Home Buyers' Guide
Benefits of Home Ownership
If you own a home, there was certainly a lot that went into your decision to buy rather than continue to rent. Now you’re enjoying all the advantages of homeownership—here are the top five.
1. Building wealth: When you own a home, you have an asset that will likely increase in value over time. It provides great security, and the opportunity to essentially live “rent-free” in your retirement years when the home is paid off.
2. Freedom to make it your own: Landlords can be strict about customizing rental properties. Many don’t even allow their tenants to paint. But when you own your own home, the possibilities are endless. Get rid of a wall, or paint it any color you like. It’s your property.
3. Building equity: Every mortgage payment your make, and every improvement you make on the home, is putting money back into your pocket. Unlike with renting, owning a home gives you more than just a place to live. You can use your home equity to get loans and even cash for emergencies.
4. More freedom and stability: Studies show that homeowners have a better sense of pride and security than renters. When you relax in your own home, you know it’s the result of hard work and planning, and that you have the freedom to change it as you wish.
5. Tax advantages: Homeowners can deduct the interest paid on home loans and property taxes—that’s a big break that comes up every April 15.
Down Payment Strategies
As you probably know, the ultimate goal when buying a home is to save, at least, 20% of the home purchase price for the down payment.
The benefits of a 20% down payment include:
1. Lower interest rates
2. NO Private Mortgage Insurance (PMI)
3. A higher loan qualification amount.
There are, however, some financial benefits to putting down a smaller down payment (as low as 3.5%) rather than parting with so much cash up front - even if you have the money available.
Whether you put down 20% or 3.5%, your home is expected to appreciate by 5%, increasing the equity.
So, if you’re looking to your home purchase as an immediate investment vehicle, a smaller down payment can lead to a higher return. Also, it's a good idea to keep some money available for unexpected repairs, upgrades, or other investment opportunities.
The drawbacks of a less than 20% down payment include the Private Mortgage Insurance (which can increase your monthly mortgage by $300 or more), higher interest rates, & a smaller loan amount.
THE KEY TAKE-AWAY
If you have: 1) a consistent work history, 2) annual income above $50K, 3) a credit score above 600, & 4) and some savings, then don't let the down payment amount stop you from taking the next step. There are down payment assistance programs & other options to support your vision of home-ownership. Contact me today to discuss your down payment options!
Earnest Money Deposit
When your offer is accepted, you must pay an earnest money deposit (1% - 3%) within 3 days. This shows the Seller that you have some "skin in the game" and are serious about purchasing their house. If, however, you decide to back out of the deal without acceptable cause, you risk losing the deposit. But, there are several circumstances that allow you to recover your earnest money and walk away.
1. Inspection & Appraisal Contingencies: If you write your offer subject to these contingencies, you can usually walk away from the deal and get your earnest money back if the home has major problems (e.g., foundation issues, flood damage, etc.) and/or doesn't appraise at or above offer price, and the Seller is unwilling to re-negotiate the terms and/or offer price.
2. The Seller backs out: Of course, if the seller changes their mind about the transaction—maybe they decide not to sell, or accept a higher offer—you get your earnest money back.
3. Your current house hasn’t sold: Many buyers can’t afford a new home if they’re still financially responsible for their old one. In this case, you can write a sale contingency into the contract, and get your earnest money back if your current home doesn’t sell soon enough.
4. Financing issues: Though there are some limits on financing contingencies, you can get your money back if you’re unable to secure the mortgage loan.
In summary, you need not be concerned about losing your EMD if the home you want turns out not to be what you expected, and your Agent writes the appropriate contingencies into your offer.
Poor Buyer Negotiations
Negotiation is a subtle art in real estate, but skilled negotiators can usually find some common ground that satisfies all parties. On the other hand, the wrong negotiation tactics can sink a deal, especially in a seller's market.
Here are some negotiation tactics buyers should avoid:
1. Lowball offers: Going far below market value when you make an offer damages your credibility as a buyer and can be insulting to the seller. The seller has a range in mind that they’ll accept, and if you’re not even approaching the low end of that range, they won’t even consider the offer.
2. “Take it or leave it”: Try not to draw a line in the sand with your initial offer. The seller can get defensive and consider other offers if you immediately show that you’re unwilling to budge. Even if it’s true, don’t make a show of it.
3. Nitpicking after inspection: Obviously if inspection reveals a major issue, it should be factored into the final sale price. But insisting on a lower price for every minor repair can put negotiations in a stalemate.
4. Asking for more, more, more: Some buyers will request that the sellers throw in add-ons like furniture or appliances that weren’t included in the listing. Try to avoid giving the seller a reason to build up resentment.
In short, play nice! You and the Seller both want a successful transaction, so be reasonable during the negotiation process. Remember, you want to buy the house!