Monday, November 29, 2010

Buying Your First Home

Buying Your First Home

Finding the right first home starts with a price range and a short list of desirable neighborhoods. But there are many other factors you'll need to consider before investing in what may be your biggest asset.

Before You Start
  • Grab your current household budget so you can consider your financial situation and your ability to make mortgage payments.

  • Ask family and friends if they can recommend experts, like a lawyer and an inspector, who can help with the home buying process.

  • Think about your lifestyle and how it might affect your choice of home and neighborhood.

  • Do a little research on current home prices in the neighborhoods you plan to target.

Buying Your First Home

Home ownership is the cornerstone of the American Dream. But before you start looking, there are a number of things you need to consider. First, you should determine what your needs are and whether owning your own home will meet those needs. Do you picture yourself mowing the lawn on Saturday, or leaving your urban condo for the beach? The best advice is to look at buying a home as a lifestyle investment, and only secondly as a financial investment.

Even if housing prices don't continue to increase at the torrid pace seen in recent years in many areas, buying a home can be a good financial investment. Making mortgage payments forces you to save, and after 15 to 30 years you will own a substantial asset that can be converted into cash to help fund retirement or a child's education. There are also tax benefits.

Like many other investments, however, real estate prices can fluctuate considerably. If you aren't ready to settle down in one spot for a few years, you probably should defer buying a home until you are. If you are ready to take the plunge, you'll need to determine how much you can spend and where you want to live.

How Much Mortgage Can You Afford?

Many mortgages today are being resold in the secondary markets. The Federal National Mortgage Association (Fannie Mae) is a government-sponsored organization that purchases mortgages from lenders and sells them to investors. Mortgages that conform to Fannie Mae's standards may carry lower interest rates or smaller down payments. To qualify, the mortgage borrower needs to meet two ratio requirements that are industry standards.

The housing expense ratio compares basic monthly housing costs to the buyer's gross (before taxes and other deductions) monthly income. Basic costs include monthly mortgage, insurance, and property taxes. Income includes any steady cash flow, including salary, self-employment income, pensions, child support, or alimony payments. For a conventional loan, your monthly housing cost should not exceed 28% of your monthly gross income.

The total obligations to income ratio is the percentage of all income required to service your total monthly payments. Monthly payments on student loans, installment loans, and credit card balances older than 10 months are added to basic housing costs and then divided by gross income. Your total monthly debt payments, including basic housing costs, should not exceed 36%.

Many home buyers choose to arrange financing before shopping for a home and most lenders will "prequalify" you for a certain amount. Prequalification helps you focus on homes you can afford. It also makes you a more attractive buyer and can help you negotiate a lower purchase price. Nothing is more disheartening for buyers or sellers than a deal that falls through due to a lack of financing.

In addition to qualifying for a mortgage, you will probably need a down payment. The 28% to 36% debt ratios assume a 10% down payment. In practice, down payment requirements vary from more than 20% to as low as 0% for some Veterans Administration (VA) loans. Down payments greater than 20% generally buy a better rate. Lowering the down payment increases leverage (the opportunity to make a profit using borrowed money) but also increases monthly payments.

How Much Home Can You Afford?

Bob and Janet's combined income is $50,000 a year, or $4,166 a month. Their housing expense ratio of 28% yields a monthly maximum of $1,166 for mortgage, insurance, and taxes ($4,166 x 0.28 = $1,166).

Their total debt ceiling of 36% is $1,583 (4,166 x 0.36 = $1,500). Their monthly debt payments include a $200 car payment, credit card payments of $100, and student loan payments of $200. Subtracting this total of $500 from the $1,500 permitted leaves $1,000 in monthly housing payments.

Costs of Buying a Home

Many home buyers are surprised (shocked might be a better word) to find that a down payment is not the only cash requirement. A home inspection can cost $200 or more. Closing costs may include loan origination fees, up-front "points" (prepaid interest), application fees, appraisal fee, survey, title search and title insurance, first month's homeowners insurance, recording fees and attorney's fees. In many locales, transfer taxes are assessed. Finally, adjustments for heating oil or property taxes already paid by the sellers will be included in your final costs. All this will probably add up to be between 3% and 8% of your purchase price.

