Housing: Rent vs. Buy | WHAT WORKS BEST FOR YOU
- Let’s discuss housing: rent vs. buy?
- Your financial position and lifestyle will help determine what’s best for you.
- If you choose to buy a house, how much you have saved and how long you’ll stay in one place are the biggest factors.
- Owning a home provides:
- Your house will generally increase in value
- There are tax advantages
- You can cash in on appreciation
- You’re in charge of what you can do
- It provides a sense of belonging and community
- The true cost of home ownership is higher than many anticipate.
- The question is, can you financially afford the buy a home?
- Do you have enough money to set aside for unplanned expenses or temporary unemployment?
- Will home ownership impact your lifestyle?
- Renting a house provides:
- More flexibility
- Less financial burden
- No responsibility for maintenance or repairs
- No property taxes or homeowner’s insurance
- Some utilities may be included
- Whichever the case, choose what works best for you.
Housing: Rent vs. Buy | HOUSING IS A NECESSITY, REGARDLESS
- How long you plan on staying in your house has a huge impact on your decision.
- When buying a house, it’s important that you plan on staying in the home a good length of time.
- Moreover, you need time to reduce your debt and to allow for meaningful price appreciation.
- If you’re planning to stay less than 3 years, it’s likely that buying a house will prove to be financially questionable.
- You will also pay capital gains taxes on the sale if you hold it for less than 2 years.
- Renting means you can move without penalty each time your lease ends.
- Conversely, renting is temporary and is often subject to 30 day’s notice.
- As a renter, falling home values and paying property taxes will not impact you.
- In any case, the biggest myth about renting is that you’re “throwing away money” every month.
- Not so – you need a place to live.
- Whether you buy or rent a home, each has their advantages and disadvantages.
- Still uncertain – try this calculator to see the difference it might have on your long-term finances: SHOULD I BUY OR RENT A HOME CALCULATOR
Interesting Tidbit: U.S. HOUSING COUNTRYWIDE
As Published byHOWMUCH.NET – Contrary to popular belief about rising home prices in major coastal hubs like New York City and San Francisco, conditions for home buyers are generally a little friendlier on the West Coast and the East Coast compared to the South or Great Plains. In the South and Great Plains, it is still significantly cheaper to rent than to buy, often leading to savings of 33% or more on housing costs.
Top 10 States/Territories Where Renting is Cheaper Than Buying
- Puerto Rico – 85% cheaper to rent
- Montana – 42% cheaper to rent
- Wyoming – 40% cheaper to rent
- Alabama – 39% cheaper to rent
- Kentucky – 35% cheaper to rent
- Louisiana – 34% cheaper to rent
- North Dakota – 33% cheaper to rent
- South Dakota – 33% cheaper to rent
- Mississippi – 33% cheaper to rent
- Rhode Island – 31% cheaper to rent
Housing: Rent vs. Buy | LET’S CALCULATE THE COSTS
- Let’s determine the costs whether should buy or rent a house.
- Enter your details into this MORTGAGE CALCULATOR to estimate your monthly mortgage payment with taxes, fees and insurance.
- What is your debt-to-income (DTI) ratio, which is one of the determining factor when applying for a loan? DTI CALCULATOR.
- Buyers should not overlook some additional, hidden costs of ownership.
- Once you own a house, you must budget for the cost of property taxes, insurance, and regular maintenance.
- Consider the potential for unforeseen expenses, such as replacing a heating system or a roof.
- Not enough for a 20% down payment, then you likely have to make private mortgage insurance (PMI) payments.
- When purchasing a condominium, townhome or a single-family home in a planned development, you will most likely have homeowner or maintenance fees.
- A low credit score could force you to pay a higher interest rate, and therefore pay more in interest.
- If you’re not sure if you’re ready to buy a house, then check out this calculator: HOW MUCH CAN I AFFORD.
- Renting offers fewer upfront costs and paperwork.
