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First Time Buyer Current Home Owner

First Time Buyer

Things to consider

Congratulations. It looks like you are looking to start the journey to homeownership. The thing to remember is that this is a journey and not an event. So, you have to identify the goals, plan, prepare and then embark on the road. Most people look at their stage of life, and their bank account and decide that it is time to establish roots and buy a home. Here are some things to consider. Homeownership is a phasic journey. You move from one place to another, stay there for a while, and then move along to the next stop. In the past people used to buy a house and live there forever. That is not the way things work these days. Seldom you find someone who has lived in the same house for more than 10 years. Usually people move anywhere between 3-5 years. This is because life does not stay constant. It changes. Look at all the changes the come over time. Marriage; kids; education; promotions; more income; kids graduation; kids move out; old age; and retirement. All of these stages require their own living space. Over time your need for space grows, and then shrinks. Over time your ability to pay grows and then shrinks. Over time your need for personal space grows, and then shrinks. So keep in mind that you are now looking for what is called a starter home. Think of what you need today and for the next 3-5 years. Don’t overbuy and don’t over spend. As human beings we are always looking to get the best for less. We are told that we have to negotiate and try to turn every stone to find the best that is out there. This is great, but does not work in real estate. Note that you are entering the market. Short of building your own home, you have limited choices. Your task is not to find the best. It is to find the best for you. This best is not only a matter of price. There are more parameters that come in to play than price. For example, if you must have a 2 car garage, then you are limited to houses that have 2 car garages and are available on the market. If you must have a certain school district, then your choices become more limited. If you want a newly renovated house, a close neighborhood, a playground nearby, or water view, etc. The more criteria, the harder the search. So, make sure you have separated the must have from like to have. Your list of requirements for your new home should identify what is an absolute must have and what you have flexibility on. Prepare this list, and share it with your agent. It will help both of you!! I have had many clients who have started the process without proper preparation. By luck they find a property that is perfect for them, but they second guess themselves and let that property go, because they think they might find something less expensive, or with more features. Later on, after seeing another 20-30 homes, they realize that they made a mistake and they should have grabbed the home that they loved. Don’t let this happen to you. If you are prepared and know what you are looking for, then grab it and start living your life. Leave the other houses for other buyers. You found your gem, start enjoying it. It is important in the process to figure out who are the decision-makers. I have had couples that are excited about their new endeavor and get their family and friends involved in the decision process. They all visit the property and provide their opinion. If they are distant family members of friends, they will all confirm your feelings. On the other hand if they are close family members or close friends, they start looking with critical eye and throw a monkey wrench in the equation. They look at it from their own perspective and if this was a property for them, when it is not. They are at a different stage of their life and look at things differently than you do. Decide in your head who are the decisions-makers!! Who has to approve your purchasing decision and who has veto power. Whose opinion and approval is important to you and whose is not? Remember that you are the one living in the home, and you are the one that will be paying the mortgage. Resell value As you look for your new home keep in mind the resell value. As I mentioned above, this is a temporary stay and you want to eventually sell this home to someone else. So, think about the resell value to other buyers too. Make sure that the property is in a desirable location and has attractive features. If it does not, then think about what you might do to the house over time to make it more desirable and therefore more valuable. Work with your agent and talk to them about this. They can be a great source for such information. How long you will be in this home Based on your personal situation, you are the only one that can answer this, but this is important to answer. How long you will stay in a home will dictate a lot in the purchasing process, with the most important being selection of mortgage. For example, if you are newlywed and are starting a family, you have a good 5 years before you have to worry about schools and wanting to move to a better school district. If you have kids in elementary schools, then the time to move would be before they enter middle school, and if in middle school now, then you have 3-4 years before high school, etc. These are main considerations. Your job and income is another function that could impose on how long you might stay put. Give this some though and decide. It will help right-size the home you are buying. Property tax Most new homebuyers only look at the price of the property in their selection process. Note that there are other costs that limit how much of a home you can buy. One of those is property taxes. Property taxes vary from town to town. They are not constant. Each county has its own rate and each city its own rules for allocation of taxes. You do not want to pay more taxes than you need to. For example, if you are newlywed and are thinking about having kids, you do not need to be in a great school district and pay higher property taxes that mostly go to schools, as you will not be needing those services for another 5-7 years. So, don’t make great school district a must have criteria. Find a town with less taxes so you can save the money for when you need to pay the higher taxes of better school districts. When you look at homes and their prices, take a close look at how much taxes you will have to pay. I have a lot of information under Research tab that helps you hone in on the right city/town, based on property taxes. Condo vs House This is an important decision. Do I want a house or a condo? Which one is better for me? Here are things to consider. You own a house outright. You own the property and are responsible for