Down Payment Assistance Programs

Is a Survey Needed to Buy a House?

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A property survey can cost as much $500 on top of the thousands of dollars you already pay for closing costs. Is the property survey necessary when you buy a home?

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While law does not require it, your lender may require a survey before they’ll close on your loan. Even if you pay cash, you should consider a survey. The more information that you have before you buy a home, the better financial decisions you can make.

What is a Survey?

Let’s start with the basics of a survey so that you can make a logical decision. A survey is a professional drawing of a home’s property lines. It shows the home’s boundaries as well as the easements. The survey also includes a description of the property in words, to help you further understand the property’s boundaries and to determine if there are any encroachments on it.

Mortgage Lenders and Surveys

Most state laws don’t require homebuyers to pay for a survey. But, most mortgage lenders do require a survey. Lenders want reassurance that the home doesn’t overstep any boundaries. In other words, the lender doesn’t want anyone coming after you once you own the home because it puts the mortgage company at risk of default.

Paying Cash and Surveys

What if you pay cash for the home – do you still need a survey? Technically, you don’t have to pay for a survey if you don’t want to because you don’t have a lender to answer to. But, you should consider it. If you take the property at face value, who’s to say that someone won’t argue that your property oversteps the boundaries in the future?

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Just because a home has a nice patio, addition, or fence doesn’t mean it’s within the boundary lines. Wouldn’t you rather know before you put your hard earned money into a home whether it meets the boundary guidelines? Even though the legal description on the deed describes the property’s boundary, the survey acts as a ‘backup’ reassuring what it says in the property description. If the two don’t align, then it’s reason to worry.

Other Reasons to Pay for a Survey

If your lender requires a property survey, you have to pay for one if you want to buy the home. But what if it’s optional? What are the other reasons to pay for a survey?

  • Know if a neighbor’s fence, patio, or other amenities sit on your property
  • Know your property boundaries should you decide to add a fence or an addition to the home in the future
  • Know what areas of the land you can separate if it’s a large piece of land

A land survey protects you and the lender. While it’s an added expense, it protects you in the future. It’s a lot cheaper to pay for a survey now rather than paying to take out a section of your fence and rebuild it because you find out after the fact that it sits on your neighbor’s property.

In most cases, you will be required to pay for a survey, but if you have the option, err on the side of caution. The survey can protect you in the future or even help you make a decision before you buy the home. If the home has encroachments on its property already, you may not want the headache of fighting the neighbors about the encroachment. Knowing before you close on the home can help you make the right decision.

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Is an Economic Recession a Good Time to Buy a House?

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The Housing Crisis of 2008 had long-lasting effects on homeowners. It took almost a decade to see changes in home values or at least worthwhile changes. Now there’s the coronavirus pandemic and we’re in another recession, but this time it’s different.

We aren’t dealing with rock-bottom housing prices or mortgage lenders facing repeated losses due to a multitude of foreclosures. While millions of Americans are out of a job still, the housing market hasn’t nosedived yet.

But since we’re in the midst of the recession, now may be a great time to buy a home, here’s why.

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Low Interest Rates

We can’t love coronavirus for the toll it took on many lives, but it lowered interest rates. If there’s a silver lining, there it is.

Interest rates are the lowest they’ve been since the housing crisis. If you’re waiting for the ‘perfect payment,’ you may get it now. While the Fed keeps its rates low to keep money moving in the economy, it’s a great time to take advantage of mortgage rates and buy a home.

Choose a fixed rate loan to have that rate locked in and you don’t have to worry about what happens in the next few years.

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Lower Housing Prices

Anyone selling their home now needs to move. They aren’t doing it because they want to size up or moving just for the fun of it. They either can’t afford the mortgage, but don’t want a foreclosure or their job moved them.

Either way, sellers are motivated, which makes them more likely to negotiate.  While you can’t steal the homes, you may pay much lower prices than during a regular economy.

