There’s nothing more exciting, rewarding, and fulfilling than buying a home. However, it’s a complex transaction; there are a number of steps along the path that can confuse, betwixt, and befuddle even the most seasoned buyers and sellers.
How can you avoid those potential pitfalls and common mistakes? Look to your real estate professional for advice and keep these guidelines in mind:
#1 Review your credit reports ahead of time
Review your credit report a few months before you begin your house hunt, and you’ll have time to ensure the facts are correct and be able to dispute mistakes before a mortgage lender checks your credit. Get a copy of your credit report from Experian, Equifax, and TransUnion. Why all three? Because, if the scores differ, the bank will typically use the lowest one. Alert the credit bureaus if you see any mistakes, fix any problems you discover, and don’t apply for any new credit until after your home loan closes.
#2 Get pre-approved
Before getting serious about your hunt for a new house, you’ll want to choose a lender and get pre-approved for a mortgage (not just pre-qualified—which is a cursory review of your finances—but pre-approved for a loan of a specific amount). Pre-approval lets sellers know you’re serious. Most importantly, pre-approval will help you determine exactly how much you can comfortably afford to spend.
#3 Know what you want
You and your real estate agent should both be clear about the house you want to buy. Put it in writing. First, make a list of all the features and amenities you really want. Then, number each item and prioritize them. Now, divide the list into must-haves and really-wants.
#4 Account for hidden costs
In addition to the purchase price of the home, there are additional costs you need to take into consideration, such as closing costs, appraisal fees, and escrow fees. Once you find a prospective home, you’ll want to:
- Get estimates for any repairs or remodeling it may need.
- Estimate how much it will cost to maintain (gas, electric, utilities, etc.).
- Determine how much you’ll pay in taxes monthly and/or annually.
- Learn whether there are any homeowner’s or development dues associated with the property.
#5 Get an inspection
Buying a home is emotionally charged—which can make it difficult for buyers to see the house for what it truly is. That’s why you need impartial third parties who can help you logically analyze the condition of the property. Your agent is there to advise you, but you also need a home inspector to assess any hidden flaws, structural damage or faulty systems.
#6 Evaluate the neighborhood and location
When house hunting, it’s easy to become overly focused on the number of bedrooms and bathrooms, the condition of the home and its amenities while overlooking the subtleties of the surrounding neighborhood. Take time to check crime reports, school options, churches and shopping. If schools are a key factor, do more than simply research the statistics; speak with the principal(s) and chat with the parents waiting outside.
#1 Avoid becoming emotional or sentimental about the sale
Once you decide to sell your house, it’s time to strip out the emotion and look at it as a commodity in a business transaction. If you start reminiscing about all the good times you had and the hard work you invested, it will only make it that much harder to successfully price, prepare, and market the home.
#2 Fix problems (or price accordingly)
Homes with deferred maintenance and repair issues can take far longer to sell and can be subject to last-minute sale-cancellations. These homes also often sell for less than their legitimate market value. If you simply can’t afford to address critical issues, be prepared to work with your agent to price and market your home accordingly.
#3 Don’t overprice your home (and/or refuse to negotiate)
Getting top dollar is the dream of every seller. But it’s essential that you let the market dictate that price, not your emotions or financial situation. Allow your agent to research and prepare a market analysis that factors in the value of similar homes in the area, and trust those results.
#4 Use quality photos
The vast majority of prospective buyers today search for homes online first. In order to make a good first impression, you need a wealth of high-quality photos of your home and surrounding grounds. You may also need to consider professional staging in order to position your home in the best possible light for prospective buyers.
The process of buying or selling a home can have plenty of twists and turns, but with some smart decision making, you can avoid the most common mistakes and pitfalls.
Click here if you would like to connect with an experienced real estate agent.
Congratulations on your new home! You made it through the arduous process that is buying a new home. Now it’s time to take on the task of moving in.
You did your research about the neighborhood and you feel like you know the home like the back of your hand. However, there are some things to do as you move in to protect your newest investment, and yourself, from the unknown variables in and around your home.
Change the locks garage door codes
Previous owners might have changed the locks, but they may not know who all has a key or a code to open your garage, especially neighbors who they trusted to watch their place while they were away. Changing the codes and locks on all the doors ensures that you have complete control over entry to your home
Check or Install Fire and Carbon Monoxide Detectors
If the home already has fire and carbon monoxide devices, make sure they are in working order by testing each one with the tester button. Keep a note of when to replace them as well.