all the upkeep and maintenance of the property. You can maintain the property as you go, or wait for something to break and then fix it. You can budget for surprise expenses, or not. For sure there are some ongoing maintenances that you have to do such as cutting the grass, and removing snow, etc. If you are one that is handy and sees a house as a hobby and ongoing project, then great. On the other hand, a condo is part of a group, and has limitation. You own the inside of the property, and share the outside with everyone else. Each condo has a Home Owner's Association (HOA) that is responsible for managing and taking care of the property. You have to pay a monthly fee to them to take care of those services. It is important to note that the HOA fee is considered by lenders in the evaluation of how much money you can borrow to buy. A benefit of condo ownership is that the association takes care of the building and the grounds. So, they make sure the roof is solid, the asphalts do not have cracks in them, the structure of the building is maintained, grass is cut on time and snow is removed. You will be responsible for everything inside the unit. So if you buy a house, you are full owner and have to take care of everything, but you do not pay out a monthly fee to an HOA. On the other hand, if you buy a condo, you have less outside responsibility, but you pay an association to take care of those for you, and because of the HOA fee, you have less buying power. If you like to discuss this more, ask me. I am happy to help. Tax deduction We all pay income tax to the federal and state government. As homeownership is part of the American Dream, these governments have provided incentive for people to own homes. This incentive is in the form of tax deduction. Certain expenses associated with your homeownership is deductible on your state and federal taxes, which lowers your tax liability, and pays down a portion of your monthly payment. Typically the most important deductions are mortgage interest, and property taxes. So at the end of each year, the total amount of mortgage interest that you have paid to any lending institution, and property taxes that you have paid to local governments are deducted from your total income, which lowers your taxable income base. This is very helpful and is the gravy on top for any homeowner. It is important to note that HOA fee is not deductable, only mortgage interest, and property tax. Mortgage selection There are several types of mortgages out there. You should talk to an expert lender to figure out what works for you and what is available. Here I will provide a primer to understanding mortgages and how one could chose between the many options that are available. It is important to chose the right mortgage as it is the primary limiting factor on your buying power. How much of a house you can buy is subject to how much money you have to pay the monthly mortgage payments. Lenders figure out how much they are willing to loan you based on a calculation that takes in to account your total monthly debt obligations and your income. So it you have a car loan and some credit card payments, then you qualify for less mortgage. If you have no monthly loan obligations, then you qualify for more mortgage. There are two major components to any mortgage, 1) duration of the mortgage, and 2) interest rate. Most mortgages are 30 year mortgages. This means that they are designed so that the monthly payment is low, but take 30 years to pay off. The longer the period, the lower the monthly payment obligation, therefore, the higher amount you can borrow. The other factor that affects how much you can borrow is the interest rate. The higher the interest, the higher your monthly obligation, and lower mortgage you can qualify for. So it is important to find the right mortgage parameters. Note that mortgages are not like car loans or credit card loans. In a simple interest loan, such as a car loan, each payment is split to a portion for interest and a portion for principle. The split between the interest and principle is constant for every payment. On the other hand, mortgages are designed so that you start with your monthly payments paying a large percentage towards interest and small portion toward principle. As time goes by, your interest payment reduces until towards the end of the term you are paying mostly principle. This is done by mortgage companies to take advantage of the fact that most people stay less than 30 years in their home and switch in 5-10 years. So they take a lot of interest from you in the beginning. There are two types of interest, fixed and variable. In a fixed interest, you pay a higher interest, but your interest and monthly payment is fixed for the entire 30 years of mortgage. With variable interest, your interest starts lower, but it adjusts yearly. The adjustment is tied to some sort of index that is not under the control of the lender and is tied to the economy. There are variable rate mortgages that have a fixed rate period, and then convert to annual rates. Typical ones are 5/1 and 7/1 mortgages. A 5/1 mortgage is a variable 30 year mortgage that during the first 5 years is fixed, and then it adjusts annually. In the above sections we discussed the need to figure out how long you want to stay in this new home. One of the reasons is in selection of the right mortgage. Selecting the right mortgage will help you save money and increases your buying power. There is more to mortgages than these few paragraphs. Talk to a few lenders and find out what the current rates are, what configurations they offer, and what fees they charge. Your real estate agent could be your guide in this process and not only educate you more, but also tell you about going rates and best lenders to work with to get the best deals. Work with a dedicated agent or not? Many people think an agent is someone that opens the door for you to see a house that you had found online. This is far from it. A real estate agent should be your partner in the process. They are there to make your buying and selling process smoother and take on some of the weight. How effective they are depends on how you manage the relationship. Some buyers like to be in control of all aspects of the process and do everything by themselves. They want to spend time on the computer and search for their own, call on each property, talk to listing agents, plan for visit, and then move on to the next one. This is a very painful process. It requires a lot of time, and doing all with little or no experience. I do not understand why people insist in doing this as it saves them nothing, but will bring them a lot of hassle and headache. The truth of the matter is that buyers do not pay any commission to their agent. Even