Sellers Give More

Motivated sellers provide more help. If you want the window treatments or furniture included, sellers may oblige. If you need closing cost assistance or can’t close for 60 days, sellers may agree. They know buyers are scarce, so they won’t run you off by saying no to your demands.

Less Competition

Even with low rates, many buyers can’t get a loan. Many potential buyers don’t have the down payment or don’t have a job so they can’t borrow money. This means fewer buyers in the market. With fewer buyers bidding for the same home, you get what you want without hassle.

Homes Sit Longer

Recessions make qualifying for a mortgage hard. If buyers can’t get financing, homes don’t sell. The longer homes sit on the market, the more desperate sellers get. If a home sits long enough, sellers may lower the asking price before you even bid. Once you find the home and negotiate, you get quite the deal on the home.

Watch out When Buying a Home During a Recession

Buying a home during a recession has many benefits, but there are downsides.

  • What happens if you lose your job? No job is 100% secure, especially during a recession. Even with the best deal, if you don’t have a job, a mortgage may be unaffordable. Now you put yourself at risk of foreclosure.
  • Banks get tougher. Recessions affect banks too. They won’t lend to just anyone. Lenders make sure you can afford the loan. They may require you to have liquid assets in an emergency fund too. They have to protect themselves from loss.
  • Investors may be lurking. Recession prices are an investor’s goldmine. Buying homes at rock bottom prices and selling them for a lot more when the economy improves is the perfect recipe for investors. With more buyers in the market, competition increases.

Buying a home during a recession may have a great outcome. Do your homework like you would during any economy. Check the loan’s affordability, the home’s historic values, and make sure you love the neighborhood. A home is one of the largest investments you’ll make in your life; enter the transaction with caution for the best results.

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Buying an Old House? Pay Close Attention to these Issues

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Buying a house can be exciting and complicated at the same time, but buying an old house can be even more complicated. Before you dive into that rare find, make sure to consider the following factors.

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It May be Built With Hazardous Materials

Older homes were built with older materials, many of which are hazardous. Asbestos and lead paint are the two most common hazardous materials found in older homes.

Asbestos was commonly used in insulation and fireproofing material and lead paint was commonly used in all homes prior to 1978. It’s important to pay for an inspection that will determine if either of these issues exists.

Lead paint is toxic, especially for children. Experts also believe that asbestos causes lung cancer and other serious respiratory issues. Give careful consideration to the purchase of an older home that has either of these issues. If you do still want to buy the home, you’ll need either issue cared for by a professional that knows how to effectively fix the issue without putting anyone’s health at risk.

There May be Mold or Mildew Growth

Cracks, leaks, and faulty building materials all lead to water dripping into a home. If not caught and if the environment is just right, mold and mildew can grow in the home. They are most common in basements and attics where it’s dark and moist, but mold and mildew can grow anywhere including inside windows, in bathrooms, and anywhere else in the home that water leaks.

If the mold and mildew growth is excessive, it’s best to hire professionals to remove it. Trying to remove it yourself could be time-consuming and risky for your health. The professionals know how to protect themselves as well as everything else in the home to avoid spreading the mold spores.

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The Roof May be Historic

It’s common to check the integrity of a roof when you buy a home, but you may be dealing with a different problem when buying an old home. Roofing on some homes has a historic grade. This means you may have to get approval before restoring it and you may have to use certain materials according to the guidelines.

There May be Electrical Issues

Electrical systems in old homes are often as old as the home. This means they probably won’t meet today’s fire code and could pose a serious hazard. Before you assume the home has proper wiring and can handle the electrical needs that you have, make sure to have it inspected.

While having the home rewired can be an expensive investment, consider it an investment in your safety. Faulty wiring can be a serious fire hazard, which can put your home and your own lives at risk.

The HVAC Systems May be Inefficient

If the HVAC systems are as old as the home, chances are they either aren’t working or aren’t efficient. Most older homes didn’t have air conditioning, so pay attention to that important detail. While the home probably has a furnace, there’s no guarantee that it’s in good working condition or that it too isn’t a fire hazard. Having the inspector thoroughly inspect the HVAC systems can help you ensure your safety.

