Category Archives: Buying a House
Hire a Local Real Estate Agent
It is important that you hire a real estate agent who will have knowledge of the local area. He will be able to suggest the best properties which will be within your allocated budget. He will know about the areas which are prone to high tides, storms, and floods and will ask you to avoid those areas. Through his contacts, you will also be able to negotiate a better price.
Scout for the Right Location
Don’t just buy a house because it touted as ‘hot’ property by your real estate agent. Apart from considering whether the house faces the beach or not, you will also have to ensure that it is not located in a completely isolated area or one which is overcrowded. Try to rent a property in the neighborhood and stay there for a few days to understand about the public transport, availability of medical help, supermarkets, electricity, etc. Just imagine what will happen if there is a medical emergency and no hospital within the vicinity.
Investigate the House
Most importantly, speak to the neighbors to see what kind of company you will have. Understand about the history of the area and the house. Understand about the house’s safety and security quotient from them. If possible, check the photographs of the coastline around the house, over a period of years. You can also utilize the public library to get details about the area or merely google them. Also, do not forget to order a Comprehensive Loss Underwriting Exchange (C.L.U.E.) report from your insurance agent to get a 5-year history of the home. You should also get the natural hazard disclosure report.
Size of the Beach House
So you always dreamed of a grand beach house by the sea; however, given your budget, you are only able to afford a small one. Ensure that you get a house where you will be easily able to fit your family and other visitors. See that the beach house comes with utilities like furnace, AC, solar panels, a proper sewage and drainage system, electricity, etc. If you do not have a budget for a bigger one, wait till you have gathered funds, or buy a decent beach house and furnish it with foldable furniture to save space.
Decide the Utility
An asset like a second home when not utilized for rent will become a liability as you will still have to pay insurance and other dues for it. Hence, it is advisable that whenever you are not occupying the beach house, you must rent it out to other people who need a good place to stay during their vacation. This will help get some income, which can go as funds towards your loan repayment.
You would definitely not want to invest in a house which will be prone to problems due to high tides, sea storms, floods, etc. You will like to stay in a house that will be safe for you and your family members. Hence, it is advisable that the house you intend to buy is surveyed by the geological surveyor or a local building and conservation agency. This inspection will tell you if the house is on a stable land or one that is just eroding away. Ask the inspector to also check the plumbing and ventilation. Also, a beach-facing house will face more wear and tear because of the salty air, water and winds, problems to foundation and wood, and troubles such as rust, and molds. The inspector will let you know whether buying the house at that specific location will be a good decision or not. The last thing you would want to do is buy a house in an area which is prone to storms and floods as they can make you shell out a lot of money on expensive repairs. Even if it is a new property, it is advisable that you do not skip the inspection process.
Ideally, you should buy raised or elevated beach houses, especially those that are located on the shorefront. If you do not want to let go of a good house in a flood-prone area, you can raise it to avoid the water from affecting its exterior. Ensure that your house is based on a foundation that adheres to the requirement of your zone. Also, check that it is above the FEMA’s Base Flood Elevation to avoid damage due to floods. You can also check the flood profiles and the Flood Insurance Rate Maps (FIRMs). This will also help determine the amount of flood insurance that you will have to take. It is advisable that you visit the FEMA website to get more information about this.
Look Beyond What Meets the Eye
Check if your beach house is going to be part of a homeowner association or any other community association. These associations look after the maintenance of common areas, beach access, etc. If you have a beachfront house, you may have to adhere to the rules and regulations set by these association. You must also verify how financially and legally stable these bodies are. The last thing you would want to do is to have a house in an area where these associations do not have adequate funds for certain services that can raise the value of your house or get you a better resale bargain. Conduct some online research on these associations before you decide to buy a beach house in their area. You can also read the minutes of meetings on their website to get a firsthand account of their proceedings.
Don’t think that once you buy the house, it will remain in good condition without any special care. You will have to undertake its maintenance from time to time. Otherwise, the salty ocean winds and harsh climate will deteriorate the paint, metal fittings, etc.
Know About the Total Costs
You will have to pay for the cost of the house and the brokerage. However, this initial cost of the beach house is only the tip of the iceberg. Remember that if you are not planning to stay there throughout the year or are going to lease it out, you will require to hire a property manager. Apart from this, regular maintenance will be necessary to keep the house in an inhabitable condition. You will also have to spend on property taxes, insurance of the house, utilities, loan interest, etc. Hence, calculate the estimated costs for all these factors when you will consider the affordability quotient of the beach house. Undertake cost comparison in a particular area, and negotiate the rates before zeroing in on a single beach house.
