Benefits of Owning Compared to Renting- Good Investment
General Tips

As a fairly general rule, homes appreciate about 5% a year. The appreciation value may be more in some years and less in others and will vary from neighborhood to neighborhood and region to region.

Initially, 5% may not seem like that much. At times, stocks appreciate much more, and you could earn over 6% with the safest investment of all, treasury bonds.

If you bought a $200,000 house, you presumably did not pay cash for the home but instead financed through a mortgage. Suppose you put as much as 20% down – that would be an investment of $40,000.

At an appreciation rate of 5% annually, a $200,000 home would increase in value $10,000 during the first year. That means you earned $10,000 with an investment of $40,000. Your "return on investment" would be a whopping 25% annually.  Your rate of return when buying a home is higher than most any other investment you could make.

Income Tax Savings
Because of income tax deductions, the government subsidizes your purchase of a home. All of the interest and property taxes you pay in a given year can be deducted from your gross income to reduce your taxable income.

For example, assume your initial loan balance is $150,000 with an interest rate of 8 percent. During the first year you would pay $9969.27 in interest. If your first payment is in January, your taxable income would be almost $10,000 less – due to the IRS interest rate deduction.

Property taxes are deductible, too. Whatever property taxes you pay in a given year may also be deducted from your gross income, lowering your tax obligation.

Stable Monthly Housing Costs
When you rent a place to live, you certainly can expect your rent to increase each year – or even more often. If you get a fixed-rate mortgage when you buy a home, you have the same monthly payment amount for 30, 20, 15 or 10 years. Even if you get an adjustable rate mortgage, your payment will stay within a certain range for the entire life of the mortgage.

Forced Savings
Saving money can be a big challenge for some people, but with a house, you have an automatic savings account. You accumulate savings in two ways. Every month, a portion of your payment goes toward the principal and the equity increases.

Second, your home appreciates. Average appreciation on a home is approximately 5%, though it will vary from year to year, and in some years, it may even depreciate. Over time, history has shown that one of the very best financial investments is owning a home.


** See a tax consultant for details and guidelines for tax deductions.

House Hunting
General Tips

Hunting for a house can be an overwhelming experience.  It is easy to forget one house after seeing so many.  Don’t become frustrated when you don’t immediately find your dream home.  On the other hand, the thrill of the hunt can distract you from essential wants and needs.

• PICTURE IT:
  Take photos of the house to keep on file.
• USE TIME WISELY:
  Don't make "spur-of-the-moment" decisions. Consider the decision carefully. Take your time in selecting your home.
• GET IT IN WRITING:
  Take notes about what you see, like and don’t like in the house.
• COMPARE AND CONTRAST:
  Review your notes, and compare houses against your wants, needs and budget.
• TWO HEADS ARE BETTER THAN ONE:
  Bring your spouse, a family member or friend. It's useful to get another person’s feedback.
• GET TO THE BOTTOM LINE:
  Determine the utility, maintenance costs, taxes, insurance, etc. How much have these costs increased in the past few years?

   

Appeal of New Homes
General Tips

• New homes have a longer life expectancy, and often appraise higher than a pre-owned home. Future resales are favorable at these appreciated prices.
• Most new homes have at least a one-year warranty on the home and a five - year warranty on major appliances. Some builders extend structural warranties to 10 years.
• When you buy a new home, you get to pick the options you want, including the floor plan, choices of optional rooms, extra square footage, upgrade materials, and color choices. You can make the home fit your needs and personal tastes.
• Especially in a market where many new homes are under construction, new home prices are usually more competitive. It is also easier to comparison shop a new home to ensure that you are getting the best value.
• A new home will meet all current safety and environmental codes. You are assured that toxic materials such as asbestos and lead-based paints have NOT been used in the construction. A new home will have lower maintenance requirements in its lifetime.
• New homes usually have open space. You can choose family rooms, libraries, and even home theaters. They are equipped for modern electronic equipment, such as microwaves, TVs, multiple telephone lines, stereo equipment, faxes, and even networked computers.

Choosing a Neighborhood
General Tips

As you consider your housing choices, also strongly consider your neighborhood options.  The neighborhood you live in is as important as the house itself. 

• Commute:
  Do I need a quick commute to work? Keep in mind short commutes limit your neighborhood options.

• My personality:
  Do I prefer country, suburban or urban living?

• Family:
  Is a certain school district important to me? Do I need to live near my parents?

• Downtime:
  Do I want to live close to my church or temple or have a short commute to school?  What entertainment venues are nearby?

