Purchasing a new home is an exciting milestone in your life — but it also can be an intimidating responsibility. Most buyers put an offer on a home that appeals to them for a variety of different reasons, whether it's the location or the features inside the home or the land that surrounds the house. After their offer is accepted, they rely on the advice and insight of a home inspector who provides them with more details about the health of the home.
Despite the fact that buyers do their homework prior to closing on their new home, many are left with unexpected issues after the closing. There's so many anecdotes about buyers whose basements flood the day after they move in or who are faced with an HVAC system that doesn't work once summer arrives.
A home warranty may be able to provide some security and peace of mind, but these protection plans can carry with them a high price tag. This leaves many buyers wondering if they are really worth it?
Here's how you can decide if a home warranty is right for your home purchase:
Consider the Benefits of a Home Warranty
A home warranty provides an extra layer of protection for buyers who may have used much of their cash to fund the purchase of a home. Most people are not prepared to put out a significant amount of money for repairs and replacements immediately after closing on a house, so a home warranty protection plan may be appealing.
When a repair is covered by a home warranty, the homeowner is able to quickly call a representative who can provide a list of recommended contractors to complete the job. This can expedite the repair process, which minimizes the inconvenience to the new homeowner.
Home warranty benefits are renewable. Homeowners who invest in a home warranty plan can extend the benefits past the first year, which allows them to take advantage of benefits in the years to come.
Home warranties typically cover the repair and replacement of major appliances that often experience issues. Kitchen appliances, such as the refrigerator, and HVAC systems are commonly covered under home warranty plans. The costs of these replacements is significantly higher than the warranty plan itself, so many home buyers find it worth it to purchase a plan based on this fact alone.
Recognize the Disadvantages of these Protection Plans
Home warranty plans will typically only cover a repair if the homeowner uses one of their previously-approved contractors. This limits who can be contacted to complete the repair, and homeowners who use a contractor that was not approved by the warranty company likely won't get coverage for the repair or replacement.
Some policies limit the amount of coverage the individual will receive. If a homeowner has a particularly bad year with several significant repairs, they may not receive additional coverage if their quote has been met. Many plans cap coverage between $1,500 and $2,000.
Home warranty policies are notorious for their fine print. Home buyers who are considering purchasing one of these protection plans need to read the fine print carefully in order to fully understand what their coverage will be. For example, some repairs are only covered under specific circumstances that are outlined in the policy. If the failure of the equipment is the result of a circumstance that is not identified, it likely won't be covered under the home warranty.
Buyers who want the peace of mind that comes along with a home warranty but don't want to pay hundreds of dollars for the protection may consider using it as a negotiation tool. Many sellers are willing to include a home warranty with the purchase of a home, particularly if the home inspection highlights issues that may become larger problems in the future. For them, it might be cheaper to purchase a home warranty than to fix the potential problem. Sellers are able to appease the buyer and move forward with the purchase agreement, while buyers are able to rest easy knowing that they have the protection of a home warranty plan if an unforeseen issue arises shortly after the purchase of the property.
Ultimately, it's up to the individual buyer to determine whether a home warranty is worth the cost. Find out more about home warranty plans and the protection that these plans offer by contacting a real estate agent today.
As we get move into the spring home buying season, most locations throughout the country have turned into a seller’s market. Although loan officers typically deal with buyers, or people refinancing, LO’s also come in contact with sellers who are buying in the same community. There are several buyer “turn-offs” that sellers should avoid at all costs.
First and foremost is a dirty house. Whether it be replacing carpets for stains and particulates or steam-cleaning tile and grout, the home should be as debris free as possible. The next area for an impression to go awry is smell. The old saying is buyers buy with their noses. Sellers should make sure their home smells fresh and inviting. From kitchen to pet odors as well as anything else, what a seller may perceive to be homey could quickly turn off a buyer.
Sellers should know that old fixtures are another way to scare off buyers, and for new cabinet hardware and doorknobs, the cost is all of $400 or $500, but it makes a huge difference. The same holds true for dated ceiling fans, light fixtures and kitchen appliances. Buyers can take care of these things after closing escrow, but it's going to impede the seller from getting the highest price possible for their home. Also avoid clutter, which can be a distraction.
It appears that today's buyer wants no part of wallpaper. Wallpaper is a pain to remove and simply adds another chore to a buyer's to-do list. Another pain-in-the-rear are popcorn acoustic ceilings; once the must-have for fashionable homes in the '60s and '70s, but now an accessory that badly dates the space.
Also, if your house is cluttered with too many personal items, it's like the buyer is trying on those clothes with you still in them: a fit is unlikely. Decorating to live and decorating to sell are different, and sellers should try to eliminate personal items, including family photos, personal effects and even unique colors.