- If your landlord reports rent payments to the credit bureaus, you have more time to build your credit.
- You don’t pay for maintenance, repairs.
- If you’re thoughtful about your financial situation and your future, you can’t make a wrong decision.
Housing: Rent vs. Buy | CONSIDER THE TAX ADVANTAGES
- First, tax credits will offset some of the costs when buying a home.
- However, recent tax law changes have lowered the cap on the amount of mortgage interest that can be deducted.
- Before the tax laws, homeowners could deduct interest on $1,000,000 of debt on a primary or secondary home.
- Now, for mortgages taken out after the new laws went into effect, deductibility is limited to the interest on up to $750,000 of debt on a primary or secondary home.
- Interest paid on home equity loans or lines of credit is still deductible—provided that the money is used for substantial improvements to the home and that the total home equity debt plus mortgage is under the $750,000 cap.
- Homeowners must itemize their tax deductions in order to receive the benefit.
- Should your overall itemized deductions be less than the standard deduction for your situation, you may not be able to use this mortgage deduction.
- CALIFORNIA PROPERTY TAX CALCULATOR
- Homeownership brings intangible benefits such as a sense of stability and pride of ownership.
- It also brings the tangible ones of tax advantages and equity.
- Consider the down payment and associated closing costs; do you have enough funds?
- Will you have enough money leftover as an emergency fund to pay for unexpected repairs or loss of employment?
- Renting offers flexibility, predictable monthly expenses, and no responsibility for maintenance or repairs.
- Renting may not make any money, but you’re not going to explicitly lose any either.
- Contrary to popular belief, renting doesn’t mean you’re “throwing away money”.
- Ultimately, the decision depends on your individual circumstances and what works best for you.
- RENT OR BUY – CHART OF PROS AND CONS
FOR MORE BLOGS, INFORMATIVE LINKS AND TOOLS FOR HOME SEARCHES, ETC., I INVITE YOU TO BROWSE MY WEBSITE
LET’S SELL YOUR HOME QUICKLY
- If you are looking to sell your home, then imagine yourself in the buyer’s shoes.
- Most importantly, stay focused on the business aspect when selling your home.
- Though it can be time-consuming and frustrating, just focus on preparing for the sale.
- Don’t skimp on the essentials when selling your home, and disclose all issues to your Realtor.
- At times, it may feel like an invasion of privacy because strangers will come into your home and poke around your closets and cabinets. Just expect it and keep your emotions in check.
And now on with your key tips…
Sell Your Home – Tip #1 | IT’S TIME TO DE-CLUTTER
- First of all, remove all knickknacks, toys, momentos, personal photos, and other personal belongings that can clutter the living areas, etc.
- Keep in mind that clean spaces will make your home look brighter and more open.
- Buyers will also have fewer distractions as they walk through the home.
- Research the 10 Sneaky Ways to Hide the Clutter.
- When possible, don’t store these items in your closets. Potential buyers will open all the closet doors as they tour your home.
- If you have a lot of clutter and find it hard to get organized, consider temporarily renting storage space for some of your belongings.
- At the very least, stack everything neatly in your garage and away from the path of travel.
- Decluttering also applies to lots of furniture or bulky items. For helpful tips, check out How to Declutter Your Home, Room by Room.
- Minimizing what’s in the home simply opens it up, thus making it appear larger.
Sell Your Home – Tip #2 | MAKE ANY NEEDED REPAIRS NOW
- Maybe you have small issues, such as holes in the walls, a leaking faucet or lights that don’t work, then now’s the time to fix them.
- To get an idea of what you need to repair, walk through your home and imagine yourself as a buyer.
- Moreover, look to your Realtor since he/she is most familiar with what needs attention.
- Make sure you correct major issues that a buyer may not see immediately. For example, roof leaks, plumbing or electrical problems.
- Take care of all necessary repairs before you put your home on the market.
- Check out Ways to Make Inexpensive Repairs.