Ongoing Costs

In addition to mortgage payments, there are other costs associated with home ownership. Utilities, heat, property taxes, repairs, insurance, services such as trash or snow removal, landscaping, assessments, and replacement of appliances are the major costs incurred. Make sure you understand how much you are willing and able to spend on such items.

Condominiums may not have the same costs as a house, but they do have association fees. Older homes are often less expensive to buy, but repairs may be greater than those in a newer home. When looking for a home, be sure to check the actual expenses of the previous owners, or expenses for a comparable home in the neighborhood.

Choosing a Neighborhood

Before you start looking at homes, look at neighborhoods. Schools and other services play a large part in making a neighborhood attractive. Even if you don't have children, your future buyer may. Crime rates, taxes, transportation, and town services are other things to look at. Finally, learn the local zoning laws. A new pizza shop next door might alter your property's future value. On the other hand, you may want to run a business out of your home.

Look for a neighborhood where prices are increasing. As the prices of the better homes increase, values of the lesser homes may rise as well. If you find a less expensive home in a good neighborhood, make sure you factor in the cost of repairs or upgrades that such a house may need.

Finding a Broker

If you are a first-time home buyer, you will probably want to work with a broker. Brokers know the market and can be a valuable source of information concerning the home buying process. Ask lots of questions, but remember that most brokers are working for the seller, and in the end, their primary obligation is to the seller and not to you. An alternative is a so-called buyer's broker. This individual does work for you, and therefore is paid by you. Seller's brokers are paid by the seller.

Make sure that the broker has access to the Multiple Listing Service (MLS). This service lists all the properties for sale by most major brokers across the country. Brokerage commissions average 5% to 7% and are split between the listing broker and the broker that eventually sells the home. Don't be surprised if your broker is eager to sell you their own listing since they would then earn the entire commission.

Home Buying Costs

Down Payment 0% - 20% of purchase price
Home Inspection $200 - $500
Points $1,000 and up for 1% - 3%
Adjustments 3% - 8% of purchase price

Once you've determined a price range and location, you're ready to look at individual homes. Remember that much of a home's value is derived from the values of those surrounding it. Since the average residency in a house is seven years, consider the qualities that will be attractive to future buyers as well as those attractive to you.

Although it can be difficult, try to remember that you will probably want to sell this home someday. The more research you do today, the better your decision will look in the years to come.


· Buying a home can mean building significant value through the years.

· Think carefully about how much you can afford to spend and consider borrowing guidelines like those used by Fannie Mae.

· Prequalifying with your lender is a good way to determine how much house you can afford.

· You will need cash for a down payment and closing costs. Generally speaking, the higher the down payment, the lower the interest rate and monthly mortgage payment.

· In addition to your mortgage payments, you will also need to consider the other costs of home ownership.

· Schools, taxes, services, crime rates, transportation, and zoning are important considerations when selecting a neighborhood.

· Brokers usually represent the seller, but they can be valuable sources of information for buyers as well. A broker that belongs to the Multiple Listing Service will be able to offer a wider variety of homes to choose from.

· Remember to consider resalability when buying your home.


  • Update your household budget so you can begin to realistically assess how much home you can afford. Be sure to factor in all your monthly income and all the expenses that may come with a home.

  • Add up any savings you could use toward a down payment, and decide whether you need to save more before you start house shopping.

  • Start talking to lenders about your options for prequalification and preapproval.

Wednesday, November 17, 2010

Avoid Paying to Much for your Next Home

Buying a home is one of the most exciting moments in life. It can also be one of the scariest. The question in every buyer's mind is: "How Do I make Sure that I'm not paying too much for this house?" In today's market, this is a valid concern.

In today's market it's not unusual to see homes which had been reduced tens of thousands of dollars...I'm talking between $40,000 ~ $50,000 and still remained unsold! In the higher price ranges, the downward shift was even more bone chilling...$100,000 ~ $150,000 or more. Matter of fact, recently I've spent a large amount of time viewing some absolutely gorgeous homes in Plainfield that were built in the past 4-5 years, sold for 600K-700K and now available for 300-400K! That kind of depreciation can feel like you're watching your money burn.