• Future zoning and development:
  Is the park behind my house going to be developed in the future? Does this community have plans to build a large attraction of some sort?

• Neighborhood age:
  What will a new neighborhood look like in 10 years? Am I satisfied with an older neighborhood, knowing it may not change much?

• Time of day:
  Does the neighborhood feel the same at night as it does during the day? Is weekend traffic heavier than during the weekday?

• Extra costs:
  Can I afford the county or city taxes or any homeowners association fees?

• Homeowners' Associations:
  What are the homeowners association rules? Are they good for protecting home values?

• Neighborhood investment:
  Have the homes in this neighborhood held or increased in value?
  Talk to the people who live in the neighborhoods in which you are interested. These individuals will know the most about the area and are your potential neighbors. More than anything, you'll want a neighborhood where you feel at home.

Choosing the Builder
General Tips

You are going to use great care and attention to detail in selecting your new home.  Apply this same careful approach in the selection of your builder.  You will find builders who are established and reputable because they have the professional skills and specific knowledge to consistently build high quality constructions. 

Examine the business practices of this builder closely.  Have conversations with the builder’s recent clients as well as with those of the past few years. Ask:

• Would you purchase another home built by the same builder?
• What, if any, is the resale track record with the builder’s products?
• Have your homes withstood the test of time, both in maintenance and appreciation?
• How long has the builder been in the new home business?
• Are there any complaints on file with the Better Business Bureau regarding this builder?
• Does the builder offer after-sale services?
  Continue your questioning into the history and future projections for the subdivision.
• Have past promises been kept? Has the developer made future commitments to the individual home buyers, the homeowners association, the local municipality? If so, what are those commitments?
• How will these commitments change the character of the subdivision and neighborhood?

Builders are generally motivated to sell
Unlike existing home sellers, the builder typically has little emotional attachment to the property.  Therefore, the buyer has an advantage.  The builder’s business can not succeed without selling a home.

Some of the most advantageous buying opportunities are:

• In a “slow” or “down” market:
  Sometimes, builders have excess inventory. Even if it means reduced profits through lowering the sales prices, a builder may want to keep his or her inventory moving and crews busy, especially when facing the pressure from construction lenders, suppliers, and subcontractors.
• At the beginning of the development process:
  At this early stage of the development, prices are often lower, and the selection is much greater. Early sales help builders gain credibility with future buyers as well as construction lenders. With such importance placed on generating sales momentum, builders many times are willing to negotiate extensively during this period.
• The last home in the subdivision: 
  Builders usually have a large cash investment in the remaining units due to the way construction financing is structured. It is at this point that builders are ready to move to the next subdivision.
• The sales model, and if you wish, lease it back to the builder:
  Models typically have many upgrades and superior craftsmanship.
   

Written Proof that You Qualify
Understanding the Purchase Contract

Getting qualified for a loan is the first step in the home buying process. Before negotiating with the seller, they often require written proof of the buyer’s financial qualification.

Pre-qualification and pre-approval are the two kinds of written proof for mortgage qualification. In a pre-qualification letter, the lender has been provided with certain financial details by the buyer and, therefore, based on verification of these details, agrees to give a loan to the buyer. At this point, a credit report is not required.

A pre-approval letter is the second written proof. Because the buyer has already gone through the loan approval process, this is the stronger letter. The lender will conduct checks on the buyer’s credit and debt information with a formal credit report from one or several credit bureaus and also confirm the buyer’s income with recent pay stubs and W2s. While it provides increased chances of obtaining loan financing, the approval process takes longer due to verification of the buyer’s finances.
 

Extending the Offer
Understanding the Purchase Contract

When you extend an offer of the price you are willing to pay for the home (also called a “bid”), the seller of the home has several options. The seller may choose to accept, reject, counteroffer, or not respond to the offer.

A common belief of buyers is that they may continue house hunting after an offer is made. Notification of the seller’s acceptance of the bid on the house, however, creates a legally binding contract.

If the seller rejects the offer, makes a counteroffer or doesn’t respond, you have the following choices: to accept the counteroffer, to make another offer or to reject the counteroffer and continue your search. Thoroughly thinking through your choice to extend an offer on a home is very important.

Be specific about the following details in your bid:

• Your offered purchase price – the bid.
• Concessions you would like the seller to make, such as contributing to the closing costs.\
• Financing contingencies, such as approval of a satisfactory mortgage with specific interest rate and terms, etc.
• The amount of earnest money – your deposit – that is being attached to the offer.