- Keep in mind, a potential buyer may make submit their offer subject to inspections.
- Moreover, they may hire a home inspector before closing. If the inspector finds problems, the sale could be put on hold until they’re resolved.
Sell Your Home – Tip #3 | DEEP CLEANING YOUR HOME WILL SHOWCASE AMAZING RESULTS
- A deep cleaning means shampooing carpets, washing windows, cleaning tile grout throughout your home, etc.
- Go beyond your weekly cleaning routine.
- Every surface a potential buyer sees is a surface that needs to be clean.
- For useful information, consider How to Declutter Your Home, Room by Room.
- Messy spaces could send the message that you don’t take care of your home.
- More importantly, it could make potential buyers wonder what else is wrong with the property.
- Pay special attention to bathrooms.
- Make sure the fixtures are sparkling. Wipe out any dirty rings, mold patches or any other visible distractions.
- Keep up the cleaning routine while your home is on the market. If you’re pressed for time, consider hiring a weekly cleaning service.
- Consider The Pinnacle Home Services Program!
Sell Your Home – Tip #4 | A FRESH COAT OF PAINT WILL DO WONDERS
- Above all, painting inside and out will do wonders. Furthermore, it’s an inexpensive way to make a home look fresh and new!
- A fresh coat of paint will make your house not only appear larger, but much cleaner and more welcoming.
- Use neutral colors. Bright pink may be your favorite color, but you need to appeal to the masses.
- Neutral colors are more appealing and include shades of black, white, grey, beige, ivory, taupe, and brown.
- For more information check out the 10 Best Neutral Colors For Your Home.
- Keep in mind that this is one home improvement that will give you the most bang for your buck.
- Consider The Pinnacle Home Services Program!
Sell Your Home – Tip #5 | DON’T LET ODORS DRIVE SOMEONE AWAY
- A strong smell or scent can be powerful and can easily drive someone away.
- You may not realize it, but the smells are there.
- Ask an outsider that you trust, like your Realtor, to let you know if there are any unpleasant odors.
- When you want to get rid of smells fast, you might consider the 10 Best Odor Eliminators of 2020.
- Odors include pet or cooking odors. Address them before you put your home on the market.
- Keep in mind that some buyers fear they won’t be able to get rid of the odor once they purchase the house.
- Keep a neutral freshener on hand and spray throughout your home prior to an open house or when a buyer will be stopping by.
- When you know prospective buyers are coming – leave your home and take any pets with you.
Sell Your Home – Tip #6 | STAGING YOUR HOME IS VERY EFFECTIVE
- The objective is to have potential buyers walk in and envision the property as their home. They need to be able to see themselves living and entertaining there.
- Home staging is effective because it emphasizes a property’s strengths and minimizes its weak points.
- If you can’t afford a staging professional, then check out Staging Your Home With Inexpensive Decor.
- To name a few, following are good reasons why you should stage your home:
- You’ll increase the likelihood of a sale.
- It gives the impression of a well-maintained home.
- You get a head-start on packing.
- Staging makes your home seem larger.
- Suddenly, every room has a purpose.
- Buyers will have a favorable first impression.
- Consider The Pinnacle Home Services Program!
Sell Your Home – Tip #7 | TAKE ADVANTAGE OF GOOD LIGHTING
- The presentation of your home is critical.
- A bright, cheery home is more inviting to buyers. Let the sunlight in if you can.
- If your home is dark, add some better lighting to your home. For more information, research The Basics For Interior Home Lighting Design.
- Even buying brighter light bulbs can help.
- If you have a traditional home, then a warm white bulb would be the ideal choice. This is the most popular choice for most homes.
- If you are looking for a more modern, clean look, a brighter feel of a cool white lamp will work best.
- It’s the small things like lighting that can make a big difference.
- If done right, there will be little money coming out of your pocket.
- Consider The Pinnacle Home Services Program.