Do not just buy a beach house because you wanted to have an investment. Understand how it will fare as a long-term investment after a certain number of years. The cost of the property should appreciate over a period of time and fetch you a good bargain once you decide to sell it. If this is not expected to happen in the area of your beach house, reconsider your buying decision.
If you are buying a beach house in partnership with a friend or family, decide the terms for distribution of the rental income. If you have pitched in 60% and your friend has expended 40%, know who will get a greater share in the rent. Try to buy a beach house in the US itself, instead of buying it in a different country. Also, ensure that your beach home is within the driving distance from your residence. You will have to pay taxes on this house, so visit a tax consultant to know about your tax liability. Look at the history of the area to ensure that it is not prone to natural disasters. Also, it is important that you undertake a thorough due diligence before finalizing the deal.
However, if you want to settle down permanently, in an area that is near to your workplace, or to your kid’s school, it is advisable to invest in a good house. Before making the right decision, you will have to consider the pros and cons of renting vs buying a house. Here is a list of factors that will help you make the right decision.
If you are looking for minimum responsibility
So, you have rented a house on a six-month or one-year lease. Whether it is repairing the roofing, taking care of the water leakage, replacing the floor, or getting a new paint job, if you are a tenant, you don’t have to worry about the expenses at all. On the other hand, if you buy an apartment, as a homeowner, the responsibility of undertaking any kind of repairs and refurbishment lies solely with you. You will have to bear the expenditure as well as find the right people to complete the job.
Preferred Option: Rent
In most cases, your renter’s agreement will clearly state that any kind of major repairs will be borne by the homeowner. Hence, renting is a great option if you are aiming at shouldering minimum responsibility.
If you do not want to opt for a mortgage loan
So you have decided to buy an apartment by applying for a housing loan. Before you begin with the application procedure, spare a moment to go over a few things. Have you considered the amount you may have to pay as down payment, the interest incurred, inspection, processing charges, etc. Needless to say, have you considered the time you will be taking away from your job to complete the lengthy formalities involved in availing and sanctioning of the loan. On the other hand, renting a place will not require you to invest your valuable time and go through scores of paperwork.
Preferred Option: Rent
The amount for the deposit or the rent can be easily afforded every month through your income. Moreover, after the term of lease is over, you get your deposit amount back when you decide to move out. Unlike home buyers who avail mortgage loans, you do not have to worry about repayment of loan over a period of 20 to 30 years.
If you want to capitalize on real-estate investment
As you know, the value of real-estate, in most likelihood, will appreciate over a period of time. For example, assuming you are 25 years old, and you pay an X amount every month as rent, if you pay the same amount in the form of an installment towards your mortgage loans, by the time you reach 50, you will be a proud owner of a real-estate asset. Not to mention, over the years, the value of the property will have appreciated, and you would have carried out a highly profitable real-estate investment.
Preferred Option: Buy
Just imagine, instead of paying rent for 10 years, you would have build an equity in the form of a house. This would not only make you the owner of the property, but also give you the benefit of increased value.
If you want a place of your own
So, the neighbors in your rented apartment raise a huge hue and cry over the number of guests you entertain, or have issues when your children play in the yard. One can often come across such neighbors or homeowners while renting a place. In a sense, your freedom can be jeopardized when it comes to a rented apartment. Whether it is about adopting a pet, playing loud music, having potted plants, hammering on the walls, exercise equipment in the porch; you may have to compromise in certain situations. Hence, it is always better, especially if you have a family, to get a place of your own rather than rent an apartment.
Preferred Option: Buy
Owning a house provides the right environment for the development of growing children. It becomes your legal property or asset. Needless to say, the sense of ownership, security, and freedom that a ‘house of our own’ provides is irreplaceable.
If you want to avail tax benefits
If you own a house, there are several tax benefits which you can avail. If you own a home office, you will be entitled for certain deductions. When you itemize your federal income taxes, you can deduct your property tax as well as the amount of mortgage interest from it. This can help you offset the cost of owning and maintaining a house. Also, under certain conditions, if you sell your home, you will not be charged with ‘capital gains’ tax for the profit earned.
Preferred Option: Buy
You are not subjected to any kind of tax benefits as a tenant, and will not be getting any deductions on your rent amount. Hence, if you own a house, you will definitely be authorized to avail various tax benefits.
