66 Questions to Ask When Buying a House

As a first-time homebuyer, it’s easy to feel overwhelmed even before you begin your homebuying journey. After all, this is a new process for you and, simply put, you don’t know what you don’t know. First off, there are no silly questions you can ask during any stage of the homebuying process. So always feel free to ask a question, no matter how trivial you think it might be. You owe it to yourself – and your family – to find out everything you can about a home, especially since it will most likely be the largest investment you’ll ever make. To help you get started, we’ve created a list of 66 questions to ask when buying a house, broken down into each stage of the homebuying process to help keep you informed.

11 questions to ask before you go house hunting

As you well know, buying a house is a significant investment. Before you start house hunting, think through your goals for homeownership. Why do you want to buy a house? 

  1. Do you want to earn equity and build wealth by owning a house? 
  2. Do you expect you might need more space for a future family? 
  3. Do you have a pet or see one in your future and you want a backyard? 
  4. Do you want to live in a quiet, established area or somewhere more lively? 
  5. Do you enjoy yard work, gardening? How much backyard space do you require?
  6. Have you considered the local schools and neighborhoods? 
  7. Have you looked at crime rates around the neighborhoods you’re interested in? 
  8. Is it essential for you to live close to your work? Or, is a commute ok? 
  9. Have you narrowed down a range of purchase prices you can afford?
  10. How much money do you need for a downpayment? 
  11. Are you pre-approved for a mortgage

When you’re wrapped up in the excitement of house hunting, you may forget which questions to ask when buying a house.. If you are a pet owner looking at condos, you’ll have to be sure the homeowners’ association allows pets. Or, let’s say you want to live in a popular downtown neighborhood, but plan to have children in a few years – will this neighborhood still suit your needs? It’s always worth giving some thought to the type of home and area to help focus your search. 

Also, be aware that being approved for a home loan saves time for everyone by ensuring that you, as the buyer, can actually afford the home and be able to follow through an offer. 

7 questions to ask when you interview agents

Contacting the agent listed on the for-sale sign of a house you’re interested in may not be the best way to protect your interest as a buyer. When you work with your own agent, that agent’s job is to represent your interests. They help research the house, find answers to all of your questions, and serve as your professional intermediary for communicating with the seller’s agent and homeowner.

Naturally, you will want to choose a great real estate agent that you are comfortable with and feel like they have your best interests in mind. Most real estate experts recommend that you interview at least three agents identified by recommendations from friends and family who have bought or sold a house recently. Here are some questions to ask potential agents to see if they are the right agent for you.

  1. How long have you been a real estate agent? 
  2. What kind of experience do you have in this specific market area?
  3. Do you usually work with buyers or sellers? 
  4. How do you usually communicate with clients? What should I expect for response time? 
  5. How will you help me search for homes? 
  6. What days and times are you typically available for showings? 
  7. How will you ensure transparency about any issues you see with a house? 

When you set your expectations for communication, home tours, and other information you count on your agent to provide, you have a good chance to establish a productive relationship from the start – which will help you through your homebuying journey.

stylish living room

stylish living room

37 questions to ask when touring homes

This is an extensive list, and not every question applies to every situation. For example, if your goal is to purchase a single-family home, questions relating to condominiums don’t apply. However, this list of questions to ask when touring a house should give you an excellent start in making well-informed decisions when buying your first home. 

  1. What’s the reason for the sale? How long have the sellers lived there?
  2. How long has the house been on the market? 
  3. What is the neighborhood like?
  4. When was the house built? 
  5. What are the property taxes?
  6. Are there any upcoming condo or homeowners association fees?
  7. What are the average utility costs? 
  8. Have there been any major repairs to the property? If so, do you know if they provided a warranty?
  9. Are there any boundary disputes with neighbors?
  10. Are there any shared driveways or communal spaces?
  11. Are there any public rights of way passing through – or near – the property? 
  12. How old are the major appliances and systems?
  13. Are the appliances included in the sale?
  14. What is the sales history of this house, and how would it affect my offer?
  15. Is there enough storage space? Room to grow? 
  16. Is there any evidence of water problems? Can you see damp drywall, basement floors, or open leaks? Can you smell mildew? Or is there a smell of fresh paint that might be intended to cover up a water issue?
  17. Are the walls structurally sound? Look for cracks and look for evidence of cracks covered over by wallpaper that doesn’t look right or paint applied over filler.
  18. Is the chimney in good condition?
  19. Are the windows sound? Will any of the glazing need to be replaced?
  20. Do the ground floor windows have working latches to lock the windows? 
  21. Is the attic insulated? If so, when was the insulation installed?
  22. Is there any soundproofing in the house? (Try viewing the home at different times to hear road noise or neighbors.)
  23. Are there working smoke alarms and carbon monoxide alarms?
  24. Is there adequate cell phone reception indoors? How’s the broadband service in the area?
  25. What type of system is used to heat and cool the house? 
  26. Ask to see the circuit box – does the wiring look up to date?
  27. How is the condition of electrical outlets and switches? (You can bring something to plug into try outlets.) 
  28. Do all of the lights work? If not, why not?
  29. Does the property have any lead pipes? Do you see any issues with pipes in need of repair?
  30. What kind of drainage system does the property have? Is it on the city sewer, or is there a septic tank? 
  31. Is there any asbestos in the property, or has there ever been an asbestos survey completed?
  32. What kind of roof does the property have? When was it last replaced, and what is its current condition? 
  33. Do you see any gutter leaks? Are the gutters cleaned out, or do they need work? 
  34. Are there any trees growing within 15 feet of the property? Can you discern if roots are likely to be a problem? 
  35. Which way does the yard face, and is there any part of the yard that doesn’t receive sunlight throughout the day? 
  36. Would the real estate agent buy this house? If not, why not?
  37. What’s the lowest price you think we could offer for this house and still close the transaction?