Sell Your Home – Tip #8 | IT’S ALL ABOUT CURB APPEAL
- Curb appeal is extremely important since this will be the buyers’ first great impression. Need help? Check out 20 Ways to Add Curb Appeal.
- Be aware, some people won’t even bother to view your home if they find your house unattractive from the outside.
- There is no need to spend a lot of money. For the summer ensure there are no weeds, the lawn is mowed, and any hedges are trimmed.
- Display some pots of flowers in bright colors strategically placed and perhaps a nice wreath on the front door.
- For autumn do the same and ensure you rake up all dead leaves.
- A well-maintained and manicured yard, which applies to the back yard, as well, shows pride of ownership. It also gives the impression that the inside is equally maintained.
- Consider The Pinnacle Home Services Program!
Sell Your Home – Tip #9 | HIRE A REALTOR
- Hire a Realtor® ! Yes, there is a commission involved, but your Realtor will remove the guesswork out of selling and guide you every step of the way.
- A Realtor is worth her/his weight in gold. They wear lots of hats.
- They are marketers, negotiators, analysts, copywriters, stagers, counselors…and more.
- They shift through these jobs seamlessly to rise to every occasion from start to finish.
- The numbers show that selling with an agent put tens of thousands of dollars in your pocket.
- Likewise, are you wondering why any homeowner chooses to go it alone? Well, most don’t!
Sell Your Home – Tip #10 | PRICE YOUR HOME RIGHT
- Just about everyone wants to make as much money as possible from the sale of their home. Even so, you need to be realistic.
- What you paid for the home matters significantly less than what the market is dictating at this time. Particularly if your goal is to sell your home fast.
- While you don’t have to under-price your home for a quick sale, you do have to price it smartly.
- Work with your Realtor to come up with a starting number that makes the most sense in light of the market and your objectives.
- Your Realtor will provide you with a Competitive Market Analysis (CMA).
- A CMA is a way to identify competitors, and understand competitor’s strengths and weaknesses in relation to yours. Moreover, it helps you gauge how to curb competitors and refine your strategy.
- Avoid getting emotionally involved.
- Be prepared!
- Keep in mind, most people buying a home is not just an investment.
- It’s also a very personal and emotional experience for people.
- You want the buyer to feel like they can live there and imagine their possessions in the home.
- Buyers need to imagine the home with their own personal style, not yours.
- Low on funds? Consider The Pinnacle Home Services Program!
As a trusted professional and advocate for my clients, I encourage you to visit My Website where you will learn more about me and what I have to offer!
Whether you are a first-time or experienced home buyer, buying a home is an exciting accomplishment. So, please know that it’s a process that often comes with pre-purchase jitters. You are not alone. Overall, the idea of home ownership is a bit terrifying. To many who are renting it just seems easier, but this is definitely debatable. Consider this – when you pay rent, it disappears into someone else’s pocket. When you make a mortgage payment, you’re building equity and are one step closer to payoff. If you in doubt, use this rent vs. buy calculator to see which could be right for you.
Don’t let fear or anxiety over buying a home discourage you. Buying a home is an exciting time and something that should be carefully researched and celebrated. By conquering the home buying and mortgage fears, you’ll enjoy your accomplishment for many years to come.
“Twenty years from now, you will be more disappointed by the things you didn’t do than by the ones you did do. So, throw off the bowlines. Sail away from the safe harbor. Catch the trade winds in your sails. Explore. Dream. Discover.” — Mark Twain
So, now that you’ve decided to make the leap to purchase your home, where do you begin and what are the most common issues to consider beforehand? To name a few, 10 key points to consider are:
Have a Down Payment Saved
The very first step in buying a home is to examine your finances. Buying a new home (particularly for the first time) requires a mortgage. The lender fronts you the money and you pay it back over time. However, in order to get a mortgage, you’ll need some sort of down payment. So how much do you need? Ideally a down payment on a mortgage should be 20% of the home’s price to avoid added fees. But if you don’t have that much of a down payment, you have options. A mortgage down payment can be as low as 10%, 5%, or even 0% for certain types of mortgages (e.g., VA Loans)
Check Your Credit and Stop Any New Activity
When buying a home and applying for a mortgage loan, your credit will be one of the key factors in whether you’re approved. This factor will help determine your interest rate and possibly the loan terms. So check your credit before you begin the home buying process. Dispute any errors that could be dragging down your credit score and look for opportunities to improve your credit, such as, making a dent in any outstanding debts. To keep your score from dipping after you apply for a mortgage, avoid opening any new credit accounts, like a credit card or auto loan, until your home loan closes.
