Better Homes and Gardens Real Estate Life

Tag: Home Buying

  • Renting vs. Buying a Home + Pros and Cons for Each

    Buying a home has long been part of the American dream, but homeownership isn’t for everyone. Sometimes, renting makes more sense and offers greater freedom.

    Have you been wondering about renting vs. buying? Choosing whether to invest in a home or pay rent is a big decision that depends on your finances, lifestyle, and personal goals.

    One isn’t inherently better than the other. Both require an income to afford housing payments unless you have enough money on hand for an all-cash purchase, but even then, you need to consider your overall financial picture. Renting and buying come with various degrees of maintenance responsibility and commitment.

    Whether renting or buying is right for you depends on your current situation and an honest look at where you think you’ll be years later.

    So, use our guide to renting vs. buying and consider the pros and cons for each. Then, remember that we can’t make a perfect choice, but we should be wise enough to carefully weigh all our options.

    Renting a Home 

    Renting a home offers flexibility. There’ll typically be someone else to tend to maintenance issues. You’ll probably have predictable monthly expenses, so you can likely count on extra cash in your budget. However, many rentals require you to adhere to a list of community and individual unit rules (e.g., your landlord might not be flexible if you want to paint your bedroom bright pink).

    When you rent, you’re not necessarily throwing money away (you have to pay to live somewhere, even if you buy), but you’re not building wealth either. Here are some pros and cons for renting a home.

    Pros 

    Many people find immense benefits to renting. The following are reasons why you might want to rent your next house.

    • Flexibility. You can probably move quickly if you need to (as long as you’re not in a lease or are willing to pay to break your lease)

    • Predictable housing payment. Your housing costs (including utilities) may be consistent each month since you won’t have to factor in repairs and other expenses.

    • Low maintenance. You’ll likely have a landlord or property manager who will handle major maintenance tasks (but be prepared to change your own lightbulbs or fix minor problems).

    • No property taxes. The owner of your rental is responsible for paying taxes on the property.

    • Less strict financial standards. Getting approved for a rental unit is often much easier than qualifying for a home mortgage.

    Cons 

    Renting can seem like the best option if you don’t want to deal with surprise expenses or repairs, but there are some drawbacks.

    • Rent increases. Landlords can raise your rent after your lease expires, especially in areas with high housing demand.

    • Possibility of a property sale. The owner of your rental may decide to sell the property, especially during times of rising home values, leaving you looking for a new place to live.

    • No tax benefits. You won’t get to claim homeowner deductions on your taxes.

    • Limited personalization. When you rent, you usually can’t do what you want with the home (no building your dream kitchen or entertainer’s backyard, in most cases).

    Owning a Home 

    When you own your home, you get to make decisions about what to do with almost all aspects of your property (condos, townhouses, and other properties with homeowners associations may significantly limite your freedom). But you’re the one responsible when something goes wrong too. Purchasing your next house can provide pride of ownership—a place to truly call your own. However, picking up and leaving may be diifficult if you change your mind, have a job transfer, or experience an emergency that uproots you.

    Pros 

    Is owning a home right for you? There are benefits to purchasing, including the following.

    • Sense of stability and community. Owning can offer more assurance that you’ll enjoy the fruits of a neighborhood for an extended period.

    • Builds equity. Most real estate increases in value over time.

    • It’s yours to improve. Decorate, renovate, and add on as your heart desires.

    • Tax benefits. Homeowners can claim a mortgage interest deduction on their taxes.

    Cons 

    Wondering what might not be in your best interest when it comes to owning a home? Here are some reasons you might want to give homeownership a second thought.

    • Responsible for maintenance. As a homeowner, you’ll have to tend to all repairs (or hire someone) and bear the cost of all maintenance.

    • Requires a sizeable financial commitment. You’ll have long-term expenses like property taxes and homeowners insurance, along with a hefty initial investment (including a down payment and loan closing costs).

    • Property value may decrease. While most real estate increases in value, you might lose your equity in the property.

    • Difficult to change your mind. It’s not easy to pick up and move if you change your mind about where you want to live or if life’s circumstances call you elsewhere.

    Still not sure if you should rent or buy? Ask yourself the following questions to help make the decision easier.

    • How long do I plan to live in the area?