You can ask these questions when buying a house – and others as applicable – to understand your likely overall costs to own this home. When you understand all of your costs, you’ll confidently be able to make an offer you can afford

open concept new kitchen

open concept new kitchen

11 questions to ask when making an offer and closing on a home

Real estate agents make offers on homes every day. Their job is to help you make the best offer while protecting you against potential risks with the transaction. 

  1. How does the offer work? Do we communicate with the seller or seller’s agent? 
  2. What contingencies do you recommend including in the offer? 
  3. How much earnest money should we put in the offer? 
  4. When do we need to provide earnest money? 
  5. When should we expect to hear back from the seller? 
  6. If we receive a counter-offer, when do we need to reply? 
  7. How can we sign the paperwork? Digital? In-person? 
  8. If the offer is accepted, what are the next steps? 
  9. How far out is the potential closing date from an accepted offer? 
  10. What are our next steps once the offer is accepted?
  11. What do we do at closing? 

Your real estate agent wants to make the home buying transaction as smooth as possible. If they do not provide this information upfront, be sure to ask. 

You should prepare a list of your own questions to ask when buying a house. It can include any given here, or others that represent your own interests and concerns. Answers to these questions will ease your mind and help you understand what you can expect during each stage of the homebuying process. Completing your research is perfectly acceptable, but don’t skip asking questions of your mortgage broker, real estate agent, and title company. When you gather enough information, you can make the best decision buying your first home. 

Source: redfin.com

What to Know Before Exercising Your Pre-IPO Stock Options

First of all, if you are reading this for personal financial reasons, then congratulations. As a recipient of employer stock options, you have the opportunity to own shares of your company. Stock options can be a powerful wealth-builder. If granted, chances are you have a windfall headed your way. Be sure to have a plan in place regarding the exercise of those options and subsequent sale of stock.

There are several considerations that should factor prominently in your decision-making process. These actions may have major tax implications and, if done improperly, could effectively reduce the amount of that windfall.

When formulating a plan to exercise your stock options, there are some important questions to ask: What exactly is your stock option? When can you move on that stock? What are the tax implications? What valuation does your company have?

Stock Options

Understanding what type of stock options you own is significant when considering your financial position and determining your next move. Stock options come in a few varieties. Incentive stock options (ISOs) are a company benefit that give an employee the right to buy shares at a discounted price, while delaying taxes due until those shares are sold. With non-qualified stock options (NSOs) taxes are due both when you exercise the option (purchase shares) and sell those shares.

Another common employee compensation package is restricted stock units (RSUs). RSUs give an employee interest in company stock but have no tangible value until vesting is complete. It is important to know which type of options you have, and the implications of each.

Timing the Sale of Your Stock

Be sure to understand the earliest date at which your stock can be sold as a long-term capital gain. This tax-advantaged rate applies to stock held more than one year. Additionally, two years must have passed since the option to buy those shares was granted. Remember, you may have a post-IPO lockup period during which you will not be able to sell stock. A lockup period is a window of time when company insiders are not allowed to redeem or sell shares of their company. Lockup periods can vary but typically span six months post-offering.

A common strategy is exercising options six months before the IPO, which starts your stock holding period. Assuming a six-month lockup, any stock you sell thereafter will be taxed as a long-term gain, as you have now held the stock for one year. This strategy gives you flexibility to exit your position at the lower capital gains rate and earliest calendar date possible if you have concerns about your company’s prospects or need liquidity. On the contrary, if you think the stock could soar, you can hold it. Regardless, the early exercise of options gives you, well, options.

Plan Ahead for Alternative Minimum Tax Issues

If you exercise ISOs be aware of the rules surrounding the Alternative Minimum Tax (AMT.) The AMT applies to taxpayers with high income by setting a limit on deductions and exclusions. It helps to ensure that certain taxpayers pay at least a minimum amount of tax.