Hire a Professional Realtor / Agent
Hands down, the biggest mistake of a home buyer makes is when they are doing so without the aid of a professional agent. Having a professional readily available to look out for your best interests is crucial. A buyer’s agent will help ensure that you get the best possible results and guide you through the entire buying process. You deserve the outcome you are looking to achieve, so hire a professional!
Compare Mortgage Rates
Many home buyers get a rate quote from only one lender, but this often leaves money on the table. Comparing rates from at least three lenders can save you money over the first five years over the loan. Your agent can assist you in getting at least three quotes so you can compare both rates and fees. As you’re comparing quotes, ask whether any of the lenders would allow you to buy discount points This means you’d prepay interest up front to secure a lower interest rate on your loan. How long you plan to stay in the home and whether you have money on-hand to purchase the points are key factors in determining whether buying points makes sense.
Obtain a Preapproval Letter
It’s extremely important that you get pre-qualified for a mortgage, which simply gives you an estimate of how much a lender may be willing to lend based on your income and debts. However, as you get closer to buying a home, it pertinent to get a preapproval, whereas the lender thoroughly assesses your finances and confirms in writing how much they are willing you lend you and under what terms. In most cases, without the preapproval letter in hand, the seller will likely dismiss your offer.
Budget for Closing & Moving Costs
In addition to saving for a down payment, you’ll need to budget for the money required to close your mortgage. Closing costs generally run between 2% and 5% of your loan amount. You can shop around and compare prices for certain closing expenses, such as homeowners insurance, home inspections and title searches. In some cases, you can also defray costs by asking the seller to pay for a portion of your closing costs. Once you’ve saved for your down payment and budgeted for closing costs, you should also set aside a buffer to pay for what will go inside the house. This includes furnishings, appliances, rugs, updated fixtures, new paint and any improvements you may want to make after moving in.
Hesitating When Buying a Home
In a strong market, you need to understand whatever homes you see, others are seeing as well. If you find a home that meets your needs and has the elements you desire, go for it. Just know that someone else, may be ready to make an offer. There are too many wonderful properties that slip through a buyer’s hands due to indecision and fear of buying a home.
Underestimating the Market and Other Buyers
Like you, they want to place low offers on properties that are clearly excellent, and in demand. The process of failure and disappointment is a played out before they get serious about the market.
Buying a Home for Today’s Needs vs. Tomorrow
It’s easy to look at properties that meet your current needs. Consider this, if you plan to start or expand your family, it may be preferable to buy a larger home now that you can grow into. Consider your future needs and wants and whether the home your are buying will suit them.
Think Twice Before Hiring the Listing Agent to Represent You When Buying a Home
Unfortunately, some uneducated buyers think by going directly to the listing agent it will give them a leg up on a purchase. This is contradictory since the listing agent has a contractual obligation to look out for the seller! Their allegiance is to the seller with their goal to get the seller the most money possible. Consequently, it’s in your best interest that you have your own professional agent represent you when buying a home.
KEY TAKE AWAY: As your trusted professional, I will be your strong advocate! I understand the information and emotional support that buyers need throughout the process of finding and buying a home. With local market knowledge, I am well prepared to guide you through all the practical details and potential obstacles that may occur during the purchase process. As with all my clients, my goal is to make this process as seamless as possible so please let me provide you with results that move you!