Be sure that you have everything in writing. NEVER RELY ON VERBAL AGREEMENTS. The seller is not legally bound to anything discussed, promised, mentioned or agreed upon unless it is specified in the writing of the contract.

How Financing Details Affect Your Offer
Understanding the Purchase Contract

Since most buyers do not have enough liquid assets or cash to purchase a house independently, a mortgage is often needed to provide the financing for the purchase. One of the main reasons that the details of your financing are included in your bid is because the seller has the right to know of the financing arrangements since the purchase is reliant on you obtaining a mortgage.

Down Payment
The amount of your down payment will be included as part of the offer. This is an item of the financing arrangements that the seller is able to evaluate to determine your probability of finding a mortgage. A larger down payment increases your chances for obtaining a mortgage.

Asking for Closing Costs and Financing Incentives
As a part of the bid, you may ask for all or a percentage of your closing costs to be paid by the seller or for another sort of financial incentive to be provided by the seller. Often buyers request that the seller pay for the title policy. Another common request is asking the seller to buy down your interest rate for the first year or two. If the buyer is low on funds or close to the limit of their debt to income ratio, these incentives can have a profound impact on the outcome of the purchase.

Earnest Money
A common belief of many home buyers is that a down payment is all that is needed when extending a bid on a home. When offering to purchase a home, an earnest money deposit must also be put up by the buyer as an expression of your commitment to follow through with the offer.

An earnest money deposit also serves as a partial payment of the purchase price of the home, and this amount is deducted from your down payment at closing. Your builder’s salesperson will know more about the amount of required earnest money for your specific purchase in greater detail.

Contingencies in a Purchase Offer
Understanding the Purchase Contract

Most purchase transactions go through with no trouble except for only an occasional challenge or two. It is wise, however, to be prepared for potential problems in case something does go wrong. You need conditions to list that will allow you as the buyer are able to cancel the contract without penalty if they can't be met. These are called "contingencies," and they must be included when you make an offer to buy a home.

Contingencies are appropriate in a number of circumstances. One example is when a buyer agrees to buy a house before selling their previous home. While the home may be already under contract, the sale is most likely pending and has not closed. Therefore, it is wise to have a condition of your offer be the closing of your own sale. You may be responsible for two mortgage payments if you do not include this contingency.

Another condition of your offer should be that you successfully gain adequate financing if you require a mortgage to purchase the home. Another contingency should be that the property appraise for at least the sale price. An additional condition should be that the house passes all inspections commonly conducted during the inspection period.

Contingencies protect you in situations where you are unable to carry out or decide not to carry out an offer to purchase a house. Without contingencies and built-in conditions, canceling a contract will result in the forfeiting of your earnest money deposit.

The Closing
Understanding the Purchase Contract

The closing is the final step to buying a home. The meeting generally takes about an hour and is held at the title company office as specified on your contract. 

To obtain a final listing of the costs of the mortgage transaction, you should request a HUD-1 Settlement Statement from your title agent at the title company. The HUD-1 Settlement Statement is a final listing of the costs of the mortgage transaction. It provides the sales price, down payment, and the total settlement costs required from the buyer and seller.

Important note:
To cover the closing costs and the balance of funds due, you must use a certified check or cashier’s check made out to the title company or a wire transfer.

The closing agent will receive a check from the lender that covers the mortgage. If your annual homeowner insurance and property taxes are included in your mortgage payment, your lender will set up an escrow account. This escrow account is is similar to a bank account in which the lender holds your money until it is time to pay the real estate taxes and insurance. After you sign the documents, the title agent officially will record the mortgage and deed at your local government's recording clerk office. The title agent will also distribute the required funds to the other parties, such as the seller of the home, the real estate agents, the lender and the homeowner insurance company.

It is important to to review the payment letter in your closing documents that tell you where your first payment should be sent.

Homeowners Insurance
Service Providers

Consider the worst-case scenario: your house is destroyed, and you must now rebuild it. Your home, therefore, should be insured for the total cost of its rebuilding in case it is ever damaged or destroyed. Without adequate coverage, your insurance company could pay only a fraction of the total costs required for restoring, repairing and replacing the damaged and lost items.

Your home can be insured in three different ways:

• Replacement Cost Coverage: the insurance company pays the cost of replacing the damaged property to the policyholder without deduction for depreciation, but it is limited to a maximum dollar amount.
• Guaranteed Replacement Cost: the policyholder is paid the full cost of replacing damaged property without a deduction for depreciation and without a dollar limit. You will not find this coverage available in every state. To provide protection against immediate construction cost increases because of a building supplies shortage, some companies limit the coverage to 120 percent of the cost of rebuilding your home.
• Actual Cash Value policy: the insurance company pays the amount equal to the replacement value of damaged property minus an allowance for depreciation to the policyholder and minus your deductible. The coverage is for actual cash value unless a homeowner’s policy specifies that property be covered for its replacement value.