If you are subject to the AMT, exercising ISOs may count against you in the year in which they are exercised, so take into account the probability that your company will be successfully brought to market. Early exercise could negatively affect your balance sheet if the IPO is delayed or canceled and you were planning to pay that AMT with proceeds from the sale of stock to the public. For example, COVID-19 surely threw a wrench in the gears of recent IPOs such as Airbnb and likely in the plans of many executives standing to profit from it.

On the other hand, if you pay AMT on exercised ISOs when company stock is low, you may not get hit with it again after selling the stock at a later date. If it soars after the IPO, then exercising and paying AMT early would have been a smart move.

Valuation: Get an Idea of What Shares Are Worth

In the public stock market, there is a published bid-ask spread for each security throughout the trading day, thus providing a means of valuation for a stock or option. In the private marketplace, the valuation of a company is less clear because it is calculated infrequently. While there are some “exchanges” for private shares, transactions occur infrequently, and the bid-ask spread is often wide. You could certainly estimate based upon the most recent funding round or Venture Capital firm valuation.

Additionally, many private company values are based on the most recent 409(a) valuation. A 409(a) is an independent appraisal of the fair market value (FMV) of a private company’s common stock. Long story short: You can’t make a decision to exercise an option without understanding what a share of stock is worth.

Hire a Pro

DIY projects frequently end up costing a homeowner more money than just hiring a pro in the first place. As you review your stock options, it’s important to consider all variables. Having a team of trusted advisers by your side who can properly evaluate your stock options, portfolio and goals can bring you confidence that you are making informed decisions.

A certified public accountant (CPA), a financial planner and estate attorney should be vital members of your decision-making team when navigating your ownership interests from private to public. A CPA can typically model your estimated tax liabilities given your unique circumstances. If your windfall is substantial enough, a financial planner and estate attorney will strive to ensure your wealth is preserved for yourself and future generations through proper planning. Be sure to hire the right person for the job — preferably someone who has dealt with the complex circumstances surrounding private stock, stock options and IPOs.

Every company is different, as is every IPO. It is important to read the fine print regarding your rights and requirements as the holder of options or stock in a private company before deciding what to do in the months before and after an IPO. If uncertain, be sure to consult professionals with experience in this area.

Content in this material is for general information only and not intended to provide specific advice, tax advice or recommendations for any individual. We suggest that you discuss your specific tax issues with a qualified tax adviser. Securities and advisory services offered through LPL Financial, a Registered Investment Adviser, Member FINRA/SIPC.

Source: kiplinger.com

66 Questions to Ask When Buying a House – Redfin

As a first-time homebuyer, it’s easy to feel overwhelmed even before you begin your homebuying journey. After all, this is a new process for you and, simply put, you don’t know what you don’t know. First off, there are no silly questions you can ask during any stage of the homebuying process. So always feel free to ask a question, no matter how trivial you think it might be. You owe it to yourself – and your family – to find out everything you can about a home, especially since it will most likely be the largest investment you’ll ever make. To help you get started, we’ve created a list of 66 questions to ask when buying a house, broken down into each stage of the homebuying process to help keep you informed.

11 questions to ask before you go house hunting

As you well know, buying a house is a significant investment. Before you start house hunting, think through your goals for homeownership. Why do you want to buy a house? 

  1. Do you want to earn equity and build wealth by owning a house? 
  2. Do you expect you might need more space for a future family? 
  3. Do you have a pet or see one in your future and you want a backyard? 
  4. Do you want to live in a quiet, established area or somewhere more lively? 
  5. Do you enjoy yard work, gardening? How much backyard space do you require?
  6. Have you considered the local schools and neighborhoods? 
  7. Have you looked at crime rates around the neighborhoods you’re interested in? 
  8. Is it essential for you to live close to your work? Or, is a commute ok? 
  9. Have you narrowed down a range of purchase prices you can afford?
  10. How much money do you need for a downpayment? 
  11. Are you pre-approved for a mortgage

When you’re wrapped up in the excitement of house hunting, you may forget which questions to ask when buying a house.. If you are a pet owner looking at condos, you’ll have to be sure the homeowners’ association allows pets. Or, let’s say you want to live in a popular downtown neighborhood, but plan to have children in a few years – will this neighborhood still suit your needs? It’s always worth giving some thought to the type of home and area to help focus your search. 

Also, be aware that being approved for a home loan saves time for everyone by ensuring that you, as the buyer, can actually afford the home and be able to follow through an offer. 

7 questions to ask when you interview agents

Contacting the agent listed on the for-sale sign of a house you’re interested in may not be the best way to protect your interest as a buyer. When you work with your own agent, that agent’s job is to represent your interests. They help research the house, find answers to all of your questions, and serve as your professional intermediary for communicating with the seller’s agent and homeowner.

Naturally, you will want to choose a great real estate agent that you are comfortable with and feel like they have your best interests in mind. Most real estate experts recommend that you interview at least three agents identified by recommendations from friends and family who have bought or sold a house recently. Here are some questions to ask potential agents to see if they are the right agent for you.