If you want to have flexibility in moving out
Suppose you have a job that requires you to travel or relocate on a frequent basis, then you should reconsider buying a house. In most cases, you will not get to live in the house, or will have to sell it before moving to another location. In case you have to move out quickly, you may not find a suitable customer for your house, and may have to settle for a less than deserving sum of money. Also, given the fluctuations in the real-estate market, one cannot be absolutely sure whether retaining and maintaining the property over a period of time will fetch appreciated prices. Hence, if you have a short-term requirement, you should choose to rent rather than buy a house.
Preferred Option: Rent
If your job or situation demands that you travel or relocate, rent is the wise option. There is no point in investing your savings in an expensive asset, like a house, when you will not be utilizing it.
A Quick Overview
Rent a house if you want to…
… build a good credit history by paying your rent on time.
… invest your savings somewhere else.
… avoid owning a depreciating real-estate investment.
Buy a house if you want to…
… permanently settle in a neighborhood.
… avail a FHA loan with a lesser down payment.
… exercise creative control over the house by renovating or refurbishing it.
Needless to say, one of the vital factors which will impact your decision whether to buy an apartment or rent a house, is budget. Unless you have the money to make a down payment, and a credit score to help you avail a loan at affordable interest rates, you will have to rent an apartment. Also, if you and your spouse earn a steady income, you can buy a house by availing a mortgage loan.
Your credit score can significantly highlight your ability to qualify for a mortgage and secure a favorable interest rate. Buying your first home or any home for that matter is nothing less than a challenge. It will require you to prove to your lender that you can afford mortgage payments through your monthly income, have a stable job, and make timely credit bill payments; something that your score will highlight through your payment history. Although the score is not the only parameter considered for this purpose, it can make you more likely to avail a mortgage loan at a low interest rate, which means lower monthly payments.
While figuring out what makes a good credit score, there are different outlooks towards it. We take a look at the determining factors.
What Influences Your Score?
For determining your creditworthiness, every lender uses different sets of parameters. This is the reason why determining the minimum score for conventional loans is difficult in some cases. In other cases, such as government-backed or underwritten loans, you need to qualify for such scores.
Lenders rely on your credit score to judge the probability of you paying your mortgage loan back on time. Factors considered for this purpose:
-Your previous payment history
-Your salary history
-Your current salary
-Your available credit
-The current acceptable scores
-The present economic scenario
If your history highlights that you have made timely bill payments, it shows that you have a good credit score. If you frequently miss your payments or pay any other loan late, it will reflect in your history, as well.
In general, lenders provide loans with lower interest rates to borrowers with 740 or higher scores on the FICO. Conventional lenders might refrain from providing a mortgage loan to any buyer if his/her score is below 620 on this scale. In tight economic conditions, a score of at least 650 is considered to be good.
What Should be Your Minimum Credit Score?
Fannie Mae, a government-sponsored body, necessitates a minimum score of 620, although 660 may be required in some cases. However, it is better to have a score of 740 or above for buying a house.
It can be difficult for first-time buyers to generate a strong credit score, the reason being their short credit histories. This is the foremost challenge for them that could be tackled. The good thing, however, is that although you have never invested in a property, you can still boost your history by purchasing products on your credit cards and then paying off the total amount in time. You can also consider improving it by paying any other availed loan on time.
Home loans financed by FHA are a good option for all, especially first-time buyers. They require a down payment of around 3.5% of a home’s purchase cost. This is quite favorable for first-time buyers who generally have low income to afford a house.
To avail it, you need to have a minimum score of 580. If you have it in the range of 500 – 579, you can still qualify for one, provided that you are ready to pay 10% or more as down payment.
As for VA loans, which are completely dedicated for active and retired military, besides their families, there is no minimum score to qualify, though a better one will mean lower interest rate.
Conventional Home Loans
This facility is not backed by the government and can be availed from any bank or mortgage company. While there was a time when qualifying for the best rates with a credit score of 720 for consumers was not difficult, today, a score of 740 or above is needed for the same.
Typically, the minimum score of 620 is sufficient for a lender to provide such loans. As for people with scores in the range of 500 – 600, interest rates will be higher comparatively.