MY WEBSITE: Check it out! I provide relevant information about property searches, market statistics, neighborhood news, blogs, informative links, etc. For this reason, I invite you to check out the various tabs noted on my main page (FOR RESULTS THAT MOVE YOU) as well as the Useful Links and Blogs detailed at the bottom of this same page. If you can’t find what you’re looking for then please give me a call or email me so I can ensure you get what you need.
- Every industry has its own jargon, and real estate is no different.
- Adjustable-Rate Mortgage (ARM): A mortgage in which the interest changes periodically, according to corresponding fluctuations in an index. All ARMs are tied to indexes.
- Comment: If you’re looking to save money, adjustable rate mortgages can make financial sense if you’re planning to sell or refinance your home before the introductory period ends.
- Amortization: The loan payment consists of a portion which will be applied to pay the accruing interest on a loan, with the remainder being applied to the principal. Over time, the interest portion decreases as the loan balance decreases, and the amount applied to principal increases so that the loan is paid off (amortized) in the specified time.
- Annual Percentage Rate (APR): This is not the note rate on your loan. It is a value created according to a government formula intended to reflect the true annual cost of borrowing, expressed as a percentage. It works sort of like this, but not exactly, so only use this as a guideline: deduct the closing costs from your loan amount, then using your actual loan payment, calculate what the interest rate would be on this amount instead of your actual loan amount. You will come up with a number close to the APR. Because you are using the same payment on a smaller amount, the APR is always higher than the actual note rate on your loan.
- Application: The form used to apply for a mortgage loan, containing information about a borrower’s income, savings, assets, debts, and more.
- Appraisal: A written justification of the price paid for a property, primarily based on an analysis of comparable sales of similar homes nearby.
- Appraised Value: An opinion of a property’s fair market value, based on an appraiser’s knowledge, experience, and analysis of the property. Since an appraisal is based primarily on comparable sales, and the most recent sale is the one on the property in question, the appraisal usually comes out at the purchase price.
- Appraiser: An individual qualified by education, training, and experience to estimate the value of real property and personal property. Although some appraisers work directly for mortgage lenders, most are independent.
- Assessed Value: The valuation placed on property by a public tax assessor for purposes of taxation.
- Buyer’s Agent: This is the agent who represents the buyer in the home-buying process. On the other side is the listing agent, who represents the seller.
- Cash Reserves: Refers to any liquid assets you have remaining after paying your down payment and closing costs. Your liquid assets include any funds that can be quickly turned into cash, if needed. Cash reserves are typically expressed in how many months worth of mortgage payments that can be made using those funds. Each mortgage payment includes the principal loan amount, interest, association fees (if applicable), property taxes, homeowner’s insurance, and mortgage insurance (if applicable).
- Comment: The amount of cash reserves that you need to have in the bank varies depending on the type of property you’re buying and the loan program you’re using. You’ll also want to be sure to also ask your lender about their specific requirements. However, you use the following to give you a general idea of how much you need to save. FHA Loan: 3 months; Conventional: 0-6 month; and VA and USDA: No requirement.
- Closing Costs: Closing costs are separated into what are called “non-recurring closing costs” and “pre-paid items.” Non-recurring closing costs are any items which are paid just once as a result of buying the property or obtaining a loan. “Pre-paids” are items which recur over time, such as property taxes and homeowners’ insurance. A lender makes an attempt to estimate the amount of non-recurring closing costs and prepaid items on the Good Faith Estimate which they must issue to the borrower within three days of receiving a home loan application.
- Comment: Be prepared to pay additional fees when you purchase a home. As a rule of thumb, closing costs to buy a home run about 2 to 4 percent of the purchase price, with the average around 3% of the sales price. Typically, closing costs will amount to 2-5% of the purchase price of the home, and that doesn’t include the down payment. Common fees include excise tax, loan-processing costs and title insurance. Also, depending on the lender, a specific amount of cash reserves may be required.
