The first home purchase can be the culmination of years of planning and consideration. Buyers typically look for 12 weeks and use a variety of information sources for research before purchasing. However, many renters are not near as thorough in their study.
Like any other commitment a person makes, careful consideration and understanding is required. There are things that every renter should know before they rent a home or apartment.
- A lease is a binding, legal document.
- Understand the lease before signing and ask questions.
- Get the complete agreement in writing instead of verbal statements.
- Tenants have rights too and they vary depending on the state and city.
- Tenants need renter’s insurance for their personal belongings and liability.
- The landlord is responsible for a habitable and safe environment and should typically pay for repairs due to normal wear and tear.
- Do a walk-through of the property before signing a lease.
- Don’t withhold the rent to settle a disagreement with landlord.
- The landlord must return your deposit or tell you why it is being held in a reasonable time.
- It may cost you considerably less to own the home than to rent.
With the exceptionally low mortgage rates available, the house payment including taxes and insurance can easily be less than the market rent of a home. By the time you factor in appreciation, forced savings due to amortization, leverage and tax savings, the actual cost of housing could be close to half of the rent even if a reasonable repair allowance is factored. Check out your net cost of housing.
Freddie Mac chief economist, Frank Nothaft, says that affordability, stability and flexibility are the three reasons homebuyers overwhelmingly choose a 30 year term. However, for those who can afford a higher payment, there are three additional reasons to choose a 15 year term: save interest, build equity and retire the debt sooner.
First-time buyers have a higher tendency to use a minimum down payment and are very concerned with affordable payments. It is understandable that the majority of these buyers select 30 year, fixed-rate mortgages.
Consider a $200,000 mortgage at 30 year and 15 year terms with recent mortgage rates at 4.2% and 3.31% respectively. The payment is $433.15 less on the 30 year term but the interest rate being charged is higher. The total interest paid by the borrower if each of the loans was retired would be almost three times more for the 30 year term.
Another interesting thing about the 15 years mortgage is that more of the payment is going to principal than interest from the very first payment. It would take over 13 years on the 30 year mortgage for the principal to exceed the interest allocation.
Some people might suggest getting a 30 year loan and making the payments as if they were on a 15 year loan. That would certainly accelerate amortization and save interest. The real challenge is the discipline to actually make the payments on a consistent basis if you don’t have to. Many experts cite that one of the benefits of homeownership is a forced savings that occurs due to the amortization that is not necessarily done by renters.
It’s disappointing, frustrating and sometimes, discouraging when you lose a home you want to buy.
One of the hardest lessons for today’s buyers is that writing an offer doesn’t mean that you’ll get the home or even a counter-offer. The low inventory affecting many of the housing markets requires a different strategy to give you the best chance to get the home you want.
- Make your best offer initially; you may not get a chance to accept a counter.
- Submit a written pre-approval letter from the lender.
- Increase earnest money above what is considered normal.
- Make a larger down payment.
- Eliminate unnecessary contingencies.
- Don’t ask for personal property not included in the listing agreement.
- Pay your own customary closing costs.
- Shorten the inspection period.
- Buy the home “as is” subject to inspections which still allows you to get your earnest money back if the inspections are unacceptable but doesn’t require the seller to make repairs.
- Write the seller a hand-written, personal letter telling them why you want their home.
- Offer to use the seller’s or listing agent’s preferred title company.
- If you can pay cash, do so and arrange financing after closing. Be prepared to show proof of available funds.
- Schedule the closing as soon as possible but let the seller know you can be flexible.
- Once you decide on a home, act with expedience.
- Ask your real estate professional if they have any other suggestions.
Think of making an offer like applying for a job. You want to make your best impression and show why you are the best choice. You won’t always know that there are multiple offers. Approach the process like the competition is doing their best to get the home.
In a study released by TD Bank, 65% of buyers with mortgages that required mortgage insurance said the higher monthly payment was more than they originally expected.
Private mortgage insurance is required on loans that exceed 80% of the home’s value. For conventional loans, the premiums range from 0.5% to 1% annually. The PMI could add close to $100.00 a month to the payments on a $200,000 mortgage and over $200.00 a month on a FHA mortgage.
FHA has two components to its mortgage insurance which includes an up-front charge on closing of the loan and an annual charge. The up-front premium is 1.75% of the mortgage which can be paid in cash at closing or added to the mortgage amount. The annual premium ranges from 0.45% to 1.35% depending on the loan-to-value and term of the mortgage.
Most lenders are required to automatically cancel coverage when a 78% loan-to-value is reached which on a 30 year loan with normal amortization could be eight to eleven years depending on original loan amount and interest rate. If the value of the home has increased as documented by an appraisal so that the current mortgage is below 80% loan-to-value, the lender can be petitioned to eliminate the PMI.
Beginning in April, 2013, FHA requires the mortgage insurance to be paid for the entire term of the mortgage. Prior to this rule change, it was required to remain in effect for a minimum of five years but could be cancelled when the mortgage is reduced to 78% of the original purchase price.
A homeowner can greatly reduce their cost of housing by avoiding mortgage insurance with a minimum 20% down payment. If a higher loan-to-value mortgage is required to purchase the home, the objective should be to pay down the mortgage amount to relieve the need for the mortgage insurance. Generally, loans with lower loan-to-value mortgages also have lower interest rates.
It is generally considered a seller’s market when the conditions favor the seller. This condition exists when demand is high and supply is low without any significant adverse economic conditions taking place.
Demand is determined by ready, willing and able buyers. Low interest rates with indications that they will begin to rise fuels part of this demand. Rising prices also creates a sense of urgency to avoid higher housing costs.
Inventory is currently below what is considered balanced in most areas. In some areas and price ranges, homes are selling very quickly, with multiple offers and sometimes at above the listing price. When too many buyers are chasing too few properties, things get competitive and the seller is the beneficiary.
Even when buyers and sellers come to an agreement on price and terms, a challenge can occur if the appraisal doesn’t meet the sales price. Either the purchaser has to come up with the additional cash or the purchase price has to be renegotiated.
A typical seller wants the most money possible for their home in the shortest time frame with the fewest inconveniences. A Seller’s Market provides the most likely environment for this to happen.