Finding Out Your Score
It is always advisable that people find out their credit scores before they opt for a loan. This will allow them to take the required steps to better their creditworthiness, thus, getting favorable rates. For getting a free copy of your credit report from all three of the prominent bureaus (TransUnion, Experian, and Equifax), you can visit the AnnualCreditReport site. These reports encompass all the information related to your credit usage. It is not necessary that all the bureaus have the same information about your performance; they may differ and so may the scores. Make certain that the information is accurate; if it’s not, visit the bureau’s website to find out the procedure to solve this issue.
Improving Your Score
Although boosting your credit score is not easy, there are some steps that you can take to raise it over time:
Make timely bill payments
Pay your credit card debt
Avoid taking several new credit cards at one go
Refrain from closing any card, even if not being used
It is advisable that you postpone the idea of home buying if you have to pay off debt and need time to make up money for it. Also, regardless of your decision, consider all the factors before making a decision.
As the name rightly suggests, low income housing programs are meant for those in the low income group. There are many such programs that assist the needy, to find an affordable home. Apart from the federal agencies, states and non-profit organizations too operate such programs. Government assistance for low income housing can be direct or indirect. While some programs provide direct help like rental assistance, some others like Low Income Housing Tax Credit (LIHTC) program provide incentives to private housing developers who construct low income housing units. There are many different federal as well as state programs that help the needy to find low income housing.In order to apply for low income housing, you must belong to certain income limits. As per HUD (U.S. Department of Housing and Urban Development) rules, lower income limit means 80% of the median income for the area, where you intend to live. Very low income means 50% of the median income. The median income may vary with the area you choose. So, your eligibility is decided on the basis of various factors like your annual gross income, citizenship or immigration status and your history as a tenant. You may qualify as a family or an elderly or disabled person or a homeless veteran.
For a person, who wants to apply for a low income housing unit, there are three main options. They are “non-profit housing”, “public housing” and “Rental Assistance (as per Section 8 of the Housing Act of 1937)”. While non-profit housing units are owned and managed by private non-profit organizations, public housing is mostly owned and supervised by the government (except the outsourced ones). There are various rental assistance programs under Section 8, but the most popular one is Housing Choice Voucher Program, which pays a major share of the rents and utilities of the tenants. The program is operated by public housing agencies (PHA) of that area. As per this program, the applicant has to find out a suitable housing unit and the payment will be made directly to the landlord (if the former is found to be eligible). The tenant has to pay the difference between the government payment and the actual rent. In some cases, the PHA may permit the applicant to use the voucher for purchasing a house. HUD assistance is also available to find low rent apartments. In this case, the government funds are given directly to the apartment owners, who are willing to let their apartments on low rents for low income people.
~ Applying for low income housing is not a difficult procedure. All you have to do is to contact the local office of the department of Housing and Urban Development, for submitting the application.
~ You may also log on to HUD.gov and click on the ‘states’ option. You have to select the particular state you are residing in, and fix an appointment with the local public housing office through the ‘contact us’ option. If the online application facility is not there in your area, you have to go to the office personally and submit the application.
~ Take down the name and telephone number of the official to be contacted. Call and tell him about your requirement, and ask him about the documents you may need for the procedure.
~ Usually, you have to submit a pre-application, along with the basic information regarding your income and requirement. As per the information you have furnished, you may be placed in the waiting list for eligible candidates. Those with very low annual income may become eligible for both public housing as well as programs under Section 8.
~ However, you have to submit the documents and prove your eligibility, once you get the call from the authorities. You have to submit birth certificate, documents to confirm your annual income (pay slip and income tax returns) and social security number.
~ Collect all the documents needed and submit them during the appointment with the concerned official. Explain to him the details of your requirements regarding housing. Once they confirm your eligibility, you can proceed further and procure a placement in a housing unit under the specific program.
~ The authorities may sometimes reject the application, if they are not satisfied with the information and documents you have furnished. You may be given an opportunity to submit the required documents. In case of further denial, you can request for an appeal.
In the current scenario, buying a foreclosed home seems like a wonderful investment. A number of economists feel that today, homes are as affordable as they were in 2004. Of course, there is a chance that people may not witness noteworthy appreciation in the price of the property for a long time. Given the state of affairs, a foreclosed home may be good purchase for people, who need a place to stay, rather than people looking at it from an investment perspective. However, aspiring homeowners need to be very cautious while buying a foreclosed home. More so, if the foreclosed property is going to be their first home purchase.
