By Ryan Tollefsen REALTOR®
Unity Home Group at Keller Williams Realty Alaska Group
From time to time, home buyers can find grants and rebates that help ease the burden of buying a home. First time buyer programs are particularly common, but initiatives for experienced buyers occasionally become available too. Ask your real estate agent about federal and state grants that may be available to you.
Your emotions can be your biggest expense when buying a home. If buyers get emotional, their financial generosity and flexibility tends to increase.
Remember that buying real estate is ultimately a business transaction. Keeping emotions out of your choices will make it easier to stay within budget, negotiate a fair price, ask for necessary repairs or contingencies, and–worst case scenario–walk away from a deal that isn’t smart.
Always work with your real estate agent to ensure your decisions are being ruled by logic and not emotion. An excellent agent will help you stay grounded.
Use a mortgage broker or talk to several different lenders before you settle on a rate. Your lender will make it extremely easy to sign on the dotted line before you comparison shop, but the difference in even 1% is a big chunk of money.
Let’s look at the total amount you pay on a $250,000 loan with an amortization period of 30 years:
You’ve probably noticed that each percent adds more than $50,000 to your total bill. What else could you do with $50,000?
Your credit score has a direct correlation to the mortgage rates you are offered. The better your credit history, the more a bank will want your business! The best rates go to the best credit scores.
A lot of eager people will ignore financial best practices when buying a home. As a general rule, your debts with the highest interest rates are the ones you should be working off first, so pay off that credit card with 19% interest before buying your home. Furthermore, if your mortgage payments mean you can’t effectively work off the principal on your other debts, then you’re just getting further in the hole and buying sooner than you should.
Come up with a budget in advance to find out how much you will really need. The reality is that a new house comes with new expenses, like mortgage payments, home insurance and property taxes. If you’re unrealistic about what you currently spend, it’s easy to over extend yourself in the buying process and end up with costly debt.
When putting together your budget, include absolutely everything you spend money on. It’s easy to overlook things that you may only purchase once in a while, such as rounds of golf, car maintenance, movie nights, prescription medicines, clothes and vacations. A few sacrifices can be realistic, but a new home won’t be worth giving up all your hobbies and having rice for every meal.
If your new budget won’t accommodate your existing standard of living, consider looking at homes with a lower price point.
Finally, one of the best ways to save money is to invest a little. Many rookie buyers will be tempted to cut corners and keep costs lower by skipping the home inspection or forgoing a lawyer. But these precautionary services help ensure you and your investment are protected from much larger expenses; they can catch details that could cost you everything. Don’t risk a shortcut!
If you have never purchased a home before, you may be surprised at the complexity of the transaction. From the process of making an offer, negotiating repairs and warranties, to navigating legal aspects, there is a lot going on! Even people who have been through the process before can get confused!
On the other hand, a real estate agent has been through the process countless times and understands not just how these processes work, but also the expenses behind them. Experience provides a distinct advantage when negotiating and uncovering expensive things buyers may overlook such as including fixtures and appliances in the sale.
Plus, a real estate agent isn’t emotionally attached to the transaction. That means he or she will be able to look at the seller’s offer in a transactional way without worrying about working up the courage to ask for repairs or leaving a bad deal on the table.
By keeping cool and knowing your options, you can save a considerable amount of money buying your home. Ensure you’re ready and have all your finances in order. Buying a house should be a fun and enjoyable experience for everybody. Happy house hunting!
For informational purposes only. Always consult with a licensed real estate professional before proceeding with any real estate transaction.
Purchasing a home can be a drain on any buyer’s bank account, even when they have carefully prepared for the process by having adequate savings to cover the down payment and other expenses related to the move. So it makes sense to look for options to help limit further expenses that may occur after the purchase has closed and the buyers have moved into the home.
Home warranty plans are one of the options often considered by buyers in this situation. But home warranty plans are not always the best choice for every situation. If you are planning to buy a home soon and considering whether or not to opt for a home warranty plan, here are some options to consider while weighing the decision.
Defined as a service contract between the homeowner and a service company, a home warranty plan is designed to offer some protection against unexpected costs for repairing or replacing major appliances and components in the home. Warranty coverage typically includes:
Home warranty plans only cover appliances, components, and systems that are in good working order at the time the home is purchased. In addition, actual coverage amounts may differ and deductibles usually apply to each claim.
Home warranty plans are an optional purchase and can be made by either buyers or sellers. Buyer coverage under a home warranty would typically begin at closing and continue for one year, at which time the buyer can pay a premium for another year and extend the coverage year by year.
Sellers can also buy a home warranty plan for the buyer as an incentive. In some cases, sellers are given a limited period of free coverage during the listing period, to encourage them to purchase coverage for their buyer after the home sells.
Home warranty coverage typically costs between $300 and $600 annually. Depending on whether the purchaser chooses basic or more comprehensive coverage, this annual cost may not be worthwhile for some buyers. In most cases, buyers who are purchasing a new or like new home may not experience enough repair or replacement issues to benefit from a home warranty plan.
On the other hand, buyers who are purchasing an old or distressed home may find that the cost is reasonable compared to the increased risk of an appliance, system, or component failure. Home warranty coverage may also be well worth the cost if the home being purchased:
See 10 Questions to Ask Your Home Inspector following this article.
Most home warranty providers give the insured homeowner a number to call to report a covered issue. Once the issue has been reported, the home warranty company will arrange repair or replacement through an approved repair contractor in the area where the home is located.
While home warranty companies strive to offer their customers prompt service, home owners should be aware that it can take one or more days for the repair or replacement to be handled. Each claim usually requires a deductible payment of $100 or more depending on what the claim involved.