If they don’t have them, install a device in each sleeping room, as well as common areas like the living room or kitchen. Hallways are a great place to cover multiple rooms with one detector as well.
Install a security system
Enjoy total peace of mind with a new security system. Meet with a consultant on the best ways to protect your home for a system that works best for you and your lifestyle.
There are also app-connected systems that you can set up yourself that notify you of movement on the cameras or doors and windows opening.
Meet the neighbors
Build a sense of community and get to know the lay of the land by knocking on neighbors’ doors to get to know them. Bring a small gift as a “thank you” for dealing with the moving trucks. This is a great initial step for figuring out who you can trust to watch things while you’re away should you need a helping hand in the near future.
These are just a few ideas on what you should do as soon as you move in. What are some things you do, or suggest to friends and clients on move-in day?
If you’re thinking about purchasing a second home or vacation home that may become your eventual retirement place – here are a few things to keep in mind:
1. Remember the key to vacation homes is location, location, location. This may sound like a cliché, but that doesn’t make it wrong. It is wise to really learn the area by visiting it several times to explore the region and check out the amenities before you make an offer on a home.
Spend time in the area during the “off-peak” season after the crowds return home. Different seasons bring a different environment. Some of the local stores, restaurants and shops may only be open seasonally. You’ll want to be familiar with what the area has to offer during the “off-season.”
2. Assess the property’s true rental potential. Areas with year-round rental potential increase your rental income when you’re not staying in your vacation home.
Be certain, too, that the home you’re considering has the amenities renters expect. Properties that double as vacation rentals should have hot tubs, fireplaces and views to lure tenants. Access to the beach for kayaking or trails for hiking offer year-round options for entertainment. A dock or landing strip will give potential tenants easy access to the property.
Before making an offer check with the local government for permit requirements or tax consequences and, if appropriate, the homeowners association, to be sure short-term rentals are allowed.
Once your offer has been accepted complete your due diligence. Hire a professional inspector to assess the condition of the roof, foundation and other major systems. Major repairs may not only drain your savings, they may also prevent you from renting the property to generate income.
3. Do your math before writing an offer. Add up all the costs for buying and maintaining the vacation home. Mortgage rates are sometimes a bit higher for second homes than primary residences and some lenders may require a larger than normal down payment. Property managers may take a significant bite out of gross income so shop for a manager. If you plan to service the property for yourself, calculate the time you will spend performing such services as booking, cleaning and completing repairs to the property.
4. Don’t let yourself become emotional about the prospect of fulfilling your retirement dream. Sleep on it, maybe even give it a month before making an offer. Emotional desire can cause buyers to rush into making an offer. Just because prices and mortgage rates are low doesn’t mean that you need to rush into a premature decision.
Proceed with caution until you feel confident that the home will not only suit your needs today, but in the future. Another consideration is the age-friendliness of the property. This is especially true if you plan to move into the home when you retire. Years from now it might not be as easy to handle a flight of stairs or maintain an expansive garden.
With the busy days of summer long behind us and the fall routine well underway we enter “the holiday zone”. Queue creepy music.
The holiday season can be stressful. Summer is far behind and it’s back to our full-time jobs; hauling the children to school, sports, and all of their other extracurricular activities; preparing the home and garden for winter and getting ready for the ever lengthening holiday season. Unless you are a stress management guru this time of year will increase your stress levels.
Amazon best-selling author Paul Huljich, one of America’s leading stress management experts and author of Stress Pandemic, 9 Natural Steps to Break the Cycle of Stress & Thrive (2nd Edition; Mwella Publishing) says, “People who cope with stress in unhealthy ways end up creating significant personal health problems and more stress for themselves. My advice is to become aware of the activity that is spiking your stress levels and take steps to actively manage both your and your family’s ways to cope with the increased stress in your lives.
Don’t fall back into old, familiar patterns of stress this season — fight back! With prevention comes the key to success against stress! In dealing with children, you should focus most on limiting your child’s stress levels by preparing them for what’s to come. Talking with your kids and understanding what may be causing their stress is a good first step in helping them cope with stress. By helping kids work through their stress you’ll not only teach valuable stress management tips that will help them throughout their lives but also help to decrease the stress levels in your own life.
