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Buying :: Preparing to Buy

Top 10 Home Buying Mistakes

Buying a house is the largest investment most people ever make; yet all too often it's a decision made in haste without adequate preparation

Use our list of common house-buying mistakes to avoid costly regrets.

1.  Doing it alone. Buying a house is a complex transaction. Even if you don’t use an agent, you’ll need a complete, dependable team: lender, lawyer, inspector, insurer, as well as referrals and advice from friends and family. Enlist the help of these individuals early in the buying process.

2.  Buying at first sight. You may be in love with the place, but does it fit your family’s needs and budget? Make a list of your needs and wants and make sure the house fits your requirements. Check out the neighborhood and the community before you buy by visiting at different times of the day and week to learn about noise and traffic patterns. Even if you don’t have kids, check out the local schools to make sure your resale value will be good.

3.  Not getting pre-qualified and pre-approved. Being pre-qualified gives you a general idea of how much you can afford to borrow. Being pre-approved means a lender has verified your information and credit rating and agreed to provide you with a specific amount of money. You are in a better position to go house hunting knowing exactly how much you can afford and that you have financing.

4.  Overbuying. You may qualify to borrow more, but can you afford to? Analyze your monthly costs: debt, food, transportation, entertainment, and savings. As a general rule, your total monthly debts, including your mortgage, should not exceed 36 percent of your income before taxes. Be sure to budget enough to cover closing costs (often two to five percent of the home’s purchase price), plus moving, redecorating and maintenance. Allow for increases in ongoing expenses such as utilities and taxes.

5.  Misplacing your trust. No matter how much you like the agent, sellers, inspector, or the guy down the block who vouches for them, remember this is a business transaction. Your decision is binding. Do your own research and know your support team’s roles and responsibilities.

6.  Relying on oral agreements. Get it right and get it in writing. Written agreements almost always trump oral ones when it comes to contracts. If the offer says the lawnmower is negotiable, but the agent says it’s included, get it in writing.

7.  Skipping the fine print. You need to understand what you’re signing before you pick up a pen. Ask for documents in advance, make time to read them and ask questions. Get copies of your mortgage papers a few days ahead of closing.

8.  Forgetting or betting on resale. Avoid buying a home that costs 50 percent more than neighboring homes and think before buying the most expensive home on the block. Your neighbors’ lower home values will weaken yours. Remember, markets change. If you buy intending to flip your investment and the market falls and you have to sell, your selling price may not be enough to even cover your mortgage.

9.  Making an unconditional offer. Protect yourself with at least two of these contingencies in your offer:

  • Mortgage financing -- You’re pre-approved, but is the house? Before a bank will lend you money, it will want a formal appraisal of the property to confirm that there is sufficient equity in it to warrant the loan. If the house appraises lower than the sales price, the loan may be declined.
  • Inspection -- never buy an existing or new home without a thorough home inspection. Walk through the home with the inspector to learn more about the house and any concerns he or she may have.
  • Insurance -- confirm you can get adequate coverage. In some areas, it’s difficult to get hazard insurance.

10.  Having buyer’s remorse. No place is perfect. There will always be surprises. Don’t let a few initial blips spoil the whole ride. And don’t miss a great house waiting for the perfect one!

Published on July 11, 2007
Retrieved at 5th January 2009 from www.realestateguides.com

Real estate commissions: What you need to know

Confused about real estate commissions? You're not alone. Here are some answers to a few of your most common questions.

There’s no question a good real estate agent can be a valuable resource when it comes to buying or selling a home. But how much is that help going to cost?

First of all, if you’re the one buying the home, it isn’t going to cost you anything. The agent’s commission comes out of the selling price. That means it’s deducted from the amount the seller receives, not added onto the amount the buyer pays. Of course, it can be argued that as a buyer you are indirectly paying the commission by virtue of the fact that it’s included in the price. But following that logic, all homes for sale by owner should cost less than those being sold through an agent, and that certainly isn’t always the case.

Second, if you’re the seller, you don’t have to pay an agent anything up-front to market your home. A real estate agent generally doesn’t receive any commission until closing, at which time they will receive the amount stipulated in their contract -- typically somewhere between five and eight percent. But chances are (unless you’re in a particularly hot market) your agent is going to have to work hard to earn that commission by investing a lot of time and effort into marketing your home. And they’re going to have to give a cut of that commission to both their brokerage and the buyer’s agent (unless they represent both the buyer and the seller).

To help take the mystery out of real estate commissions, we provide the following answers to a few of your most common questions.

Q. What is the average commission on a home purchase?
A. The average commission is about 5 percent, although 6 percent commissions are still common.

Q. Who pays the commission?
A. The seller. It is paid out of funds received from the sale of the home.

Q. Does the commission go entirely to the seller’s real estate agent?
A. No. The broker whose firm lists the house sets the commission. The listing broker then offers part of the commission -- often 50 percent -- to the broker whose firm represents the buyer. Both brokers then share their portion of commission with the agents who work with the seller and buyer. The agents’ share may be as little as 50 percent or as much as 100 percent, depending on their arrangement with the broker. If either brokerage is part of a franchise, it may also pay part of the commission as a franchise fee.

Q. Is it possible to negotiate the real estate commission?
A. Yes. An agent may be willing to negotiate his or her commission in order to get your business. This is especially true if the agent is independent and doesn’t have large operating costs. In some cases, both agents might agree to cut their commissions in order to bring down the price of the home if the buyer’s offer doesn’t quite meet the asking price. Sometimes a buyer’s agent may offer concessions such as paid closing costs, a repair allowance or a rebate in order to help close a deal. Buyer rebates are legal in most states.