    • What are my finances like?

    • What is the state of the housing market?

    • How does my job factor into this choice?

    • What are the costs of renting vs. owning this particular property?

    Are you looking to sell or buy a new home? Let Better Homes & Gardens Real Estate® walk you through the process.

  • Homebuying 101: Mortgage Approval

    Getting mortgage approval is inevitable for most homebuyers unless you pay cash. A mortgage pre-approval letter is a powerful way to get an edge in a bidding war. Plus, mortgage pre-qualification lets buyers know how much house they can afford. Discover how to get through a successful mortgage approval, one of the most crucial steps in the homebuying process.

    Consult with a Mortgage Lender First

    Eager homebuyers may feel tempted to attend open houses before obtaining a mortgage. However, most sellers expect qualified buyers to receive a lender pre-approval letter. Therefore, the first step to housing success is meeting with a mortgage lender. Your real estate agent can often refer you to reliable resources based on your unique circumstances. Always be honest, so you have the groundwork for turning your situation into approval.

    Pre-Qualification vs. Pre-Approval

    Often buyers use online loan calculators to see how much money can borrow. While these are helpful tools, they are meant to provide information rather than approval. Usually, a soft credit check is required for pre-qualification, while a hard credit check is necessary for pre-approval. Many factors, such as your current credit score and time at employment, play a role in the approval process. Only a formal letter from your lender stating the mortgage approval amount proves you’re a qualified buyer.

    Time to Shop Around

    Once you understand the differences between pre-qualification and pre-approval, it’s time to shop around for the best lender. Some lenders may offer better rates and terms than others, depending on your creditworthiness and resources. If you don’t get immediate approval or the rates are high, work with your real estate agent and financial advisor to find a viable lender who works with buyers in your circumstances. Additionally, some borrowers get pre-approval with conditions that must be met before qualifying for a mortgage loan.

    Start With a Budget

    While mortgage qualification and approval indicate how much house you can afford, budgeting is crucial to maintaining this asset. A home is often the most significant investment of a lifetime. Though you may qualify to buy a house up to a specific amount, consider expenses such as taxes, homeowners’ insurance, mortgage insurance, and home maintenance. Then think about your monthly budget and how much you want to pay for a monthly mortgage. Some buyers decide to get a lower-priced home to ensure they can afford it. Ideally, your housing payment should be about 25 percent of your monthly income.

    What Should I Expect for Mortgage Pre-Approval?

    A mortgage pre-approval requires a hard credit check, and borrowers often must provide documentation to prove certain financial information. For example, lenders typically look at your credit history, income, employment history, and FICO score. Also, lenders consider your debt-to-income (DTI) ratio and the loan-to-value (LTV) ratio on a potential home for sale. As a result, an appraisal is ordered on the house you want to buy to ensure you don’t pay more for the home than it is worth. Finally, the lender also considers the home’s condition and works with a title company to confirm ownership of the house and verify there are no claims or liens against it before issuing a formal mortgage pre-approval letter.

    How Do I Get Mortgage Pre-Approval?

    Lenders will look at your finances and expect the documentation to prove the numbers, such as:

    • Employment verification
    • Personal identification
    • Proof of income, including child support, disability, and other payments
    • Credit history, often a score of 600 or higher is required, with some exceptions
    • Proof of assets, including bank accounts, property, and vehicle
    • Debt-to-income ratio (DTI) to show you have the income to cover all financial obligations
    • Bank statements for the past sixty days
    • Recent pay stubs
    • W-2 statements
    • Social security number
    • Tax returns and Schedule K-1 (Form 1065) for the previous two years, especially for those who are self-employed, who may also need to supply a profit and loss statement
    • Divorce papers, if applicable
    • Death certificate, if applicable, such as a widowed spouse applying for a VA mortgage
    • A gift letter, if all or part of the downpayment is a gift

    Once you submit this evidence to the lender, it takes up to three business days to get your loan estimate and determine whether you are pre-approved for a mortgage. Depending on the mortgage loan, the downpayment may be between zero and twenty percent of the property price. Usually, a pre-approval lasts for one to six months, which gives you enough time to find your dream home. Always check the expiration date to avoid going through this process again.

    What if I Don’t Get Pre-Approval?