Loan officers often tell sellers that another bothersome item is owners who want to walk around with the potential buyer and provide advice. On the other hand, curb appeal is critical – it is your house’s first impression. Experienced lenders know that buying, selling, or refinancing a home is very important, and are more than happy to assist and provide recommendations based on their experience.
It is important for anyone buying a home or refinancing to understand a couple basic concepts. For example, the two most important considerations for homebuyers are debt to income ratio and the price vs. rent calculation. Homebuyers first must understand their affordability using a debt-to-income ratio, and then they can evaluate their housing options in their local market by comparing cost to rent vs. buy.
Debt-to-income analysis tells you what percentage of your income you’re going to spend on housing and all other monthly obligations. This is how all U.S. mortgage lenders make loan approval decisions, and although there are other quantitative measures lenders use for loan decisions (such as credit scores or the percentage of the home’s value that will be financed - LTV), the debt-to-income ratio is by far the most important because it looks at the most data.
For housing, monthly debt payments mean highest-case principal and interest on a mortgage payment and property taxes (before tax deductions), homeowners insurance, and mortgage insurance if applicable. For non-housing it means payments on present and future student loans, credit cards, car loans/leases (the present versions of these items come from credit reports) plus child support, alimony, and countless other types of non-housing debt people have hidden in their credit reports, tax returns, and asset account statements. Lenders allow you to spend 40-50% of your income on your debt obligations depending on the loan size and type.
The next step is to understand whether it’s cheaper to rent or buy. Like debt-to-income, it’s all about the numbers at which you are looking. The reason is because people use national figures for home prices and rents, but monthly mortgage payment assumes a 20% down payment at prevailing 30-year-fixed-rate mortgage rates. Their analysis is based on median national asking prices for rents and median mortgage payments based on national listing prices, so when taking this into consideration, know exactly what the numbers mean!
Calculate your monthly payment with applicable finance charges, PMI, hazard insurance, and property taxes.
Still renting an apartment and thinking about a home purchase? This calculator can help you make the final decision.
Consumers want the best price and best value, whether it is with a gallon of gasoline or a mortgage. Most lenders’ business comes to them from referrals, which is a very good thing, and many mortgage loan originators have had years of experience watching borrowers shop for loans. Some shop different lenders as if they could make a selection based on price. Most mortgage borrowers, however, don’t try to shop; they select or are selected by a single lender, which tends to work very well.
Unlike a gallon of milk, or a Big Mac, there are at least two prices: the interest rate and total lender fees. On adjustable rate mortgages (ARMs) there are also rate caps, the rate index used, and the margin over the index. Borrowers should know that an interest rate all by itself means very little. Multiple prices complicate shopping by borrowers when a number of factors enter into the decision: the products can change based on the borrower’s qualifications, the loan-to-value may change based on the appraised value, and the actual rate and price can change from day-to-day, or even during the day, based on bond market fluctuations.
In recent years borrowers have been at a disadvantage during the process since some lenders have exploited clients. They believe that since the borrower is not shopping, the lender can take advantage of them. This is the illegal, and should not be tolerated. Honest lenders believe in total transparency, and will not quote a price to a borrower below the price they are actually willing to accept. Low-balling is endemic on internet-based referral sites which display price quotes by dozens or hundreds of lenders, for example. Potential borrowers should be very careful when searching for a mortgage – it is an important process.
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Often is the question asked, “What’s up with paying for a property in cash?”, albeit in slightly more technical language. For buyers, the market is tough right now, as there’s not a lot in the way of inventory, and sellers often receive multiple offers, especially in some parts of the nation. Many real estate agents suggest that buyers make a cash offer in order to make themselves seem more competitive and improve their chances of having their offer selected.
Buyers have a few options when it comes to making an offer. They can pony up cash by writing a check and backing it up with statements that disclose the balance of their accounts. They can get pre-approved, which involves having their down payment verified with asset statements; employment verified with W-2 forms, pay stubs, and tax returns; credit reviewed; and loan reviewed for underwriting. They can also be “pre-qualified,” meaning that all of that same documentation has been reviewed but not underwritten.
Trained loan officers tell borrowers that the last option, despite its somewhat reassuring moniker, poses certain risks to a borrower’s deposit. If the buyer puts down 20%, for instance, and the appraisal comes back lower than the price upon which both parties agreed, the buyer is faced with a situation where they have to come up with more money, pay private mortgage insurance, or convince the seller the lower the price.
Such a scenario can become even more complicated if the seller refuses to deviate from that agreed upon price and the buyer doesn’t have that extra money and can’t qualify if they have to pay private mortgage insurance. In this particular case, the buyer could potentially lose the deposit.
Cash payments do indeed make for an attractive buyer, but the wise would-be homeowner understands the difference between a cash offer, being pre-approved, and being pre-qualified along with the risks carried by their various options. Be sure to ask your loan officer their thoughts!
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