Another good approach to cope with increased stress this fall is to “un-schedule”. For example, there are loads of fun and rewarding extracurricular activities for children, but it is just as important that kids take time to relax and have some unscheduled time at home or outdoors. Try to reserve at least one weekday after school that is a “free day,” and stick to that schedule for the school year. Both your child and you will be much more relaxed and prepared when you allow yourselves proper downtime.”
Keep in mind that this time of year you are subject to a barrage of marketing telling you that you must go out and shop the minute the turkey is consumed. The sole purpose of these commercials is to “sell more soap”. Celebrate this year with quality family time at home. Keep the decorations simple. Buy one less gift. Instead, give the gift of listening. Trade a day of shopping for a day of listening to the dreams and desires or possibly the fears of family members. When you stop buying into the commercialism the stress level comes down.
If you are ready for a reduced stress purchase or sale of real estate, give me a call.
I could not resist the headline. As they are the only thing sure in life it makes sense to write about them. My experience gives me enough knowledge to paint a picture using broad brush strokes. Anyone thinking of purchasing real estate should discuss the purchase with their legal and tax professionals.
Let’s start with a brief note about death. To be specific, let’s talk about what happens to your real property when you die. Simply put what happens depends upon where you live and how you hold title to your property.
State and federal law govern how the estate of the deceased is distributed and taxed. If you live in one of the nine community property states (AZ, CA, ID, LA, NV, NM, TX, WA or WI) and have a surviving spouse, most likely the property will automatically convey to the surviving spouse. If you place the property into a trust the trust may dictate what happens.
If you do not live in a community property state, or have no surviving spouse and the property is not in a trust, then most likely your property will need to go through probate. State law governs how the probate is handled. Some states have an inexpensive, streamline probate process. Other states have an expensive and lengthy probate process. Regardless of the state, any probate may become lengthy and expensive if there is a dispute among the survivors. This is part of the reason why it is important to create a will.
None of us want to think about death. And with the myriad of decisions to make during the purchase of real property this important issue may not receive the attention it deserves. If you have children from a previous marriage, a large estate or any other unusual circumstance it is in your best interest to discuss with the title officer or your tax/legal professional the method of holding title which will work best for your situation. You could also perform an internet search on how to hold title. Each state differs slightly so be sure that any article you read pertains to the state in which the property resides.
Moving on to taxes. As I’m sure the end result of reading about taxes is similar to that of having a lobotomy I’ll avoid lengthy discourse on the subject and limit the discourse to taxes relevant to real estate in San Juan County, Washington.
Since we were on the subject of death you should know that estate taxes will depend upon the total value of the estate including real and personal property. According to the IRS website, as of 2015 the federal tax applies to estates in excess of $5,430,000. The tax will not apply to an estate if it is left to a spouse or a federally recognized charity. Check with the state in which the property resides to determine the threshold for filing state estate taxes. According to the Washington State Department of Revenue as of 2015 that threshold is $2,054,000.
Property Taxes in San Juan County are paid semi-annually with the first half due on April 30 and second half due on October 31. The tax year runs from January 1 to December 31.
Typically the seller of real property will pay property tax to the date escrow closes. The buyer will pay from close of escrow to the semi-annual due date. These prorations are noted on the HUD1 closing statement.
If taxes have been paid on time then property taxes are pretty much a non-issue. Things become a little more complicated when the seller of real property has not made timely payments. This is where the preliminary title report becomes of value.
The purchase contract can provide a title review contingency. This contingency will give the buyer an opportunity to review the status of tax payments. If taxes are in arrears it would be a good idea to check with the escrow company to verify that there are sufficient proceeds from the sale to pay any delinquent property tax.
If the escrow closes in late March or late October I suggest the buyer contact the San Juan County Tax Assessor’s office to make sure any new tax bill is mailed to the correct name and address.
The San Juan County Land Bank Tax is paid each time the property sells. The tax is due at the close of escrow. It is typically charged to the buyer at a rate of 1% of the sales price of the property. All tax funds received go into a fund which is used to “preserve the natural heritage of the San Juan Islands”.