buyer agents get their commission from the seller's agent. If you work with your own agent, your agent gets paid a portion of the seller's already committed commission. If you do not have your own agent, then the seller's agent gets to keep all of the commission to themselves. Some people think that it is good to work with the listing agent. It is not. Given that the listing agent is in the service of the seller, the agent has the duty of looking out for the benefit of the seller, and not you the buyer. So, there is a conflict of interest. You always want your own agent to represent you, assist you, look out for your benefit, and negotiate for you. The online sources of information are stale. They are not up to date and many of them are wrong. I have people calling me almost every day asking to see a property that is either under contract, if off the market, or even sold already. Only realtors have access to the most up to date information that is in MLS. So it saves you time and aggravation if you work with an agent. Finding the right home is a process. It requires investment of time from you and the agent that you are working with. You have to communicate your needs and help define the search criteria, and the agent has to do the work to find you the right house in order to earn his/her commission. Every time you work with a new agent, you start anew. You have to go over the same details. If you have committed to work with a single agent, then the process will become easier over time. Your exclusive agent becomes familiar with your needs and will assist you along the way, to the eventual closing of your home. People that insist on working on their own, not only save nothing, but lose out a lot. Remember that you pay nothing to the agent, and the agent that represents you on the last house gets the full commission that was coming to them. So, why would you take on all the work on your shoulder and still pay someone else for what they should have done? And, why would you spread the pain to multiple agents and then pay the one that happens to be lucky enough to show you the right house? Find the right agent for you. Give them exclusive attention, and expect a high level of commitment from them. Give them your criteria. Expect them to work for you. And hold them to it. If they don’t deliver, fire them, and hire a new one. But always work with one!!!! How to select and hire an agent? Real estate agents earn their living by selling their time and services. They are looking to find the right client, and serve them right to the end of a transaction. The issue is that there are people in the market who are casual lookers, not serious about buying, not financially qualified to buy, and are not committed to any agent. So, finding the right client is shooting in the dark. The right client is someone who knows what they want, work diligently with a single agent, know how much mortgage they qualify for, and want to get to close as soon as they can. Short of clients actually saying this, agents have to guess. Not knowing the truth, they also become hesitant in committing too much of their time. I have had clients whom I showed more than 50 properties to, before they found the right one and purchased. Not too many people are willing to do this. Imagine working with someone who had not given you their exclusive commitment, but want so much service from you with no pay, and no clarity on outcome? Not too many agents would want to do this. This is why most agents will show you 5-8 properties and cut ties. They do not know if you are for real, but are not willing to ask, and not willing to hang around more to find out. My recommendation is to do a little research, and sit down with an agent, and interview them until you hire one. Once you hire them, become exclusive and give them the assurance that if they provide you their best service, you are going to reward them by letting them finish the transaction. Put conditions in place that allows you to get out of the relationship if they do not deliver on the promise, and hold their feet to the fire. Communicate with them. Tell them what is good and what is bad. Tell them if they are doing something wrong that you do not like. Remember you are the boss. If you build the relationship and show your commitment, you will get, or at least should get, a great service. Something that would not only get you to your goal, but will do that with less hassle, headache and aggravation. I like to believe all agents will respond well to this situation. I know I would. I have had many clients who initially approached me telling me that they uncle, aunt, friend, etc. is an agent and they want to work with them. I always wondered, then why are you not calling them and you are here talking to me? Why are you at my open-house by yourself and not with your agent? Etc. Though it might be good to work with a sibling or parent who is an agent, anything further than that in relationship becomes awkward and unproductive. People do not want to open up their financial situation to their friends and family. They do not want to share with people close to them what they can and cannot afford. Also they do not want to be influenced by friends and family and put in a difficult situation. After all, how can you fire your best friend when they are not performing, and they are pushing you in to a situation you do not want. It is always good to have a professional who is focused on the process and transaction, and leaves all the private decision-making and selection to the buyer, with no position to influence. It makes both sides comfortable, and the relationship professional and business based. Keep business separate from family and friends, if you want to keep them.

Current Home Owner

You are an expert As you have already gone through the purchase process at least one, you do have some experience and familiarity with the process. Good. It makes life a whole lot easier for both of us. Though you are familiar with the steps of the process, the real estate world has changed. Market has changed, buyers have changed, finance have changed, and expectations of buyers have changed. All of this means that what worked for you during the last transaction is not going to work now. Keep in mind that I have a lot of tools and information on my Research tab that can help you understand what you are stepping in to. Also, I am happy to sit down and share with you my view of the market and give you a good assessment of the property that you currently have and might want to sell. In preparation for this journey use my Buyer's Questionnaire to collect your thoughts and share them with your agent of choice.

847-791-1264

Afrouz.Kameli@BairdWarner.Com

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