  1. How long have you been a real estate agent? 
  2. What kind of experience do you have in this specific market area?
  3. Do you usually work with buyers or sellers? 
  4. How do you usually communicate with clients? What should I expect for response time? 
  5. How will you help me search for homes? 
  6. What days and times are you typically available for showings? 
  7. How will you ensure transparency about any issues you see with a house? 

When you set your expectations for communication, home tours, and other information you count on your agent to provide, you have a good chance to establish a productive relationship from the start – which will help you through your homebuying journey.

stylish living room

stylish living room

37 questions to ask when touring homes

This is an extensive list, and not every question applies to every situation. For example, if your goal is to purchase a single-family home, questions relating to condominiums don’t apply. However, this list of questions to ask when touring a house should give you an excellent start in making well-informed decisions when buying your first home. 

  1. What’s the reason for the sale? How long have the sellers lived there?
  2. How long has the house been on the market? 
  3. What is the neighborhood like?
  4. When was the house built? 
  5. What are the property taxes?
  6. Are there any upcoming condo or homeowners association fees?
  7. What are the average utility costs? 
  8. Have there been any major repairs to the property? If so, do you know if they provided a warranty?
  9. Are there any boundary disputes with neighbors?
  10. Are there any shared driveways or communal spaces?
  11. Are there any public rights of way passing through – or near – the property? 
  12. How old are the major appliances and systems?
  13. Are the appliances included in the sale?
  14. What is the sales history of this house, and how would it affect my offer?
  15. Is there enough storage space? Room to grow? 
  16. Is there any evidence of water problems? Can you see damp drywall, basement floors, or open leaks? Can you smell mildew? Or is there a smell of fresh paint that might be intended to cover up a water issue?
  17. Are the walls structurally sound? Look for cracks and look for evidence of cracks covered over by wallpaper that doesn’t look right or paint applied over filler.
  18. Is the chimney in good condition?
  19. Are the windows sound? Will any of the glazing need to be replaced?
  20. Do the ground floor windows have working latches to lock the windows? 
  21. Is the attic insulated? If so, when was the insulation installed?
  22. Is there any soundproofing in the house? (Try viewing the home at different times to hear road noise or neighbors.)
  23. Are there working smoke alarms and carbon monoxide alarms?
  24. Is there adequate cell phone reception indoors? How’s the broadband service in the area?
  25. What type of system is used to heat and cool the house? 
  26. Ask to see the circuit box – does the wiring look up to date?
  27. How is the condition of electrical outlets and switches? (You can bring something to plug into try outlets.) 
  28. Do all of the lights work? If not, why not?
  29. Does the property have any lead pipes? Do you see any issues with pipes in need of repair?
  30. What kind of drainage system does the property have? Is it on the city sewer, or is there a septic tank? 
  31. Is there any asbestos in the property, or has there ever been an asbestos survey completed?
  32. What kind of roof does the property have? When was it last replaced, and what is its current condition? 
  33. Do you see any gutter leaks? Are the gutters cleaned out, or do they need work? 
  34. Are there any trees growing within 15 feet of the property? Can you discern if roots are likely to be a problem? 
  35. Which way does the yard face, and is there any part of the yard that doesn’t receive sunlight throughout the day? 
  36. Would the real estate agent buy this house? If not, why not?
  37. What’s the lowest price you think we could offer for this house and still close the transaction?

You can ask these questions when buying a house – and others as applicable – to understand your likely overall costs to own this home. When you understand all of your costs, you’ll confidently be able to make an offer you can afford

open concept new kitchen

open concept new kitchen

11 questions to ask when making an offer and closing on a home

Real estate agents make offers on homes every day. Their job is to help you make the best offer while protecting you against potential risks with the transaction. 

  1. How does the offer work? Do we communicate with the seller or seller’s agent? 
  2. What contingencies do you recommend including in the offer? 
  3. How much earnest money should we put in the offer? 
  4. When do we need to provide earnest money? 
  5. When should we expect to hear back from the seller? 
  6. If we receive a counter-offer, when do we need to reply? 
  7. How can we sign the paperwork? Digital? In-person? 
  8. If the offer is accepted, what are the next steps? 
  9. How far out is the potential closing date from an accepted offer? 
  10. What are our next steps once the offer is accepted?
  11. What do we do at closing? 

Your real estate agent wants to make the home buying transaction as smooth as possible. If they do not provide this information upfront, be sure to ask. 

You should prepare a list of your own questions to ask when buying a house. It can include any given here, or others that represent your own interests and concerns. Answers to these questions will ease your mind and help you understand what you can expect during each stage of the homebuying process. Completing your research is perfectly acceptable, but don’t skip asking questions of your mortgage broker, real estate agent, and title company. When you gather enough information, you can make the best decision buying your first home. 

Source: redfin.com

Suze Orman Gives Advice on How to Ride Out the Pandemic

A woman sporting short blonde hair speaks during a women's conference. She's also wearing a leopard print shirt.