Throughout the country and locally, inventory levels are at an all time high. If no additional homes were listed in the Naperville Illinois area the current rate of sales would take the homes currently listed about a year to sell and in some cases more. This is what real estate agents refer to as the Absorption Rate...the rate at which homes are being absorbed in the current local market.

The absorption rate is important to follow. When it begins to fall or rise, it foreshadows a turn in market conditions. For reference purposes, a healthy rate of absorption is between 3-6 months of supply.

So, what's a buyer to do? There is a risk to purchasing and paying over market value for a home. But there is also a more insidious issue...the FEAR of being so cautious about making a mistake that you miss a deal that's literally "dancing across your eyelids" in the hopes that you'll blink and take notice.

You see, every market has its' great deals and its' lousy deals. It's not so much a function of the market as it is in knowing when you should hold on to an asset and when you need to let it go. AND everything hinges on HOW you buy the asset in the first place. Buying an over valued asset guarantees that money will be lost...your money. The key is identifying when this is about to take place.

Correctly discerning when money is going to be lost in a real estate transaction is a skill that requires precision, attention to detail and the wisdom of experience. In truth...there's also an element of luck involved. There is no guarantee when it comes to the market that is will improve or worsen, only time will tell. There are some situations which no advance preparation can completely protect against. Life happens...devastating financial reversals in a local economy can wreck havoc with pricing and subsequently a community's home values.

Nevertheless, there are some simple steps that can help you to assess what to pay for a particular home.

1. Know Your Market~
Contrary to conventional wisdom, I do think that home buyers have a responsibility to do their own independent research. Go on-line and look at homes, visit Open Houses and model homes and talk with friends who have bought homes. When you do these things AND talk with a competent professional real estate agent, you are much more likely to understand WHAT questions you need to ask AND to understand the implications of the counsel that you are being given. So often, I see clients who are given excellent information not follow it because they don't know enough about the issues at hand to make a good judgement.

2. Interview more than 1 Agent. ~
According to data compiled by the National Association of Realtors, most people will only interview one agent. This is not wise. There are significant differences in the service and experience levels offered by real estate agents. Most people would not buy the first car they looked at on a lot or forgo having a second opinion when facing a major medical decision. Purchasing a home correctly is a hefty financial obligation. Give yourself the benefit of comparing your options. Choosing the right real estate agent greatly increases the likelihood that you will have the information necessary to make the right offer.

3. Insist on a Comparative Market Analysis AND a Neighborhood Analysis.
At a time when prices in some locations can plummet as much as 25% within a six month period, it's important to have as much information as you can prior to making an offer. A properly prepared Neighborhood analysis will enable you to make comparisons across different neighborhoods. If you are not constrained by a school district, this can afford some incredible opportunities to purchase a good deal. When you compare similar homes in different areas, it is possible to identify which areas are holding their value.

A Comparative Market analysis is the traditional vehicle for determining a home's value. Often this is ONLY made available to home sellers. As a home buyer seeking to protect your investment, you should INSIST that you are given access to this valuable information. A good real estate agent will modify the Comparative Market analysis to ensure that as a home buyer, you are obtaining the information which allows you to make an educated decision about a particular home purchase.

At Advantage Realty Group we provide a number of specialized services to clients who are interested in making a solid investment. We understand that the Value of a Home can never be reduced to simple monetary terms. However, we know that for many home buyers, the prospect of making a poor decision is daunting. Our goal is to put our considerable experience and resources to work for our clients and assist in facilitating a transaction which enables your dream home to remain an excellent investment.

Monday, November 15, 2010

How Does the Foreclosure Freeze Impact Housing?

The Optimists

Bank of America, JP Morgan Chase, Ally Financials GMAC mortgage division and PNC Financial, have all suspended home seizures in all 23 states where courts oversee foreclosures. Bank of America is halting foreclosures in all 50 states to examine its process. Past sales will stand, and if you are not already out of the house.

