a home in a desirable area that does not require a ton of work. Ideally, you should try to find what’s known as a “cosmetic fixer-upper.” This is a fixer that needs just a little cosmetic work, such as new paint, flooring, fixtures, appliances and landscaping—as opposed to major structural repairs.

If you’re looking to buy a distressed property or fixer, find out what area homes are worth and how much they typically sell for in the current market. Do some careful calculations to figure out if a home is worth the time and money it will take to fix it up and put in the market. If it looks like you’ll lose money in the end, it’s time to look elsewhere.

8. What does it take to successfully flip a house?

Before you dive into the house-flipping business, you need to do a lot of research and some serious soul-searching. Some people just aren’t meant to be house-flippers. Here are a few questions you should ask yourself:

  • Do I have the time to dedicate to a house-flipping project? (Many people have to quit their day job to flip houses because it’s so time-intensive.)
  • Do I have the money to purchase a home and invest in expensive renovations?
  • If I lose money in the deal, will I be able to bounce back or would it spell financial ruin for me?

If you decide the house-flipping business is for you, the first step is purchasing the ideal property. Find out what the market is like in the area, including the average home price and how long houses typically stay on the market. If homes aren’t selling at all in the area, you should probably look elsewhere. Work with a professional realtor who specializes in the area and get his or her opinion about the property and your planned renovations.

Before you even buy a house, make a detailed list of what improvements would need to be made. Then, obtain specific estimates on how much the work will cost. When it comes to flipping houses, it’s always wise to cushion your estimates. Most house flippers end up going over budget, so leave plenty of room for surprises and setbacks.

As you calculate your budget, factor in mortgage payments, property taxes and utility bills. Remember, the longer it takes you to renovate and sell the house, the longer you’ll be stuck paying the mortgage.

Once you purchase a home, you’ll have many long days of hard work ahead of you. As you make renovation decisions, remember to give the home a look that has mass appeal. Curb appeal, interior design and home staging strategies can make all the difference in the world. If your property offers features that other homes in the area don’t (such as granite countertops and stainless steel kitchen appliances), you’ll be more likely sell the home quickly.

9. Is a foreclosure home a good investment?

A foreclosure is a home that has been repossessed by the lender because the owners could no longer afford to pay the mortgage. Thousands of homes end up in foreclosure each year, and these properties can be a good investment—if you know what you’re doing. There are countless foreclosure pros out there who know exactly what they’re doing. So, if you’re a newbie to the foreclosure world, you may find that the competition is fierce.

There are many risks involved with buying a foreclosure, so it’s important to do your homework before you buy one. If you have never bought a foreclosure before, you should hire a realtor or another expert who specializes in foreclosed properties to guide you through the process.

10. How can I determine the value of a foreclosure property?

Typically, you have to buy a foreclosure “as is,” which means there is no warranty on the condition of the property. If you find serious issues with the home, you cannot request repairs from the seller. That’s why it’s important to determine the value of the home before you buy it.

You can do this by asking the lender to provide as much information as possible, including the range of bids he or she expects to receive on the home. You should also take a close look at the property, if possible. If you cannot get onto the property to examine it, ask nearby neighbors if they can tell you about the condition of the home.

You should also some research on comparable properties in the area. You realtor can help you find this information.

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Home Ownership FAQs

1. When should I refinance my home?

If interest rates have recently dropped dramatically or if you currently have an adjustable mortgage, you may want to consider refinancing. When you refinance, you are basically starting from scratch and applying for a new loan. Whether you choose to refinance with your current lender or work with a new lender, your new home loan will pay off the old home loan, and you’ll make payments according to the terms of the new loan. That means you’ll have to pay some closing costs, which can sometimes be very expensive.

Here are a few scenarios when it might make sense for you to refinance:

  • You can get a significantly lower interest rate.
  • A new loan will lower your monthly payment.
  • You can shorten the term of the mortgage, which will allow you to build equity faster.
  • You have an opportunity to switch from an adjustable rate to a fixed-rate mortgage.

What it comes down to is this: if refinancing will save you money in the long run (even if you just secured a new mortgage), you should strongly consider it.

2. Which upgrades will add the most value to my home?

Research shows that you’ll get the most bang for your buck with the following home improvements:

  • Kitchen renovations
  • Bathroom remodeling
  • Home-office additions
  • New upscale siding
  • Wooden deck additions
  • Finishing a basement

3. Which upgrades will not add value to my home?

Experts say these upgrades aren’t worth the hassle:

Excessive improvements: You should never make extreme upgrades that greatly exceed competing properties in your neighborhood. While you want your house to be appealing and stand out from other houses on the market, don’t overdo it. You shouldn’t outshine your neighbors so much that your home seems out of place. Find out how other homes in your neighborhood are designed, and make improvements based on your specific marketplace.

Swimming pools While many homeowners believe a swimming pool will add value to their home, this is simply not the case. First of all, it usually costs a small fortune to install an in-ground swimming pool. Secondly, you’re probably not going to recoup your investment because many homebuyers view an in-ground swimming pool as a high-maintenance hassle. However, if you live in a place where it’s warm almost year-round, such as Florida or California, an in-ground swimming pool may be viewed as a plus. But if you live anywhere else, you’re better off without it.

Converting a garage Before you consider converting your garage into an office or extra bedroom, take a look around. If every other home in your neighborhood has a two-car garage, you probably shouldn’t get rid of yours. Many homebuyers would rather have a sheltered place to park their car than an extra bedroom.