“Lack of money doesn’t make you lack of worth,” Orman said.

If your money situation has actually improved during the pandemic, Orman suggests you consider helping someone in need — just make sure you’re in a stable position to do so.
Once you’ve built up that emergency fund, make sure you’re getting your other financial ducks in a row.
Ready to stop worrying about money?

What to Do if You’re Struggling, According to Suze Orman

When it comes to the state of our finances, the pandemic has not affected us all equally.
“Everybody should live absolutely below their means but within their needs,” Orman said. “They should not be spending what they can afford. They should be spending less than what they can afford to spend. You should be saving money and saving money, because the truth of the matter is you can never be too rich.”
Personal finance expert Suze Orman describes it as creating a situation of haves and have-nots. Some people have actually prospered over the past year with lowered spending and the bonus of stimulus money. Others are barely keeping their heads above water after becoming unemployed and depleting their savings.
Orman suggested taking advantage of federal student loan forbearance and just paying the minimum on other debt payments.
If you’re a homeowner with equity built up, consider taking out a home equity line of credit (or HELOC) — even if you don’t need to use it right away. Tapping money from a HELOC is better than taking money from a retirement account, Orman said.
“I do not want to see you take this money and pay down credit card debt with it,” she said. “I do not want to see you take this money and pay off something that you owe, whatever it might be.”

What to Do if You’re Thriving, According to Suze Orman

No matter if you’re struggling or have benefited financially during the pandemic, being conscious about how you spend your money is important. While we may be closer to the end of this pandemic than we were a year ago, there’s still a good deal of uncertainty on the horizon.
If the pandemic has put you in a situation where you’re struggling financially, Orman said your focus should be on holding tight to whatever money you can get. If you get stimulus money or unemployment checks, use that cash to meet your immediate needs and save any extra.
Besides having a steady job, Orman recommended having a 12-month emergency fund. Forget the common advice of having three to six months of expenses saved up. All that’s happened over the past year shows us we need to have a vast safety net.
Orman shared her thoughts on what both groups should do to ride out the pandemic during a virtual event hosted by Visionary Women on Feb. 3. Visionary Women is a Los Angeles-based women empowerment nonprofit. Get the Penny Hoarder Daily
You might have to seek out assistance to cover your basic needs but don’t let that bring you down.
“I don’t care if your FICO score goes down,” she said. “I care that you have the ability to feed yourself and your children.”

Suze Orman’s Pandemic Advice for Everyone

If for some reason, things go south and you end up needing to file for bankruptcy, the money in your 401(k) will be safe.
“It makes absolutely no sense to withdraw money from a 401(k),” Orman said. “Do you know that your retirement accounts are not affected in bankruptcy?”
Nicole Dow is a senior writer at The Penny Hoarder. <!–

–>



TV personality Suze Orman speaks at the Women’s Conference Tuesday, Oct. 26, 2010, in Long Beach, Calif. Matt Sayles/AP Photo

Lender credits: How a mortgage lender can pay your closing costs

What are lender credits?

Lender credits are an arrangement where the lender agrees to cover part or all of a borrower’s closing costs. In exchange, the borrower pays a higher interest rate.

Lender credits
can be a smart way to avoid the upfront cost of buying a house or refinancing.

Getting
closing costs to $0 means you can put more of your savings toward a down
payment — or, in the case of a refinance, lock in a lower interest rate without
having to pay upfront fees.

But lender credits aren’t always the right
choice. For some borrowers, it makes sense to pay more upfront and
get a lower interest
rate. 

Here’s how to negotiate the best mortgage deal for you.

Check your no-closing-cost mortgage options (Feb 25th, 2021)


In this
article (Skip to…)


How lender credits work

Lender credits are a type of ‘no-closing-cost mortgage’ where the mortgage lender covers all or part of the borrower’s closing costs.

Of course, lenders don’t pay borrowers’ closing costs out of generosity. In exchange for absorbing closing costs, the lender charges a higher interest rate. The ‘extra’ interest paid by the homeowner over time eventually repays any fees covered by the lender. 

Lender credits can be structured a few different ways, depending on what the lender agrees to cover and how much the borrower is willing to increase their mortgage rate.

For example:

  • The lender might cover all the borrower’s closing costs
  • The lender might cover its own fees and third-party services (like the
    appraisal) but not prepaid items (like property taxes and homeowners insurance)
  • The lender might cover only its own
    fees and none of the third-party services or prepaid items

The more of your closing costs a lender pays via lender credits, the higher your interest rate will be, and vice-versa.

Mortgage
pricing is flexible, and you can take advantage of tools like lender credits to
negotiate a rate and fee structure that works well for you.

Check your no-closing-cost mortgage options (Feb 25th, 2021)

How to compare mortgages
with lender credits

If you’re
considering a home loan with lender credits, it’s important to weigh the
short-term savings versus the long-term cost.

You might
eliminate your upfront cost with lender credits. But accepting a higher
interest rate means you’ll pay more interest in the long run. You’ll also have
a higher monthly payment.