You May Not be Able to Make Major Renovations

If the home is in a historic district, you may be limited on the changes you can make to it. Even if the home isn’t in a historic district, there may still be limitations from the building and planning department of your city. Knowing ahead of time what you can and cannot do can help you make the right decision.

Buying an old home comes with its own issues. While you should always pay for an inspection when buying a home, you want to find an inspector that is experienced in dealing with old homes. This way you know he or she inspects every nook and cranny of the home and gives you a thorough report in order for you to make a decision.

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Pros and Cons of a Small Down Payment on a House

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Did you know that you don’t have to put 20% down on a home to get financing? Today many programs allow down payments as low as 3% and there are even programs that don’t require a down payment at all.

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While this sounds ideal, it may not be the best for everyone. Keep reading to learn the pros and cons of making a small down payment on a home.

The Benefits of a Small Down Payment

First, we’ll start with the benefits of a small down payment.

  • You’ll have money in reserves. It’s always a good idea to have money in an emergency fund when you own a home. What if something breaks as soon as you move in or you realize that you need to buy a specific appliance? If you don’t have the funds, it can put you in a dire financial situation right away. Instead, you can have the money sitting in your savings account for that rainy day.
  • Makes it easier to buy a home – If you can find a loan program, such as the FHA or even a conventional loan that requires a low down payment, you may be able to buy a home sooner than you thought. If you are forced to wait until you have a 20% down payment, on the other hand, it can take longer.
  • You increase your rate of return – When you put less down on the home, but your home appreciates, you are able to earn a higher rate of return. The more money you put into the home, the less you make in equity; you are just making back what you put into the home.

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The Downsides of a Small Down Payment

Of course, there are downsides to a small down payment.

  • You’ll have little equity – If you ever want to access the home’s equity to make improvements to the home or even pay for another large expense, you won’t’ have any for quite a while. Gaining equity in the home with a small down payment can take many years.
  • You’ll pay mortgage insurance – Whether you opt for a conventional loan or a government-backed loan, you will pay mortgage insurance on the loan. If you take an FHA or USDA loan, you will pay mortgage insurance for the life of the loan. Conventional loans only require it until you owe less than 80% of the home’s value.
  • You’ll pay a higher interest rate and have a higher payment – The less money you put down on a home upfront, the more your payment will cost you. Lenders typically charge higher interest rates because of the higher risk of default. Your payment will then be higher but even with the same interest rate, your payment will be higher because of the higher amount of your principal balance.
  • It’s tougher to win the bid on the home – If you are trying to buy a home in a competitive market, sellers may favor the buyers that put more money down on the home. A higher down payment often means an easier time getting financing, which is what the seller wants as they don’t want to lose the offer that they accept.

It’s a Personal Decision

Each situation is different when it comes to making a down payment. Sometimes a large down payment is good, especially if you will stay in the home for the long-term and you have reserves set aside on top of the down payment. If you aren’t sure about your longevity in the home or you worry about your financing future, though, making the smaller down payment may be the better option.

You have to weight the pros and cons of each side. It helps if you talk to a few lenders and even your tax advisor to see which option will suit you the most in the long run. It’s not an easy decision to make and it’s not a decision you should rush into. Instead, take your time and decide which option is right for you.

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How Much do You Really Need to Buy a House?

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You know you want to buy a house, congratulations! Now comes the hard part – saving money for the house. You know there are different loan programs out there, so just how much money do you need?

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We will help you understand the different requirements below.

Difference Between the Down Payment and Closing Costs

First, know that the down payment isn’t the only thing you need to think about when buying a house. You also have to pay closing costs. These are separate from the down payment. The closing costs can add up to as much as 3% – 5% of the loan amount.

Here’s an example. If you plan to put down 20% on a $200,000 home, you would need $40,000 just for the down payment. You would then need between an additional $6,000 to $10,000 for the closing costs. This means anywhere from $46,000 to $50,000 to close on the loan.