Eviction: you could be evicted unless the buyer was the bank, they will not evict during the freeze

Helps families: The foreclosure freeze may buy time for some families and allow them to catch up and stay in their homes which could help some families try to get back on their feet and catch up with payments.

Reduces housing supply: In the short term, the lack of new foreclosed properties coming on the market could help the housing industry by keeping supply off the market.

Better mortgage mods: If the banks cannot willy nilly foreclose on properties, they will be forced to lend a stronger hand to mortgage modifications benefiting many more people.

Writedowns: banks may finally realize that foreclosure is damaging and that loan writedowns could be taken more seriously as a less complicated option to getting inventory off the books and repairing balance sheets by making these assets whole

Short Sales: Banks may be more willing to accept a short-sale offer. If the foreclosure route is messy or even unavailable for some period,the banks may become more open to a short sale as an alternative to holding inventory.

The Pessimists

The moratoriums can be incredibly destructive to the fragile recovery of the housing and housing finance markets. Consumers looking to get back into housing are even more put off than before.

Inventory: Those freezes could delay the housing market's recovery and a moratorium would add time to the necessary process of washing out all that surplus inventory.

Price stability: It will be difficult for prices to stabilize as long as a large number of homes remain in the foreclosure pipeline. They are likely to hold off to see whether more supply would lower prices even more, leading to further house price declines.

Crime and disrepair: if some properties are not taken off the market and are allowed to be abandoned they can It will also create more crime since communities will have vacant homes sitting empty for longer periods of time

A freeze in sales: The title insurance protects the bank that issuing a new mortgage. Title insurance searches for problems with title and assures or insures that the propertry is free and clear and can be sold. No title insurance, no new mortgage and no foreclosure sale. Title Insurance payouts could be enormous.

The banks will pull it: Fannie & Freddie stand to lose billions and will take the banks to court to recoup.

Sales slow significantly: If title insurance companies start to shy away from insuring foreclosed properties because of unexpected claims, the housing market could take another hit. Sales could be hampered by difficulty in getting title insurance, at or by higher fees associated with higher risk assessment.

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Tuesday, November 9, 2010

Advantage Realty Group Blog: Cost Effective Ways to Winterize Your Home!

Advantage Realty Group Blog: Cost Effective Ways to Winterize Your Home!: "7 DIY Tips to Winterize Your Home for Cheap There are two kinds of home winterizing tips. The first variety often involves spending a load..."

Cost Effective Ways to Winterize Your Home!

7 DIY Tips to Winterize Your Home for Cheap

There are two kinds of home winterizing tips. The first variety often involves spending a load of money to upgrade your energy efficiency. While definitely worthwhile and timely with many federal energy tax credits expiring this year, these fixes can still be very costly (think adding insulation, getting a new energy efficient furnace, energy efficient windows, etc.).

The other variety of home winterizing tips focus on the things that you can do on a weekend afternoon for very little money (or free) with a little bit of elbow grease. The cost savings of doing such work generally comes in the form of preventing costly fix-it repairs that come from neglect. Here are seven things that you should do around the house every year before the first sign of snow hits.

1. Clean Out Your Gutters

Gutters that are dammed up with leaves can result in ice dams, which can lead to all kinds of costly outdoor repairs — damaged shingles, roof leaks, broken gutters, etc. Additionally, if your gutters are clogged up, water could be falling right next to your foundation and leads to possible flooding in the basement.

Estimated Cost: Free, as you don't fall off the roof and end up with a medical bill.

2. Drain Your External Faucets

Water that is sitting in pipes that lead to outside faucets can freeze and burst, ultimately flooding your basement and leading to possible water damage and mold problems. Simply close off the interior faucet valves by turning them clockwise all the way to the right. Then go outside and make sure that every last drop has come out of the faucet.

Estimated Cost: Free

3. Caulk

Search for drafts around windows and doors on a cold windy day. Place a tissue paper over the suspected draft area. If the paper flutters, you've probably located the draft. For drafts under doors, you may have to buy a rubber draft stopper to place at the bottom of the door.