- Commission: Most salespeople earn commissions for the work that they do and there are many sales professionals involved in each transaction, including Realtors, loan officers, title representatives, attorneys, escrow representative, and representatives for pest companies, home warranty companies, home inspection companies, insurance agents, and more. The commissions are paid out of the charges paid by the seller or buyer in the purchase transaction.
- Common Area Assessments: In some areas they are called Homeowners Association Fees. They are charges paid to the Homeowners Association by the owners of the individual units in a condominium or planned unit development (PUD) and are generally used to maintain the property and common areas.
- Condominium: A type of ownership in real property where all of the owners own the property, common areas and buildings together, with the exception of the interior of the unit to which they have title. Often mistakenly referred to as a type of construction or development, it actually refers to the type of ownership.
- Comparative Market Analysis (CMA): A market analysis is a report on comparable homes in the area that is used to derive an accurate value for the home in question. It examines the prices at which similar properties in the same area recently sold. Real estate agents perform a CMA for their clients to help them determine a price to list when selling a home or a price to offer when buying a home.
- Contingencies: Refers to conditions that have to be met in order for the purchase of a home to be finalized. For example, there may be contingencies that the loan must be approved or the appraised value must be near the final sale price.
- Conventional Mortgage: Refers to home loans other than government loans (VA and FHA).
- Comment:Conventional loans include “fixed rate” and “adjustable rate” mortgages. A fixed rate mortgage has a predetermined interest rate throughout the life of the loan; the most common are for 30 years. An adjustable rate mortgage has a variable interest rate; the most common are for 5, 7, or 10 years. If you’re looking to save money, an adjustable rate mortgages can make financial sense if you’re planning to sell or refinance your home before the introductory period ends; but if you’re planning to own your home longer than five years, it’s less risky to choose a fixed rate loan.
- Deed of Trust: Some states, like California, do not record mortgages. Instead, they record a deed of trust which is essentially the same thing.
- Equity: A homeowner’s financial interest in a property. Equity is the difference between the fair market value of the property and the amount still owed on its mortgage and other liens.
- Escrow: An item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition. For example, the earnest money deposit is put into escrow until delivered to the seller when the transaction is closed.
- Escrow Account: Once you close your purchase transaction, you may have an escrow account or impound account with your lender. This means the amount you pay each month includes an amount above what would be required if you were only paying your principal and interest. The extra money is held in your impound account (escrow account) for the payment of items like property taxes and homeowner’s insurance when they come due. The lender pays them with your money instead of you paying them yourself.
- Fixed-Rate Mortgage: A mortgage in which the interest rate does not change during the entire term of the loan.
- Comment: If you’re planning to own your home longer than five years, it’s less risky to choose a fixed rate loan.
- Home Inspection: It is a limited, non-invasive examination of the condition of a home, most often in connection with the sale of that home. A home inspector is sometimes confused with a real estate appraiser. A home inspector determines the condition of a structure, whereas an appraiser determines the value of a property. A thorough inspection by a professional that evaluates the structural and mechanical condition of a property, which is typically provided by the seller and disclosed to the buyer. A satisfactory home inspection is of included as a contingency by the purchaser.
- Home Owners Association (HOA): A nonprofit association that manages the common areas of a planned unit development (PUD) or condominium project. In a condominium project, it has no ownership interest in the common elements. In a PUD project, it holds title to the common elements.
- Homeowner’s Warranty: A type of insurance often purchased by home buyers (for future problems to things such as plumbing and heating, which can be extremely expensive to fix) that will cover repairs to certain item, should they break down within the coverage period. The buyer often requests the seller to pay for this coverage as a condition of the sale, but either party can pay.
- Interest: This is the cost of borrowing money for a home. Interest is combined with principal to determine monthly mortgage payments. The longer a mortgage is, the more you will pay in.