Do You Need a 20% Down Payment?

Now here’s the real kicker – you don’t need a 20% down payment. Many people believe this is the only way to get a loan, but it’s not. You can put down as little as 3.5% in some cases. In fact, some loans even allow you to get away with no down payment; you just pay the closing costs! So how do you know how much you need? It depends on the type of loan program you choose.

Conventional Loans

Conventional loans carry the stigma that you need a 20% down payment, but that’s not the case. Yes, you need 20% down if you don’t want to pay Private Mortgage Insurance, but you can still get conventional financing without that large down payment.

You’ll find conventional lenders that allow you to put down as little as 5% on the loan. This does mean you will have to pay PMI until you owe less than 80% of the home’s value, but it gives you the chance to get conventional financing with its low-interest rates and attractive terms.

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FHA Loans

If you don’t qualify for conventional financing because your credit score is too low or your debt ratio is too high, you may want to consider an FHA loan. With FHA loans, you only need a 3.5% down payment. The FHA allows lenders to provide you with 97.5% financing.

In exchange for the large loan amount, you’ll pay an upfront mortgage insurance fee as well as an annual mortgage insurance fee. The annual MIP is added to your mortgage payment each month. You pay 1/12th of the annual amount each month. FHA loans don’t offer the option to eliminate MIP after you owe less than 80% of the home’s value, though. You pay the MIP for the life of the loan, so keep that in mind.

VA Loans

If you are a veteran of the military, Reserves, or National Guard, you may not need a down payment on your home. If you are eligible for VA financing and qualify, you can borrow 100% of the home’s purchase price. VA loans only charge an upfront funding fee in exchange for offering this loan to you; they don’t make you pay for mortgage insurance.

It’s important to remember that even with a 0% down payment loan, like the VA loan, you’ll still need the money to pay the closing costs. Lenders will verify these funds just as they would if you were to put money down on the home.

USDA Loans

USDA loans are another government loan program that provides 100% financing on your home. The catch with USDA loans is that you must be a low to middle-income family in order to qualify. You also must buy a home in a ‘rural’ area. The USDA has loose guidelines regarding what is rural, so you may be surprised to find the areas that you can live and still get 100% financing. USDA loans do charge upfront and annual mortgage insurance, though, just like FHA loans do.

So how much money you should save to buy a house depends on your situation. Obviously, the more you save, the lower your mortgage payment will be. It’s also the less interest you will pay over the life of the loan. If you don’t have money to put down on the home and cover the closing costs, you may want to consider a government-backed loan, such as the USDA or FHA loan to help keep your costs down as low as possible.

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The Essentials New Homeowners Must Buy

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Before you close on your new home purchase, you should know the things you need to buy once you get into your home. All too often, new homeowners focus on the closing costs and down payment, not realizing the vast number of items they need to buy once they are in the home.

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So what do you need to buy when you move into your new home? Check out our list of essentials below so that you can best prepare yourself financially for your new home purchase.

New Locks

Whether you buy an existing home or a newly constructed home, you’ll want to change the locks. You don’t know who has keys to the existing locks and it’s not worth taking a chance. New locks and keys are fairly affordable, especially if you go to your local hardware store, but you can also call a professional locksmith to come take care of it for you.

Yard Tools

If you lived in a condo, townhome or apartment before, you probably don’t own lawn tools. At the very least, you’ll need a lawnmower and weed whacker. If you live in an area that it gets cold and snows, you’ll also need a shovel and/or a snow blower. Depending on your level of gardening, you may want to stock up gardening tools too.

A Basic Toolbox

As a new homeowner, you’ll need tools to make basic repairs. Even if you aren’t super handy, there will be a time you’ll want a hammer, screw driver, and wrench. Head to your local hardware store and ask about basic toolboxes – many stores have ready-made tool boxes for people starting out just like you.

Security System

Even if you live in the most affluent area, a security system may be necessary. Not only does it protect your house, but it may give you a sense of peace. Even a basic security system can deter a burglar for fear of being caught.