Washington State Excise Tax is also paid each time the property sells. The tax is due at the close of escrow. It is typically charged to the seller at the rate of 1.28% (1.78% for property within the city limits of Friday Harbor) of the sales price of the property. According to RCW 82.46.030 one percent of the funds are put into the county current expense fund and the remainder into the county capital improvements fund. Friday Harbor’s additional .5% tax funds are to be put into the municipal capital improvement fund.
FIRPTA, aka the Foreign Investment in Real Property Tax Act, is a withholding of tax on the dispositions of real property interests within the United States. It is a federal as well as a state (for those states with income tax) tax on the proceeds from the sale of real property by those persons who are NOT selling a principle residence and are NOT a resident of the state or the US. In other words, if you are selling your principle residence you are exempt from these taxes.
The seller of real property may be subject to both the Excise and FIRPTA taxes but it is the buyer of the real property who is responsible for withholding. Normally the escrow or the closing agent will perform the tasks of withholding and the filing of the proper tax forms. It is in a buyer’s best interest to use a qualified closing agent and to check with that closing agent to verify that the seller has completed the appropriate FIRPTA waiver or that the closing agent is prepared to withhold FIRPTA. Also check to ensure that there are sufficient net proceeds to pay any tax due.
Tax deductions (a favorite phrase) are one of the many advantages of owning real property. If you are ready to take advantage of some of the deductions available call or text me. I’ll get you started down the path to ownership.
In my last post I talked about using leverage to buy into real estate. I’d now like to talk about using interest rates to increase your purchasing power. That means we’ll need to do a little math.
Before I begin I would like you to know that it is best to talk with a loan specialist before you begin your hunt for a home. While I can paint a rough picture of your financing, the loan specialist will be able to provide more exact numbers for your interest rate and payment amount.
For my examples I used an online mortgage calculator I found through a search engine. My examples may not include APR or annual percentage rate. They are not intended as an offer of financing.
With a little math we are able to find a starting point for your mortgage payment. As a rough rule of thumb your mortgage payment (principle, interest, taxes and insurance) should be about one-third of your before tax income. Take your monthly gross (before tax) income and multiply it by 33%.
Let’s set aside the tax and insurance costs for now and assume that you qualify for a principle and interest payment of about $1010 per month. At 4.5% that translates into a loan amount just under $200,000. But at 4% that translates into a loan amount just over $212,000. A simple one-half point decrease in the interest rate increased your buying power by about 6%.
Turning that around…with an interest rate of 4.5% your principle and interest payment on a $200,000 loan would be about $1014 and at 4% your principle and interest payment would be about $955. That’s a $59 savings every month just by having a lower interest rate.
There are a myriad of factors used to calculate the actual interest rate you will pay. Until they change the credit rating system your FICO score will be the single most important factor. Think, higher FICO equals lower interest. Work with your loan specialist to find ways to increase your FICO score. And do so long before you begin to hunt for a home.
Improving your FICO score is one way to obtain a lower interest rate. Buying down the interest rate is another. However, before you start spending money to save money, do a little more math. To see what you will really save you’ll need to calculate the monthly savings then determine how long you’d need to hold the property to actually save money. Here’s an example using the $200,000 loan;
You pay 1% of the $200,000 or $2000 to buy down the interest rate from 4.5% to 4%. Your payment goes from about $1014 to about $955. You save about $59 per month. Divide the $2000 initial investment by the $59 per month savings. In about 34 payments you’ll have saved the $2000 you invested and will begin to save money on the loan.
Do you plan to live in the property for 2.9 years? If the answer is yes, then by all means seriously consider buying down your interest rate.
Just as interest rates vary from hour to hour and lender to lender so will “buy down points”. I suggest to all potential home buyers that they contact at least three lending specialists. Ask for a good faith estimate from each so that you will know “the other fees”. Sometimes a lender will advertise an enticing interest rate and will make up the difference by charging higher fees.
Another difficult to execute but effective method for improving your buying power through lower interest rate is to watch interest rates and time your purchase with falling rates. Of course, if you have the ability to see into the future, I doubt you worry much about interest rates.
Currently interest rates are bouncing around at historic lows making now the perfect time to maximize your purchasing power. If you think rates are due to rise in the near future, call me. If you need help finding a proven loan specialist, call me. I can help you get you into your new home before we have to worry about rising interest rates.