You are able to calculate an estimate of the amount to rebuild your home by multiplying the local building costs per square foot by the total square footage of your house. Consult your local builders association or real estate appraiser to find out the building rates in your area.

Certain factors will determine the cost to rebuild your home. These include:

• Local construction costs
• The square footage of the structure The type of exterior wall construction -- frame, masonry (brick or stone) or veneer
• The style of the house (ranch, colonial)
• The number of bathrooms and other rooms
• The type of roof
• Attached garages, fireplaces, exterior trim and other special features like arched windows
   

12 Ways to Save Money on Homeowners Insurance
Service Providers

When looking for homeowners insurance, use the many resources available to you. You’ll find valuable information through magazine articles in addition to friends, family, the phone book and Internet. It’s best to collect a wide range of prices from a number of different companies.

• SHOP AROUND
  When looking for homeowners insurance, use the many resources available to you. You’ll find valuable information through magazine articles in addition to friends, family, the phone book and Internet. It’s best to collect a wide range of prices from a number of different companies. In addition to a fair price, the insurance companies you select also should offer high-quality service. While this outstanding service might come with a higher cost, it is important to be associated with an insurance company with a well-respected reputation, especially in the instances when you need to make a claim. To obtain a full understanding of the types of services these companies offer, have conversations with a few of their insurance representatives. Find out from them what they would do to lower your costs. Research the companies’ financial ratings with AM Best or Standard and Poor's.

• RAISE YOUR DEDUCTIBLE
  The insurance company will pay toward your loss after you have paid the deductible amount as required in your policy. Deductibles on homeowner policies start at $250. Increase your deductible to:

  $500		save up to 12 percent
  $1,000		save up to 24 percent
  $2,500		save up to 30 percent
  $5,000		save up to 37 percent

  The maximum deductible required by mortgage companies is 1% on homeowner insurance policies.

• TWO IN ONE
  Buy your home and auto policies from the same insurer. You can possibly save 5 to 15 percent off of your premium by purchasing two or more policies from a company that sells homeowners, auto and liability coverage.

• NEW OR OLD, EVERYWHERE YOU GO: CONSTRUCTION MATTERS
  Consider the cost of insuring the home you wish to buy. The overall structure along with the electrical, heating and plumbing systems of a new home are likely to be in better shape than those of an older house. Because of this, buyers of a new home may receive an 8 to 15 percent discount from their insurers. You also save money by buying a home that is not in the 100-year flood plain. Flood-related damage is not covered by homeowners insurance but by separate flood insurance.

• INSURE YOUR HOUSE, NOT THE LAND
  Since the land under your house is not at risk from theft, windstorm, fire and the other hazards covered in your homeowners policy, you do not want to include its value while determining the amount of homeowners insurance to buy. This inclusion will result in a higher premium.

• IMPROVE YOUR HOME SECURITY AND SAFETY
  Installing a smoke detector, burglar alarm or dead-bolt locks can typically result at least a 5 percent premium discount. Premiums can be cut by 15 to 20 percent with the installation of an advanced sprinkler system and a fire and burglar alarm that notifies the police station or another security service. This discount does not apply to every system, and they tend to be costly, so be sure to conduct research before purchasing these security measures. Before investing in these systems, ask your insurer which systems are recommended and the savings impact these would have on your premiums.

• NO SMOKING
  Smoking is the cause of more than 23,000 residential fires annually. Reduced premiums are offered to policyholders by some insurers if no inhabitants smoke.

• IT COMES WITH AGE
  Typically, individuals who are retired have more time at home and therefore are more quickly able to deal with hazards to the home, such as fires. With more time available to maintain the home, a 10 percent discount on your premium may be available to you if you're at least 55 years old and retired.

• THE MORE, THE MERRIER
  Insurance companies and alumni and business associations often collaborate on an insurance package that includes a discount for association members. Find out from your association's director if there is a discount on homeowners insurance offered to you.

• BE TRUE TO YOUR SCHOOL
  Special consideration may be given to you if you've kept your coverage with one particular company over several years. If you remain with the same insurance provider for 3 to 5 years, your premium could be reduced by 5 percent; you may be able to save up to 10 percent if you stay with the same insurance company for 6 years or more.