    Some borrowers may be declined by several lenders. Instead of getting frustrated, use the process to determine if financial areas need improvement. For example, paying down debt and saving for a larger down payment could mean the difference between mortgage approval and denial. Determined buyers often change their circumstances within months or a year to get into the right situation to purchase a house.

    What is the Difference Between Pre-Approval and Final Mortgage Approval?

    A pre-approval letter proves to sellers you are a qualified buyer. A pre-approval can put you ahead of other buyers making an offer in a hectic housing market. Once you make an offer on a home, the formal mortgage approval process begins. First, a home inspection is scheduled to ensure the house is in the proper condition to qualify for a mortgage loan. An appraisal is also done to verify that the house is worth your price. Then the underwriting process begins when your lender verifies your income, debts, and assets to qualify for a loan. If the lender contacts you for more information or documents, respond quickly to ensure you close the deal. Once the formal mortgage approval is issued, you’re ready to schedule a closing.

    The homebuying process starts with a dream and mortgage approval. Knowing how much house you can afford makes it easier to shop around and make an offer. With some financial planning, you’ll soon enjoy the advantages of homeownership!

  • Focus the Hunt

    Finding the right place is the most difficult step in the home buying process. Keep these things in mind to help hone your search.

    NEW (NOT FOREVER) HOME

    First-time buyers might want to look for a starter home (length of stay: three to five years) instead of their dream home, so they can save money and build equity.

    SQUARE FOOTAGE (NOT ROOM COUNT)

    In the past, counting bedrooms and bathrooms would help you get a sense of how big a home is. But today’s construction methods and fix-and-flips allow builders and remodelers to be creative with tight spaces. “Think about how spacious you want your home to feel,” says Joseph Magsaysay of Better Homes and Gardens Real Estate Preferred Properties in St. Louis. “Usable square footage is a better indicator of roominess and comfort level than bedroom and bath counts alone.”

    LOCATION (SHORT AND LONG TERM)

    If you plan to stay in your home for longer than five years, think beyond nearby coffee shops and proximity to work. Also look at long-term needs like schools and hospitals that become more important as you age.

    SOURCE: BETTER HOMES & GARDENS® MAY 2022 ISSUE

  • Checklists for Buying and Selling a Home

    Moving into or out of a home can be chaotic. Make sure these tasks are on your “don‘t-forget“ list.

    Before You Move In

    Line up insurance
    Lock in your insurance provider and plan so you’ll have coverage the day you officially take ownership.

    Contact utilities
    Have electric, gas, water, and internet services placed in your name and new address.

    Forward mail
    Stop by the post office to forward your mail to your new address or do it online at USPS.com (it ’s free). It’s best to allow two weeks’ notice.

    Arrange moving help
    Hire a moving company, rent a truck, or gather boxes for a moving party with friends (free pizza and beer always help). Keep in mind rental vans and trucks are busiest on the first and last of the month when most leases and rental periods end.

    Meet the neighbors
    Introduce yourself and give neighbors your number before you move in—in case they have questions about people coming and going. The Nextdoor app lets you connect with neighbors and find lost pets.

    Before You Sell

    Toss and donate
    If you haven’t used it in a year, it’s not worth packing up and moving to a new place or paying for storage. Websites like caringtransitions.com help older adults and their families with downsizing, estate sales, online auctions, and relocating.

    Think like a buyer
    Real estate agents agree: It ’s all about making rooms look larger and livable. “Less is more,” says Scott Vaillancourt of Better Homes and Gardens Real Estate The Masiello Group in Bedford, NH. “Try to depersonalize and declutter so that prospective buyers can envision their families moving in.”

    Do an inspection
    Have a friend walk through your home with fresh eyes and give honest advice for fix-ups. Another option: Pay for your own home inspection (around $400) and get a heads-up on the repairs potential buyers may ask to have done.

    Not sure about selling? Consider renting your home
    Keeping your home as a rental (short- or long-term) might be a good option if you don’t need to sell it to buy another. Ask your real estate agent if it makes sense in your area.