If you keep
your loan its full term — typically 30 years — the amount of ‘extra’ interest
you pay could far exceed the amount you would have spent on upfront closing
costs.

However, most
home buyers don’t keep their mortgages for the full term. They sell or
refinance within a decade or so. And if you’ll only keep your loan a few years,
having a slightly higher interest rate might not matter as much.

So you need to
consider how long you plan to keep the mortgage before selling or refinancing
to decide if lender credits are worth it.

You should
also compare no-closing-cost loans from a few different mortgage lenders.

Each lender
structures lender credits differently — so you might find one that covers the
same amount of closing costs, but charges a lower interest rate than
another. 

And be sure to compare offers on equal footing.

If you look at
one lender quoting a zero-cost mortgage, and another that’s only covering origination
fees, for example, you’re going to see very different rates. So make sure all
the lenders you compare are covering the same amount and types of closing
costs.

You can find you total closing costs and how many lender credits are included on the standard Loan Estimate you’ll receive after applying with any lender. These documents make it easy to compare home loan offers side-by-side to find the better deal.

Are lender credits worth
it? An example

Typically, the
less time you keep your mortgage, the more you’ll benefit from lender credits.

Here’s an
example:

  No Lender Credits With Lender Credits
Loan Amount $250,000 $250,000
Interest Rate* 3.0% 3.75%
Upfront Closing Costs $9,000 $0
Interest Paid In 5 Years $35,500 $44,500
Interest Paid In 30 Years $129,500 $166,800

*Interest
rates are for sample purposes only. Your own interest rate with or without
lender credits will vary.

This home
buyer can take a 3% interest rate on a 30-year fixed-rate mortgage, with $9,000
in closing costs (3.6% of the loan amount). Or, they can accept a 3.75%
interest rate with $0 in upfront closing costs.

If the
homeowner keeps the mortgage 5 years or less, lender credits are likely worth
it.

At the end of
year 5, they will have paid $9,000 in ‘extra’ interest due to their higher
rate. But they saved $9,000 upfront. So if they sell or refinance any time before
the end of year 5, the savings from lender credits outweigh the added cost.

This point —
where the upfront savings level out with the long-term cost — is known as the
‘break-even point.’

If this
homeowner stays beyond the break-even point, they end up paying their
lender more in added interest than they saved upfront. So it’s easy to see how
lender credits don’t make as much sense if you plan to keep your loan a long
time.

However, there
are some scenarios where lender credits are worth it even for long-term
borrowers.

Lender credits in a rising interest rate environment

Even if you’ll
spend more in the long run, there are still scenarios where lender credits can
make sense. That’s especially true in a rising rate environment.

For example:

  1. A first-time home buyer wants to buy at today’s low interest rates, but
    only has enough saved for a down payment — not closing costs. This person could
    take a small rate increase, and may still lock in a lower rate than the one
    they’d get if they had to save another year or two and rates rose during that
    time  
  2. A homeowner bought their home a couple years
    ago and has an interest rate 2% higher than today’s rates. They want to
    refinance at today’s low rates but can’t afford closing costs. They could
    likely take a rate above the current market, get their closing costs paid by
    the lender, and still save money every month compared to their old loan

In these
cases, the higher interest rate is relative. Some homeowners can take a rate
increase on their lowest offer and still ‘save’ money overall.

Often, lender
credits are a matter of timing. They allow homeowners and home buyers to lock
during a low-rate environment, even if they don’t have the cash to cover
upfront fees out of pocket.

And remember,
lender credits aren’t all-or-nothing.

You don’t need
to take a big rate increase and get closing costs to $0. You can have the
lender cover part of your closing costs and take only a slight rate increase.

Make sure you
talk to lenders about all your options. And if one lender doesn’t offer the
right combination of rate and fees for you, shop around for another company
that will.

Compare no-closing-cost loans (Feb 25th, 2021)

Lender credits vs. discount points

Lender credits
work the opposite way, too. Instead of paying less upfront and taking a higher
rate, you can pay more upfront and get a lower interest rate.

This strategy
is known as ‘points,’ ‘mortgage points,’ or ‘discount points.’

Whereas lender
credits save you money upfront but increase your long-term cost, discount points cost you more
at closing but can save you a huge amount of money over the life of the loan.
Having a lower interest rate also reduces your mortgage payments.

Take a look at
an example:

  With 1 Discount Point No Points Or Credits  With Lender Credits
Loan Amount $250,000 $250,000 $250,000
Interest Rate* 2.75% 3.0% 3.75%
Upfront Closing Costs $11,500 $9,000 $0
Interest Paid In 5 Years $32,500 $35,500 $44,500
Interest Paid In 30 Years $117,500 $129,500 $166,800

*Interest
rates are for sample purposes only. Your own interest rate with or without points
or credits will vary.

One discount
point typically costs 1 percent of the loan amount and lowers your rate by
about 0.25%.