Smoke Detectors

Don’t rely on the effectiveness of the existing smoke detectors or even carbon monoxide detectors. Consider replacing all of them when you move into the home, unless it’s new construction. Also, make sure there is enough smoke detectors throughout the house. If there isn’t one in every bedroom and strategically placed throughout the first level, add more in order to enhance your level of safety in the home.

Window Coverings

Unless the previous homeowner left all of the window coverings, you may find the home quite open when you walk into as a homeowner. While you can buy temporary (paper) blinds from the local hardware store, they are temporary. Eventually you’ll want ‘real’ window treatments whether blinds, shades or curtains. At the very least, find window coverings for the most prominent windows, such as bedroom windows or any windows on the first floor that give
passerby a full view of your home.

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Cleaning Essentials

Whether you buy a new or used house, trust us, it will need a good cleaning. Even if someone cleaned it for you, there are certain things you’ll just want to clean yourself, not to mention the fact that you’ll need the cleaning supplies moving forward. Stock up on the essentials such as a broom, mop, and vacuum. You may also want a carpet cleaner, duster, large bucket, and plenty of cleaners including a general disinfectant.

Appliances

Make sure you know if the seller will leave any appliances for you. If not, think about the essentials that you need including:

  • Microwave
  • Stove
  • Oven
  • Refrigerator
  • Freezer
  • Washer
  • Dryer

You may also need smaller things, like light fixtures and fans. You’ll have a good idea of what you need after you sign the purchase contract and find out what the seller will or will not be leaving for you.

Miscellaneous Items

If this is your first house, you may also need essentials, such as:

  • Ladder
  • Step stool
  • Garden hose
  • New bedding
  • Furniture
  • Towels
  • Throw rugs
  • Fire extinguisher

New homeowners have plenty of items they need/want to buy after moving into a home. Keep these expenses in mind as you set your budget. Don’t make the mistake of spending all of your money on the closing costs and down payment,, leaving yourself with nothing to spend on the essentials you need once you actually become a homeowner.

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How Money Distribution Works at a Real Estate Closing

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You are ready to close on your loan – it’s an exciting time! As you sit down at the closing table, you may wonder how the money distribution works. Who pays out the funds from the loan? How do they receive the money?

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Keep reading to find out.

Who Distributes the Money?

First, let’s clear the air. The bank or lender that wrote and funded your loan isn’t the entity distributing the funds. Instead, there’s a third party called the closing agent. The closing agent typically works for the title company. If not, it could be a representative from your attorney. The agent receives the money, typically as a wire, from the bank and handles the disbursement at the closing.

Receiving the Funds

First, the closing agent must receive the funds. As we discussed above, the bank typically wires in the loan amount. But, buyers often have to bring funds to the table too. Buyers must bring a cashier’s check in order for the closing agent to accept it. You can’t bring cash or a personal check. You can also opt to have the funds wired, but you must arrange this ahead of time.

The closing agent or title company will have the appropriate amount of funds to disburse to the appropriate parties. They use your cashier’s check or wired funds to reimburse what they had to put into the transaction. Everyone is aware of the amount of money needed at least three business days before the closing when the Closing Disclosure gets released.

Disbursing the Funds

In general, closing agents pay the sellers’ mortgage company receives first. This payment is crucial in order for the property to exchange hands. The seller’s mortgage lien must be cleared from the property. After the first and any subsequent liens are cleared, the closing agent can disburse the remaining funds.