- Mortgage Banker: For a more complete discussion of mortgage banker, see “Types of Lenders.” A mortgage banker is generally assumed to originate and fund their own loans, which are then sold on the secondary market, usually to Fannie Mae, Freddie Mac, or Ginnie Mae. However, firms rather loosely apply this term to themselves, whether they are true mortgage bankers or simply mortgage brokers or correspondents.
- Mortgage Broker: A mortgage company that originates loans, then places those loans with a variety of other lending institutions with whom they usually have pre-established relationships.
- Offer: This is the initial price offered by a prospective buyer to the seller. A seller may accept the offer, reject it, or counter with a different offer.
- Planned Unit Development (PUD): A type of ownership where individuals actually own the building or unit they live in, but common areas are owned jointly with the other members of the development or association. Contrast with condominium, where an individual actually owns the airspace of his unit, but the buildings and common areas are owned jointly with the others in the development or association.
- Point: Refers to the origination fee charged by the lender, with each point being equal to 1% of the amount of the loan. It can also refer to each percentage difference between a mortgage’s interest rate and the prime interest rate.
- Pre-Approval: A loosely used term which is generally taken to mean that a borrower has completed a loan application and provided debt, income, and savings documentation which an underwriter has reviewed and approved. A pre-approval is usually done at a certain loan amount and making assumptions about what the interest rate will actually be at the time the loan is actually made, as well as estimates for the amount that will be paid for property taxes, insurance and others. A pre-approval applies only to the borrower. Once a property is chosen, it must also meet the underwriting guidelines of the lender. Contrast with pre-qualification.
- Principal, Interest, Taxes, and Insurance (PITI): The four components of a monthly mortgage payment on impounded loans. Principal refers to the part of the monthly payment that reduces the remaining balance of the mortgage. Interest is the fee charged for borrowing money. Taxes and insurance refer to the amounts that are paid into an escrow account each month for property taxes and mortgage and hazard insurance.
- Private Mortgage Insurance (PMI): Mortgage insurance that is provided by a private mortgage insurance company to protect lenders against loss if a borrower defaults. Most lenders generally require PMI for a loan with a loan-to-value (LTV) percentage in excess of 80 percent.
- Title Company: A company that specializes in examining and insuring titles to real estate.
- Title Insurance: Insurance that protects the lender (lender’s policy) or the buyer (owner’s policy) against loss arising from disputes over ownership of a property.
Maintenance and repairs are an inherent part of home ownership so it’s not unusual that a new buyer will discover a defect after the close of escrow. However, please bear in mind that the seller’s liability for any preexisting problems is very limited. For the seller to be responsible for repairs after the close of escrow, a buyer must prove that the seller withheld material facts about the condition of the home. In keeping with this and providing the seller disclosed all known defects to the buyer, it is unlikely that a seller will be held liable for repairs after the close. Buyers also have a duty to perform diligent inspections and/or property investigations prior to closing. Therefore, it is prudent for both the seller and buyer to conduct professional inspections on their own behalf.
Although an as-is clause is written into the sales contract, this doesn’t diminish a seller’s duty to disclose a home’s known defects. This clause simply states that the seller isn’t obligated to fix any defects disclosed or otherwise uncovered by the buyer prior to closing. For example, despite the outcome of the home’s condition, a buyer may agree to buy a home “as-is” from the seller. The buyer is still responsible for conducting inspections and retains the right to back out if their findings are not favorable.
While this might not be the conclusion that you were looking for, sadly seller responsibility after closing very limited. Unless you can find they misled you or made egregious errors when resolving a problem, you can’t do much. However, if you do find issues, you should take action!
Key Takeaway: As a seller, it’s important to prepare yourself for the home inspection process, and to know how to negotiate after a home inspection should it result in some unfavorable results. After all, sellers who had a sale fall through, approximately 15% were due to the buyer backing out after the inspection report. Accordingly, be mindful that a prudent buyer will likely request a home inspection when submitting an offer on a house, whereas many end-up requesting repairs or concessions after receiving the outcome…so, be prepared beforehand!