4. How can I avoid foreclosure?

When it comes to your credit history, foreclosure is one of the most damaging offenses. That’s why you should avoid foreclosure at all costs. First and foremost, you should always pay your monthly mortgage payment in-full and on-time. Lenders usually initiate foreclosure proceedings once you have missed three payments. If you fail to pay three payments in a row, you’ll probably receive a letter from your lender saying that you are in default. At this point, your lender can request a trustee’s sale of your home or a judicial foreclosure, which means your home will be sold at a public auction.

To prevent this from happening, you should pay the overdue amount as well as the next mortgage payment as soon as possible. Be sure to submit this payment at least a few days before your property is scheduled to sale.

If you do not pay the overdue amount on time and your home sells, the new owner may be able to move in immediately. If you refuse to leave your home, you could be evicted by the police.

5. What tax benefits are available to home owners?

Home owners can benefit from a number of valuable tax advantages. First and foremost, you will receive the mortgage interest deduction. As part of this deduction, you can deduct interest paid on your mortgage loan up to $1 million. This includes loans to buy, build or improve your primary residence as well as a second home.

Additionally, in the year you purchase your home, you can deduct any points you pay on a new mortgage loan for your home purchase or improvements. You can also deduct property taxes, including those levied by state and local governments and school districts.

If you relocate for a new job that’s at least 50 miles away, you may also be able to deduct some of your moving expenses.

Talk to a financial advisor or tax expert to find out which tax deductions you might be eligible for.

6. Should I try to pay off my mortgage?

If you have a fixed-rate mortgage with a low interest rate, most financial experts say it’s better not to pay off your mortgage. First of all, your fixed monthly payment will become an increasingly better deal as the years pass and inflation increases. You’ll also benefit from deducting mortgage interest on your income taxes.

When you prepay your mortgage, you’re basically investing in your house. As an investment, your house earns a meager 4% or so a year, it’s extremely non-liquid and the transaction costs to sell it are phenomenally high. In other words, your house is a poor investment.

Plus, when you put all of your extra money into paying off your mortgage, you may have nothing left to contribute to other investments. Because financial experts say it’s important to have a diversified portfolio, this goes against the basics of smart financial planning.

In the long run, paying off your mortgage isn’t going to add to your wealth—and it can actually subtract from your potential wealth because you could be putting that money into more valuable investments.

7. Do I need condo insurance?

Although your condominium association probably offers a “master” insurance policy that covers the building and commonly owned property, this insurance does not protect your particular condo or your belongings. That means if a burglar breaks into your condo, a fire causes smoke damage to interior walls of your unit or a visitor falls and hurts himself inside your home, you will not be covered by your condominium’s general insurance policy. This is exactly why you need your own condo owner’s policy.

The type of coverage you need greatly depends on your unique situation. However, you’ll definitely want to protect yourself against theft, damage and personal liability incidents. Depending on where you live, you may also need flood insurance or other special coverage. A professional insurance agent can help you figure out exactly what kind of coverage you need.

8. Do I need flood insurance for my home?

The average homeowners insurance policy does not cover flood damage. You have to buy a separate flood insurance policy to cover this risk.

According to FEMA, every property owner needs flood insurance. The government only provides Federal disaster assistance if the area where the flood occurs is officially deemed a disaster area. Plus, even when the government does provide financial assistance to families in a disaster area, it’s not a payout—it’s a loan that must be paid back, interest included.

The price tag on flood insurance varies, ranging from $223 to $3,000 a year. The price you pay depends on where you live, the size and condition of your home and what type of coverage you want.

Through the Federal program, $250,000 is the maximum amount of money you can receive to rebuild the structure of your home. However, private flood insurance companies can cover far beyond that amount.

However, flood insurance is only available in communities where “the appropriate public body has adopted adequate floodplain management regulations for its flood-prone areas.” So, before you start shopping around for flood insurance, you should makes sure your community is covered.

9. How can I find a trustworthy contractor to work on my home renovations?

If you’re planning on hiring a contractor to work on your home renovations, don’t just hire the first company you find in the phone book. Ask your friends, family members and real estate agent for recommendations. Before you hire anyone, call your state’s licensing board for contractors. Ask them if the contractor in question has any complaints against him. You should also check with your local Better Business Bureau office.

You’ll also want to make sure the contractor has general liability insurance as well as workers’ compensation for each of their employees. Ask the contractor to show you a certificate of insurance to make sure they are covered.

While you may be tempted to hire a cheaper contractor who doesn’t have insurance, remember that you’re taking a huge risk by doing so. If something goes awry during the project, you could be stuck with a hefty bill. On the other hand, when you hire an insured contractor, you will not be held liable if a worker is injured during the project. Plus, you’ll be covered if the contractor causes any damage to your home during the project.

10. Do I need building permits for my renovation project?

Depending on where you live, you may need to obtain building permits before you begin your home renovations. Typically, permits are required if you are altering the structure of your home, such as adding on a room or a deck. Contact your city or county government offices to find out whether or not your home improvement project requires a building permit.

If a building permit is necessary, you or your contractor will need to apply for the permit and adhere to the specified building codes. Once the job has been completed, a building inspector will come by to check out the renovations and ensure that everything is up to code.

It’s extremely important to obtain the proper permits when necessary. If you add a room to your home and it does not meet your local government’s building codes, your insurer may not cover the extra room.

 

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