Find the Listings
The internet is the best place to find foreclosure listings. Typically, bank websites and the Housing and Urban Development (HUD) websites have detailed foreclosure listings. People should look for foreclosed homes sold by the Department of Veterans Affairs, Internal Revenue Service, Small Business Administration, U.S. Army Corps of Engineers, Customs, U.S. Marshals Service, Department of Agriculture and Rural Development, Fannie Mae, Freddie Mac, Federal Insurance Deposit Corporation, and General Service Administration. The website of the National Association of Realtors, also has a plethora of information on home foreclosures for sale. Newspapers, too, carry information regarding proposed auctions, the names of the homeowners, and the lenders.
Foreclosed homes are disposed off at auctions held on the steps of the county courthouse. People, who have considerable experience in buying foreclosures, can buy the foreclosed home at this stage. Risk-averse individuals should not buy a home that is being auctioned on account of the following reasons:
☛ The bidders are not allowed to inspect the property before making a bid, although it, certainly is possible that the home may be in need of serious repairs. The successful bidder is expected to make the payment right away and may not have time to inspect the property again. The title deed may be unclear, and there may be additional liens against property that may have to be borne by the buyer. The buyer also has the unsavory task of evicting distraught tenants from the property, and the latter may vandalize the house out of spite before bidding goodbye to a home that was once theirs. House auctions also tend to inflate the price of the property and may end up costing the bidder much more than it, actually is worth. Thus, buying at an auction is not advisable for a novice. Even a seasoned player may find it difficult to navigate the aforementioned risks of buying a foreclosed home at an auction.
☛ If the property is not sold off at an auction, the bank winds up with the deed to the property. The home that is now a part of the bank’s inventory, is referred to as real estate owned (REO). The bank may price the REO at a reasonable figure just to get rid of it. In addition to low cost, there are numerous benefits of buying a foreclosed home from a bank.
☛ The buyer can inspect the house before purchasing it. At times, banks may pay for repairs that are found during preliminary home inspection. Buying a bank foreclosed home is a good deal for the first-time home buyer, since the buyer does not have to concern himself/herself with evicting tenants. The bank also tends to negotiate with other creditors and gets rid of taxes and other liens against property.
☛ A seasoned investor may consider purchasing a tax-lien foreclosure that is the result of the homeowner defaulting on property or income tax. The home, again is sold at an auction, and it may be disposed off for as low as 60% below its market value, since the government is only interested in recovering the taxes.
❒ A mistake that most first-time buyers commit: They do not weigh the pros and cons before buying the property. Majority are lured by the price tag. A lower price does not mean the deal is in your favor. Well, this, precisely is not the real deal. Before you sign on the dotted line, question yourself on a few important variables. Does the house need major repairs; would you be refurbishing the house and renting it in the future; do you have the capital to maintain the house, if you don’t find a tenant to rent the place — these are a few questions that may help you judge your efforts and sort your options better.
❒ Inspecting the house, thoroughly, before you make up your mind to possess the property, is an absolute requirement. If you are planning to buy a foreclosed home in another city, you need to make several trips to the site and recce the place. Asking someone else to do the job for you is a waste of time. It is you, who needs to be proactive and take the final step.
❒ Know that the neighborhood matters. If there have been a number of foreclosed properties in the vicinity of the house you are planning to buy, you may be unable to cope with major repairs as the value of the house itself is deprecated. Besides, learn how the neighborhood looks during the day and the nighttime. The neighborhood that looks lively, however, does not breed hubbub, fetches potential buyers to invest in the property.
❒ Another important variable you must counter-check is the current condition of the house. The present state of the house does matter. It reflects on the degree of refurbishment the house requires and the amount you must shell out for the purpose. Besides the filth and the muck build up, there are various plumbing- and sewage-related problems that set in. Better check, if the pipes are in a good condition; if not, make way for modifications. If the problem is not sorted, there may be complications in the future. Water leaking, courtesy of the cracked pipes, which seeps onto the walls is not a pleasant situation to be in and amending the same after you have rented out the house is not an entertaining idea.
❒ What adds to the house price, is the landscape. Overgrown bushes, unkempt trees with occluded branches lead to depreciation of the property. There are times when overgrown branches gatecrash the spaces, predominantly the windows of the house, and pave the way for deterioration.
Hopefully, the aforementioned tips on buying a foreclosed home will be of use to a buyer, who is keen on buying his/her first home. Price of comparable properties is an important factor that has to be taken into account regardless of whether one buys a REO, a tax-lien foreclosure, or bids at an auction. The absorption rate, or the length of time required to sell the current inventory given the present rate of sales, also needs to be calculated, since a low absorption rate is a bargaining chip for the buyer.