Q. Will I pay less if I buy a house without using a real estate agent?
A. You might be able to negotiate a reduced price. Since the listing broker won't have to share the commission with another agent and broker, he may agree to a reduced commission and pass the savings on to you. This may also be possible if you use the same agent as the seller -- for example, if you toured an open house and retained the listing agent. This is called dual agency, and is legal in most states, although it may be subject to special laws and regulations.

Q. Is a real estate agent likely to push me to buy a more expensive home so he can make a higher commission?
A. There isn’t a big incentive for an agent to push you to buy a more expensive home because of the way commissions are divided. Your agent may be entitled to 65 percent of his broker’s share of the commission -- perhaps 3 percent of the sale price. Under that scenario, if you were to buy a home for $260,000, rather than $250,000, your agent would earn only an additional $195. However, there could be an incentive for the agent to steer you toward a house on which his broker has been offered a larger share of the commission. This practice is not prevalent, but it does occur.

Q. Are there other commissions that buyers don’t see?
A. In some cases, a seller, listing agent or builder might offer the buyer’s agent a cash bonus or other incentive to help sell the house. The buyer’s agent should disclose these fees if you ask.

Q. Can I get a lower fee by using a discount broker?
A. A discount broker may offer you lower fees, or a deal in which you pay only for the services you receive. However, discount brokers may be more suitable for those with a good knowledge of real estate, since they may not offer a full range of services.

Published on January 17, 2007
Retrieved at 5th January 2009 from www.realestateguides.com

Finding the Right Home Loan

Weigh your options to find the right home loan for you.

Finding the right home loan is all about saving money. You took your time finding the right house – shouldn’t you also carefully evaluate the financing for that home?
When finding the right home loan, there are several factors to consider. What is your financial situation? How much of a down payment do you have? What are current interest rates? How long do you plan to stay in the new home? Consider these factors, plus others, to help you find the right home loan for you.

How long will this be your address?
Let’s start with how long you plan to stay in the home. While no one can know the future with certainty, you can probably make a good guess as to how long you’ll stay. If you know your job will require a transfer in a few years or if you’re self-aware enough to know that you’re part nomad, then this will affect what home loan you choose. If, however, your job doesn’t move you around and you are the type who likes to put down roots, then a different type of home loan may be better for you.

• If you may move soon
If you think you may move again within 4 to 5 years, you have may want to consider several different options for the right home loan. If rates are low, you may want to consider a short-term fixed rate mortgage (such as a 10 or 15-year fixed loan) to build up equity for your short time in the home. Another option to consider is an adjustable rate mortgage (ARM) or a hybrid loan. An ARM gives you a lower interest rate than typically offered with a fixed rate mortgage. The catch is that the ARM’s interest rate changes. A hybrid loan gives you the benefit of an ARM’s lower interest rate, but the security of a fixed loan because there is a fixed period before the rate resets. If you plan to move relatively soon, it may turn out that you sell the house before your rate adjusts.

• If you’re in it for the long haul
If you won’t be moving again anytime in the near future, then a fixed rate mortgage may be the right loan for you, especially if interest rates are low. A 15-year or 30-year fixed rate mortgage can be the perfect fit if you plan to stay in the home for a long period of time and you prefer the security of knowing what your interest rate (and monthly payments) will be. You can lock in a good interest rate that is guaranteed to you for the 15 or 30-year term of the mortgage.

What about down payment options?
Finding the right home loan also means evaluating options for your down payment. The 20 percent down payment is not necessarily the standard these days.

• No-down-payment mortgage
Yes, you read that right. It is possible to get a mortgage without putting any money down. That means that you finance 100 percent of the purchase price of the home. Sounds pretty scary, right? But, sometimes it can be a viable option. If you live in a market with rapidly escalating prices, it may not be that possible for you to save 10 to 20 percent of the purchase price before being priced out of the market. With a no-down-payment mortgage, you’ll get a higher interest rate and you’ll have to pay PMI (private mortgage insurance). Also, it’ll take you longer to build up equity since you didn’t put any money down. Keep in mind that not having equity in your home can be dangerous if home prices fall.

• Piggy-back loan
Another way to finance a home if you don’t have enough for a 20 percent down payment is a piggy-back loan. Basically, A piggy-back loan is a combination of two loans that close at the same time to allow you to purchase a home. The most common types of piggy-back loans are an 80/20 mortgage, an 80/15/5, or an 80/10/10. An 80/20 means that you finance 80 percent of the home’s purchase price through a first mortgage, but the other 20 percent comes from a second mortgage. An 80/10/10 means that you finance 80 percent of the purchase price via a first mortgage, 10 percent from a second mortgage, and that you make a down payment of 10%. With a piggyback loan you avoid PMI, but your second loan often will have a higher interest rate. Still, this can be a good option if you don’t have enough for a 20 percent down payment.

• FHA loan
For the first-time homebuyer, the government runs a program to help you realize the dream of homeownership. An FHA loan lets you get in with as little as 3 percent down.

This really just scratches the surface for your options in finding the right home loan. Know your financial situation and investigate all of the mortgage options so that you can get the right home loan for you.

Published on August 03, 2007
Retrieved at 5th January 2009 from www.realestateguides.com

 

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