     

    SOURCE: BETTER HOMES & GARDENS® MAY 2022 ISSUE

  • Step 10. Building Wealth through Homeownership

    step 10Buying a home is viewed as a symbol of the “American Dream” for many and provides a sense of security in an often-unstable economy. Many desire this, but are not sure if it is a tangible financial investment that can turn into a profitable venture long-term. Understanding the meaning of wealth can help you make the entire process more reassuring in the long run.

    What is Equity?

    Equity is the amount of home that a person actually owns. This total is not the mortgage amount, but loan balance subtracted from the value of the home. If this number is positive number, congratulations, there is equity in the home and therefore wealth. If the number is a negative number, then the buyer will likely owe if the home is sold and be indebted at the sale.

    Example:

    Home market value    $322,000

    Mortgage Owed          $100,000

    Your Home Equity      $222,000

    If you sold the home at the market value, you would have $222,000.

    This value can fluctuate dependent on the market, but statistically stays within a 10% average, making homeownership a smart choice. Equity is valuable to the consumer because a homeowner can use these untouchable funds later in life to pay for burdens or unforeseen costs such as home improvements, a new home, college or emergencies. This of the home as a savings fund that will not be touched until the transfer of ownership.

    Overall, this is a popular way to increase wealth because the net worth of the family increases over the years. According to the Federal Reserve, the median net worth of a homeowners in 2016 was between $225,000-$230,000. For families that rent, the average net worth was $5,000.

    How Does Equity Grow

    Equity grows with the value of the home, not just the amount paid down by the homeowner. If a home is in the right market, values can increase as the area becomes more desirable, increasing the property value and the equity margin. For example, if a home is appreciating at a rate of 4% per $10,000, this can be leveraged from a $10,000 investment to a $100,000 investment.

    Benefits to Homeowners

    • Forced savings: This is a way to create a steady savings without having the cash in hand to put into a savings account. For buyers who may have a hard time putting money aside for the future, this is a great way to save funds without manually putting the money aside.
    • Value Versus Renting: People who rent have nothing to show for their payments towards a property when they depart a home. This is the downside to renting. Renting is great in the short-term, but provides zero benefits to most Americans when trying to save for wealth.

    When weighing the pros and cons to a home purchase, consider long-term goals. If a goal for the family is to save for future needs, purchasing a home in the right market can make profits that outpace even the stock market. Weigh the options and choose what is best for the family by discussing the decision with lenders, agents and family.

    Build Wealth
    Build Wealth

  • Step 3. Finding the Ideal Agent

    During the home-buying process, you will collaborate with and speak with your real estate agent more than any other party. This person will be your right hand, support system and expert throughout the home search. Find an agent that fits your needs and they’ll work for you to find the ideal home in the proper price range. We want to help you understand the agent’s purpose in the buying process and what questions to ask potential agents.

    Typically, there are two agents involved in a real estate transaction. The agents are the buyer’s agent (represents the buying party) and the selling agent (represents the owners listing the property). These agents work on a commission basis, averaging a 3% commission for each agent, totaling 6%. This cost is normally paid by the sellers of the property. For example, a $150,000 property will be a $4,500 profit for each agent upon the closing of a property. Agents are paid when you close on your home.

    These agents should provide the highest quality customer service, as many agents depend upon referrals from buyers & sellers for future profit. Remember that having the right agent is an investment into the future home and financial wealth by choosing the right home. But how does a buyer choose the best agent for their situation? Here are some questions and tips to use while interviewing real estate agents for home purchases.

    How to Find a Quality Agent

    Lender Suggestions: At this point, you’ve found a lender.  Lenders interact with numerous agents over the years and can usually point buyers in the right direction towards professional agents that provide the best customer service and efficient documentation to the lender. Trust your lender’s opinion, especially if the lender is a local lender.

    Friends & Family: Know family and friends who have recently purchased in the area? Ask for suggestions! They can give a review of their experience buying a home with a specific agent and steer the buyer away for unsatisfactory agents as well.

    Drive the Area: See one agent’s signs all over the desired neighborhood. It is likely that this agent is an expert in the area and a great asset to purchasing in that specific neighborhood. Reach out and learn more about why so many neighbors turn to him or her for real estate sales.

    Don’t Limit Options: It can be easy to choose an agent and not shop others. This also can lead to an unsavory experience buying a home. Interview 2-3 potential agents at minimum to determine which agent provides the most confidence that a successful transaction will occur.