• ANNUAL REVIEW
  Compare the limits in your policy to the value of your possessions at least once a year. You want any major purchases, changes, or additions to your home to be covered in your policy. However, there’s no need to pay more money for unneeded coverage.

• HAVE “PRIVATE” THOUGHTS
  It would be beneficial to talk with an insurance agent or company representative if you live in a high-risk area that is especially vulnerable to coastal storms, fires, or crime and have been buying your homeowners insurance through a government plan. A lower price may be available to you in the private market and may require only a few easy steps.

Final Walk Through Inspection
Service Providers

Prior to closing, you would be wise to revisit the property to verify that it is in the condition you have outlined in your purchasing offer and to be certain that required repairs have been completed to your satisfaction. It is best to do this final inspection no later than 1-3 days before you plan to close. Be sure to have this right of a final inspection included in your bid to buy the home.

This final inspection report should describe anything not to your satisfaction. Before your move in, even minor details such as scratches and incomplete paintwork should be addressed. After you settle in your home, the other items can be corrected. If you choose, you can hire a private building inspector or engineer to conduct the inspection on your behalf.

During your inspection, address the following areas:

The Exterior

• Grading slopes away from the house for drainage

• The sod is laid

• The siding is placed evenly and nailed securely to the walls

• The brickwork is spaced evenly and clean

• Caulking around windows, doors, garage door, electrical outlets and fixtures is in good condition

• Inspect paint and stains on all surfaces and trim for coverage and color

• Securely fastened shutters, fascia and gutters

• Clean shingles with no lifting corners

• Garage features non-combustible materials on the wall adjoining the house

• Properly functioning garage door

The Interior

• Clean basement with no cracks in the walls and a floor drain in the lowest part
• Quality wooden joists in basement
• Instructions and warranty cards for appliances and equipment
• Well-fitted doors and secure locks for outside doors and doorstops
• Lockable windows that open smoothly
• Smooth and even walls with no cracks, visible seams or nail marks
• Correct paint color and even paint coverage
• Good floor installation with minimum squeaks or springiness
• Smooth seams on carpet and other floor covering
• Even grouting between ceramic tiles
• Operating faucets and plumbing fixtures without chips or scratches and caulking around counter tops and fixtures
• The right materials, installation and color for upgrades and options
• Overall cleanliness with no construction debris
   

The Appraisal
Service Providers

An appraisal of real estate is the valuation of the rights of ownership. Instead of just creating the property value, the appraiser uses market data to derive a value estimate. The appraiser must take the site, amenities and the physical condition of the property into consideration when compiling the report. Before the appraiser can come to a final opinion of value, there must be a good deal of data conducted and collected. He will inspect the property as part of preparing the report.

The need to accurately define the purpose of the appraisal is essential due to the many types of value, such as Fair Market Value, Insurance Value, Tax Value and Value In Use.

Mortgage companies request the majority of real estate appraisals to confirm the property's purchase price for loan purposes. The mortgage company's position is the following:

• It has two sources of repayment: the purchaser's income and the property.

• The responsibility to repay the loan is not based upon the property's value, so the purchaser is obligated to pay the note even if the property value declines to zero.

• The loan may be insured or guaranteed by a government agency.

• The government does not promise to pay the purchaser's debt if the property value is wrong.

• If the loan is greater than 80% of the value, a private mortgage insurer may insure a portion of the loan.

• There is no decrease in risk for the purchaser regardless of the loan-to-value ratio. The investment by the purchaser is the same, a mixture of personal cash and a loan that must be repaid.

Title Insurance Policy
Service Providers

An owner's title insurance policy protects the owner against title defects in the property. A mortgage title policy protects the holder of the mortgage on the property. Separate policies are required to protect both interests.

After the buyer’s deed is delivered and recorded, the owner’s policy of title insurance is issued. Typically, a purchaser’s policy is issued after both parties have executed the contract and the title agent has recorded the deeds.

The coverage of your policy applies only to matters that appeared of record up to the date of issuance of your policy. Some documents may have been recorded since that time; some of these may affect the title to your land. There may be accrued and unpaid taxes and assessments along with possible court actions affecting your title. The purchaser is entitled to have full information and protection as to the condition of the title right up to the date of his/her purchase. In addition, there may be matters of record which would prevent either the seller or buyer from selling, buying, or mortgaging land until such matters have been cleared. These items include such things as federal tax liens, judgments, divorce actions and other conditions, which the title search may disclose.