In this case,
one point costs the borrower an extra $2,500 at closing and lowers their rate
from 3% to 2.75%.

By the end of
year 5, the homeowner has already saved $3,000 in interest compared to the
original rate quote. And the longer they keep their mortgage, the more that
discount point will pay off.

By the end of
year 30, they’ve saved $12,000 compared to the original rate — and nearly
$50,0000 compared to the no-closing-cost mortgage.

This is just
another example of how borrowers can use mortgage pricing to their advantage.

The homeowner
staying long-term can pay for discount points and save themself tens of
thousands of dollars over 30 years. The person buying a starter home or a
fix-and-flip can eliminate their upfront cost and sell before the higher
interest rate starts to matter.

It’s up to you
to decide what makes the most sense based on your home buying or refi goals,
and your personal finances.

Your loan
officer or mortgage broker can help you compare options and choose the right
pricing structure.

Negotiating your interest rate

Both lender
credits and discount points involve negotiating with your mortgage lender for
the deal you want.

You’ll be in a
better position to negotiate low closing costs and a low rate if lenders
want your business. That means presenting yourself as a creditworthy borrower
in as many areas as you can.

Lenders
typically give the best rates to borrowers with a:

Of course, you
don’t need to be perfect in all these areas to qualify for a mortgage. For
instance, FHA loans allow credit scores as low as 580. And if you qualify for a
USDA or VA loan, you can buy with 0% down.

But making
improvements where you can — for instance, by raising your credit score or
paying down debts before applying — can make a big difference in the rate
you’re offered. 

Today’s mortgage rates with lender credits

Today’s rates are still at historic lows. Many
borrowers can get their closing costs paid for and still walk away with a great
deal on their mortgage.

The trick is to compare mortgage loans from a
few different lenders.

If you want a zero-cost mortgage, make sure
you ask specifically for quotes with lender credits so you can find the lowest
rate on the mortgage you want.

Verify your new rate (Feb 25th, 2021)

Compare top lenders

Source: themortgagereports.com

6 First Time Home Buying Mistakes I Made When I Bought My First House

Are you thinking about buying a house? Do you want to avoid common home buying mistakes?

I bought my first house when I was only 20 years old. Even though that was a little over 11 years ago, I have looked back many times and wondered how I did it.first time home buying mistakes

first time home buying mistakes

I made so many first time home buyer mistakes!

Of course, I was young and had a lot to learn. But, I definitely could have done more research to avoid many of the home buying mistakes I made, like not comparing interest rates or understanding the total cost of buying a home.

I’m not alone in how I approached buying a house. There are many people who simply do not understand everything that goes into buying a house, and that’s something that can negatively impact your finances and cause stress. 

Over the years, I have received many emails about buying a house in your early 20s or when you’re young. I also get lots of questions from people who have been renting and are thinking about buying their first home.

I thought it would be interesting to look back on the home buying mistakes I made and explain how to avoid the same mistakes I made. Hopefully you can be a better prepared home buyer than I was!

The mistakes first time home buyers make can cost you money and may even lead to regret. Perhaps you’re wondering why you even bought your home!

One thing you may not know about me is that the first house I ever lived in was actually my own. Growing up, we always lived in small apartments and rented. I wanted to have a home of my own – moving so often as a child was tiring.

Buying a house and being a homeowner was a completely new thing for me.

I had never done yard work, had to deal with house maintenance, home repairs, or anything like that.

I was as new as could be when it comes to living in a house!

It was a buyer’s market when we started searching. It was back in 2009, so the housing market was coming down. This meant that a monthly mortgage payment wasn’t too much more than rent at an apartment.

I felt like I was ready to buy my first house, and I needed a place to live.

So, buying a house seemed like a logical decision.

I made many home buying mistakes, like I said. While I made it through everything, my mistakes could easily have led to major financial trouble.

Read on below to learn more about mistakes home buyers make and my first-time home buyer tips.

Related content on home buying mistakes:

Here were some of my home buying mistakes.

 

first-time home buyer mistakes

This was our first house.

I didn’t prepare.

I was only 20, so I didn’t really understand how things worked, even though I thought I did at the time.

I found an online mortgage lender, and back in 2009, that was kind of a new thing. The company ended up doing a bunch of odd things and made a bunch of paperwork mistakes. It almost seemed scammy because online mortgages were so new at the time.

While my realtor was great and a family friend, she recommended a mortgage loan officer to me, and I just used that person.

The loan officer was great and very friendly.

But, I didn’t compare interest rates at all, I didn’t try to raise my credit score before I started looking at homes, and more.

Instead, I should have been paying attention to my credit score and worked to increase it before I started looking at rates. Then, I should have applied with multiple mortgage lenders and found the best interest rate.

Basically, I didn’t prepare.

Had I spent time increasing my credit score and shopping around for better rates, I could have gotten a better interest rate and saved money on mortgage payments.