    Interview Questions

    • How Long Have You Been in Real Estate?
      • Experience is often a benefit. These agents have probably seen and worked through some of the oddest situations that can occur in the buying process and handle any hiccups with ease.
    • Ask About Their Headache Transactions
      • The reality of home buying is that sales do not always go as planned. Ask agents about these situations to determine how they handled the pressure and what tactics they used to resolve the problems.
    • On-Time Transactions
      • Ask how many of their transactions close on time. If there is a large number of transactions not closing on time, this should be a red flag in the interview process.
    • Is The Commission Price Negotiable?
      • As mentioned above, the average percentage agents take for a commission is 3%. If their commission rate is higher than 3%, ask them to explain why they feel their services are superior to other agents. A lower percentage can be a blessing, but also possibly a headache. An agent may not be as experienced or may attempt to force a quicker closing on a home that the buyer is not 100% in love with to receive the commission faster. This is why the interview process is so important; know the true intentions of the agent.

  • The Emoji Guide to Buying a Home

    Tips for Buying a Home Emoji

    When it comes to buying a home, there’s a lot to keep in mind. Did you correctly guess these top emoji tips? Feel free to let us know in the comments, and share how many you guessed correctly! For more tips on buying and selling, visit us here.

    TEST

  • What a New Home Buyer Should Consider When Making an Offer

    Home buying, for anyone, is usually a complex and lengthy process. If you are a new home buyer, meaning you have never been through the process of purchasing a home before, it can be a bit intimidating – particularly when it comes time to make an actual offer on a home. Although each home search is as unique as the buyer who is home buying, there are some factors that are frequently considered by both a veteran and a new home buyer when drafting an offer to purchase.

      • Fair Market Value – The fair market value, or FMV, of a home is an estimate of the home’s value based on what a knowledgeable, willing, and unpressured buyer could/would pay in the current market. Various factors will go into determining the FMV such as what similar homes in the area have recently been sold for or are currently listed at.
      • Comparative Market Analysis – This is usually done by a real estate agent for a seller before the home is listed for sale. A Comparative Market Analysis examines real estate that are all comparable in their lay out, size, and condition. Depending on how long the home has been on the market, the CMA may not reflect the current fair market value (FMV) of the home. Moreover, because a comparative market analysis will likely be done by the seller’s agent, it may reflect a “top of the market” price, not the price that a buyer should use to begin negotiations.
      • Terms of Your Offer – Before you sign on the dotted line, make sure you understand everything that is stated within the offer to purchase. This is of particular importance if you are a new home buyer. Once the seller accepts your offer, you should probably expect to close on the purchase agreement and seal the deal.  To avoid entering into a binding agreement that you will regret, you want to consider working with a real estate agent when drafting your offer.  Also, note that most offers include several contingency clauses (contingency clauses require that certain conditions must be met in order for the transaction to become final). Common contingency clauses include: financing, inspection, clear title, and appraisal contingencies.
      • Inspection – In order to protect yourself from buying a property with major structural or functional issues, you want to have the home inspected. Many buyers include an inspection contingency clause in an offer to purchase and have the inspections after the home seller accepts the offer. This allows the buyer to be released from any legal obligation to purchase the home if an inspection shows significant problems with the property.
      • Financing – Before submitting an offer to purchase, a buyer should consult with a lender to be certain that he or she will qualify for the financing necessary to complete the purchase.
      • Possession – Not only must you decide when you need to take possession of the property, but also when the seller can actually give you possession. Sometimes, for instance, a buyer needs to get into a home on a date prior to when the seller is able to vacate the home, which may require the buyer to make temporary housing arrangements or require some flexibility on the part of the seller.
      • Flexibility of the Seller – Determining how much flexibility a seller has prior to making an offer can maximize your chances of closing the deal. For example, is the seller being relocated by his or her employer and, therefore, in a situation where he or she must sell the home immediately? Are you operating in a buyer’s market, meaning that the seller likely knows that he or she needs to be flexible when reviewing and negotiating an offer?

       
      By taking the time to contemplate each of the above-referenced factors prior to making an offer to purchase, your home buying experience should be smoother and, ultimately, more beneficial both financially and personally.