Estimated Cost: $3/tube (One tube should be more than enough.)

4. Repair Your Shingles

If you have cracked, missing, or otherwise damaged shingles, have them replaced immediately so that you don't get roof leaks. Strong winds, falling tree limbs, and sun weathering can all lead to damaged shingles. You might as well check them out while you're up on your roof cleaning out your gutters.

Estimated Cost: $1/shingle

5. Flush Your Hot Water Heater

You can flush a hot water heater any time of year, but you might as well throw it in with the other maintenance work you'll be doing since you really only need to do it about once a year. If you don't, sediment can build up at the bottom of your water heater and cause it to lose efficiency or even leak.

Simply take one of your water hoses and fasten it to the water faucet at the bottom of your water heater. Turn off the water heater so that you don't get burned by hot water accidentally. Run the hose outdoors, preferably, but if you can't do that, then a laundry tub should be sufficient. Open the valve and let the water drain out completely, rinsing out the sediment with it.

Estimated Cost: $0.001 for the water

6. Replace Your Furnace Filter

Furnace filters, in a clean basement, can lead to a more efficient furnace when replaced about every six months. I usually replace mine when I first turn on the heat and then when I switch over to air conditioning in the summer.

Estimated Cost: $5-$15, depending on the furnace

7. Programmable Thermostat

Most programmable thermostats can be purchased for $30-$70. In a cold climate, you might be able to save that much in a month alone if you set one up to be cooler while you are out of the house and at night, and warmer when you are at home. And they are easier to install than you may think (half-hour job, max.).

Estimated Cost: $30-70

Monday, November 1, 2010

Advantage Realty Group Blog: Tips to Prepare for Your Home Appraisal

Advantage Realty Group Blog: Tips to Prepare for Your Home Appraisal: "When it comes to home appraisal tips, take the time to review what moves will have the most impact. An appraisal occurs when a property is ..."

Tips to Prepare for Your Home Appraisal

When it comes to home appraisal tips, take the time to review what moves will have the most impact. An appraisal occurs when a property is evaluated and a monetary value is set by an independent analyst, called an appraiser. Home appraisals also take into account the area where the property is located and the value of similar property in the neighborhood.

Two Weeks Before An Appraisal

Pull together a list of all the major repairs and upgrades that the home has. For example, if you replaced the roof a few years ago, make a note of that. Other key upkeeps are new water heaters, replaced windows and upgraded HVAC systems.
Add valuable features to the home and property. It's not necessary to do an extensive remodel, but investing a few hundred dollars in things like bathroom fixtures, storage shelves in the garage and newly planted trees can all add up to a higher appraisal.

Take care of all the small things wrong with the home, such as burned-out light bulbs, broken front steps, sticky sliding glass doors and smoke detectors without batteries.

One Week Before An Appraisal

Get the inside of the home in as good a shape as possible, including a fresh coat of neutral-colored paint. Other ideas for sprucing up the home include professional carpet cleaning, window washing and hiring a professional cleaning crew.
Don't ignore the outside of the home, either. Clean up all the landscaping so that it is visually appealing. Add to the landscaping, if possible, such as extending the patio or deck with paving stones, planting flowers in beds or pots or even cleaning up cluttered, junky areas of the property.
Simplify the look and layout of furniture and storage inside the home. If you have too much furniture crowded in one room, rearrange and even remove pieces so the room looks bigger and more spacious.

Clean cluttered shelves, and replace stuff with a few simple ornamental pieces. Giving the illusion of more space and clean and simple lines makes a room look bigger and feel more spacious.

The Day Before The Appraisal

Clean the house completely, with no room left undone. Look for cobwebs in high corners, dust light fixtures, sweep and mop floors and take out the garbage.
Place some potted flowers near the entrance of the home (proper weather allowing) to enhance the "curb" appeal.

Ensure the house smells good, either with a scented candle, air freshener or even freshly baked brownies.

Use the tips above and give your home the best chance to shine during its next appraisal. Now more than ever with the strict guidelines and regulations that lenders have, an appraisal can make or break a sale!