Whether they come as part of the contract negotiations when purchasing a home or are purchased as “insurance” against the what-ifs, home warranties are only useful when the policy holder understands all aspects of the program. There can be a few pitfalls that should be considered before purchasing or claiming on such a policy. These include:
For even more information about home warranty plans, including how to find this coverage, buyers should speak with their real estate professional. Their agent can help them consider the cost in comparison to potential benefits before making a final decision. Agents can also help buyers negotiate successfully with sellers to provide this coverage in certain situations.
The more knowledge a home buyer has the better, from searching the MLS to signing contracts. The Home Inspector is one of the best people to provide information about the home’s systems and any potential concerns before you proceed with the purchase. Here are 10 of the most important questions to ask the home inspector.
Electricity can be very dangerous, and if it is not handled properly it can even be deadly. Older electrical systems are more vulnerable to problems and may need to be upgraded which can be a big expense.
One of the most common barriers that homeowners encounter in older homes are outlets and breaker boxes that are not within current compliance with National Electrical Code standards. These regulations outline set practices in regards to both commercial and residential electrical installations, and it is by these guidelines that inspectors will base their assessments upon during their visit.
A plumbing problem can cost hundreds or even thousands of dollars to repair. It’s best to know if a house has these kinds of issues before signing a contract to purchase it. Some plumbing issues may stop a loan from going through as well.
However, plumbing issues need not halt a home deal, as certain minor issues can often be resolved rather easily and affordably such as:
In contrast, more serious issues such as major tree roots impeding underground pipes or old galvanized steel and iron pipes that will require costly replacement should rightly cause buyer hesitation.
Because a roof is a costly item, it’s important to know how long it will probably last before buying a house. Then a budget can be put in place to replace the roof at the appropriate time, or you can ask the seller to pay for it as a condition of the sale.
Contract conditions of sale are known as real estate contingencies, meaning that the potential buyer has requested either the seller make the repairs or they are asking for compensation for the expected expenses through a price reduction. These may not only be made for roofing issues, but for any concerns found during a property inspection.
Termites, carpenter ants, and other insects can eat and destroy wood. This can leave a house vulnerable and weaken its structural integrity. Your home inspector may not be trained to treat these insects, but should be able to spot evidence of them.
If such evidence is found, you should insist on calling in a pest control professional. While these types of issues are not typically required during the home disclosure process, it’s a good idea for sellers to do so to prevent issues down the line. Any pest problems should be eradicated immediately due to both the structural concerns and the potential health risk of certain pests like rodents and cockroaches.
Even if there are no wood destroying insects, the structure of a home can still have problems. If it has been compromised in any way, that is something a buyer should know before they purchase the home. Repairs may be costly.
In worst case scenarios, severe structural issues can require the complete removal of walls and ceilings and replacement of core beams throughout the home. Not only is this a money pit type of situation, it can catch a new homeowner off guard. It can find them displaced from the home for weeks a time while the repairs are made. Homes such as these might be best avoided–period.
A home’s foundation is vital to its stability. If there are cracks or other types of issues, it’s very important for you to find out how serious they are and whether they’re in need of repairs, as well as the cost of those repairs.
Beyond asking the home inspector for his opinion, take a look around during your property tours and look for any signs of vertical or horizontal cracks on the walls or upon the ceilings. While all are indications of foundation damage, horizontal and ceiling cracks are indicative of a sinking foundation which is likely to require a costly repair process.
Even if there’s nothing wrong with the house itself, you still want to make sure the property is safe, and that there is a healthy environment there. Some homes have drainage issues that can result in a lot of standing water. That could cause damage over time along with a lot of frustration.
Most lawn drainage issues are sourced due to an inadequate slope or pitch within the landscaping that prohibits ample water runoff to keep it diverted from the home. Drainage problems caused by city sewer lines could be impossible for owners to fix, while minor slope issues can be resolved through solutions such as adding grass, mulch, native plants and additional drainage after grading the yard.
Anywhere there is standing water or a lot of humidity or dampness, you could end up with wood rot. If your inspector finds any of this, you’ll want to determine the source of it and the cost to repair it before moving ahead with the purchase.
Wood rot is a particular concern for potential buyers who are considering investing in a home with wood siding and/or wood decking. While it has a high aesthetic appeal, wood siding and decking that is more than 10-20 years old is likely to require replacement soon and this is not a cheap investment. Be sure to pay close attention to the types of materials the inspector lists on their reports as many mock materials closely resemble wood are resistant to rotting.
Older houses may settle and shift some over time, but excessive settling is a problem that will have to be addressed. It can lead to cracks in the drywall or plaster, doors and windows that don’t work well, and other issues throughout the home.
House settling can often be confused with a foundation issue, although house settling can cause foundation issues over time. Sound confusing? The best way to get a solid answer is to ask the home inspector to look a little deeper into the issue, and they may recommend contacting a structural engineer for an inspection to confirm any suspected problems.
Most homes are “grandfathered in” based on the code that was required when they were built. But if you make changes or do renovations, it may be necessary to bring the rest of the house up to current code as well. That could be much more costly than you bargained for, so it’s always worth asking the home inspector about those types of issues.
What buyers and sellers need to understand is that home inspectors may look for signs of code violations, but they tend not to look too deep for them because they aren’t code enforcement professionals like city inspectors are. Those who suspect code violations and want to get current should request a separate inspection from the appropriate officials.
Buying a home is a huge decision. It can really pay off to be extra careful in the steps leading up to the signing of contracts.