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After the seller’s mortgage company, the closing agent pays:

  • Third parties – There could be numerous third parties involved in the transaction, but in general, there are appraiser, attorney, and title company fees. The closing agent will also pay any necessary government fees, such as tax service or recording fees.
  • Real estate agent – The closing agent will pay the real estate agent from the proceeds of the sale. This money doesn’t come from your loan directly. It comes off the top of the seller’s proceeds. Realtors charge up to 5% of the sales price of the home. The seller and realtor agree on this amount before working together. The closing agent disburses the funds for the seller at the closing so the seller doesn’t have to come up with the funds himself.
  • Escrow account funds – If you are setting up an escrow account (most loans do), you’ll need funds to set it up. At a minimum, lenders require 2 months of taxes and insurance to set up the account. Depending on the due date of the taxes and insurance, though, the closing agent may need more funds to ensure there are enough funds to cover the costs.
  • Paying off any liens – If there are any other liens on the property aside from the seller’s mortgage, those most be paid at the closing too. Property liens transfer with the property, not the person, so it’s often a requirement as a part of funds’ disbursement.

The final funds remaining are for the seller. After all third parties, mortgage companies, and other creditors receive their funds, the seller gets the proceeds. Sellers know before the closing how much they will receive, just as buyers know how much they must bring to the closing. The Closing Disclosure shows both sides of the transaction.

If you have any questions about money disbursement at a real estate closing, make sure to ask the closing agent before the actual closing. The three business days before the closing that you have the Closing Disclosure is meant to give you time to digest the figures and ask any questions you may have.

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The Best Ways to Find Open Houses

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If you prefer the open house format to view a house at your own leisure, you need to know how to find them. Every weekend, sellers open up their homes in the hopes of finding a willing buyer. Learn how to find open houses easily and enhance your home search.

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Use the Internet

The internet offers a wealth of knowledge for homebuyers. Websites, like Realtor.com, Zillow, Trulia, and Redfin offer information on current and upcoming open houses. Just search your area to find the open houses near you. You can head straight to any of the above-mentioned websites or use Google. Just search for open houses in ‘your city’ and you’ll see a spattering of listings.

Include realtor’s websites in your search online. Many realtors have a filter or an app set up making it easy to search for open houses. Before you head out to any of the open houses listed, though, check the listings on that day. This way you’ll know the listing is current and nothing changed.

In addition to Google and realtor websites, use social media to your advantage. Use the following tips to get detailed results:

  • Hashtags – Search using the hashtag #openhouse and you’ll receive the most recent listings in your area
  • Follow realtor social media pages – Find the top realtors in your area and follow their pages for the most current open house listings
  • Follow your city’s ‘for sale pages’ – Each city has a page dedicated to items for sale, including homes with open houses

Look Around the Area

Technology is great, but you can still find open houses the old-fashioned way. Drive around the desired area you want to live and look for open house signs. Realtors and sellers generally put large signs and flags on homes to catch the attention of the passerby.

Work With a Realtor

If doing the legwork yourself doesn’t appeal to you, sign up with a realtor. A reputable realtor has access to the latest open house listings and can let you know about them right away. Realtors can take you to any open house, not just the houses they list themselves. Because they have access to the MLS listings, they’ll likely know about the listings long before you do.

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How to Use Open Houses

It’s one thing to find open houses, but do you know how to use them effectively? First, use the time wisely. This is your time to view the house without pressure. While you can ask questions of the realtor and/or seller, it’s a time to walk through the home without anyone walking with you. Other potential buyers may be in the home at the same time doing the same thing.

Realtors and sellers host open houses to get the word out about the home for sale. They gather contact information of potentially interested parties, but for the most part, it’s about networking. Open houses help garner more interest in a home, which may bring more buyers in following the open house, increasing the chances of the home selling.

As you go through the open house, look for:

  • The home’s layout
  • The home’s cosmetic appearance
  • The home’s condition beyond the cosmetic appearance
  • Any problem areas
  • Any areas of concerns

Once you have your list, feel free to ask the realtor/seller any questions. Don’t offer your opinion on the home or show any interest, though. The seller’s agent represents the seller. If you are considering the home, bring your own realtor back with you to get his/her input and help creating the right offer.

Open houses are a great way to get a feel for the neighborhood and even view many houses on one day. You can learn a lot about a home during an open house and even learn what others think of it as you browse together. Find open houses in your area and use them to your advantage when shopping for a home.

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