While a small percentage difference in interest may not sound like much, it makes a big difference in how much you pay each month and how much you pay over the course of your loan.

For example, here’s the difference in two 30-year mortgages on a $200,000 home (this is before annual taxes being added in to the monthly payment):

  • With an interest rate of 3.25% your monthly payment would be $870, and you would pay $313,349 over the course of your loan.
  • With an interest rate of 4% your monthly payment would be $955, and you would pay $343,739.

That’s a difference of $85 a month, and you will have paid $30,000 more once your mortgage is paid off.

Looking back, I would have done more research on the home buying process and the factors that impact interest rates.

One of the easiest things you can do to avoid this mistake is to start paying attention to your credit score. You can receive free credit reports and credit scores, and I recommend reading Everything You Need To Know About How To Build Credit to learn more.

I avoided adding up all of the costs because it was scary.

Okay, so I knew that having a house could/would be expensive, and luckily we were fine, but wow, are there a lot of costs!

I avoided adding them all up for a while because I knew they would be higher than I thought. Eventually I did, and I was right – adding everything all together was a doozy.

We didn’t start adding up these costs until we were farther along in the buying process, and this is one of the home buying mistakes many people make. 

There are lots of people who only think about their mortgage payment, but there are so many more costs associated with buying a home

Before we purchased a home, we should have gone through all of the typical costs of owning a house and compared it to our housing budget. Comparing your current budget to your new homeowner’s budget will tell you whether or not you can actually afford to buy a home.

Here are some of the homeownership costs you want to consider:

  • Gas/propane.  Many homes run on gas in order to have hot water, to use the stove, and so on.
  • Electricity. Generally, the bigger your home then the higher your electricity bill will be.
  • Sewer. On average, your sewer bill may cost around $30 a month from what I’ve seen.
  • Trash. This isn’t super expensive either, but it’s still a cost to include.
  • Water. Water bills can vary widely. I know many who live in areas where the average water bill is a few hundred each month.
  • Property taxes. Property taxes can vary widely from town to town. You may find yourself looking at two similar houses with similar price tags, but the property taxes may differ by thousands of dollars annually. That is a LOT of money. While it may seem small when compared to the actual home purchase price, remember that you have to pay property taxes annually and a difference of just $3,600 a year is $300 a month for life.
  • Homeowners insurance. Homeowners insurance can be cheap in some areas but crazy expensive in others. Don’t forget to look into the cost of earthquake, flood, and hurricane insurance as well as that can add up quickly depending on where you live – not thinking about these was one of the home buying mistakes I made.
  • Maintenance and repairs. Even if your home is brand new, you may have to pay for repairs, which is something that will come up eventually. No matter how old your home is, repair and maintenance costs will eventually come into play.
  • Homeowners association fees. This can also vary widely. You should always see if the house you are interested in is in an HOA because the fees can be high and there may also be rules you don’t like.
  • Home furnishings. Furnishing your home can be done cheaply, but I know some who buy huge homes but can’t afford to put anything in them, such as a table, a bed, and so on. Why own a $500,000 house if you don’t have any furniture?

 

I probably should have spent less on the actual house.

While the house we bought was less than the amount we were pre-approved for, I definitely think that we could have found a house for even less.

We bought at the top of our budget, and this is one home buying mistake that can really get you in trouble.

Thinking back on it, the amount that we were pre-approved for, as young 20 year olds, was pretty insane. I am very glad that we did not buy a house that was that expensive.

It’s not uncommon to be approved for much more than your budget realistically allows for. Just because the bank approves you for a $350,000 mortgage, for example, does not mean you can afford to buy a house at that price.

We bought at the top of our budget thinking that we would get better jobs eventually. While that worked out in our favor since we were each barely making above minimum wage, it was a decision that could have ended quite badly.

 

We were living paycheck to paycheck and didn’t have an emergency fund.

We were young and didn’t have high paying jobs when we bought our house. In fact, we were barely making more than minimum wage at our jobs.

While we never racked up credit card debt, I did accrue student loans and we were living paycheck to paycheck.

Had one major (or even minor) thing happened with our new house, the only option would have been taking on debt. This is not where you want to be if you have just taken out a big mortgage. 

The best way to avoid this first time home buyer mistake is to set some money aside for emergencies before you buy, and to buy a house that fits in your budget. You want to be able to continue saving while making your new monthly home payments.

 

Make sure your home insurance covers what you need.

While I never had to use my home insurance, there were a few things that it did not cover, and I should have at least thought about them beforehand.

One of the biggest coverage issues was flooding. Flooding is a common problem where we lived in Missouri, yet I didn’t realize until a few years after I had already lived in the house that flooding was not covered unless you signed up for an additional policy.

Now, we weren’t in a floodplain – your lender may require you to buy special flood insurance if you live in a floodplain – but basement flooding was still a fairly common issue where we lived. 

Another special insurance consideration are earthquakes. Many normal home insurance policies do not cover earthquakes.

You can avoid this home buying mistake by researching what is the best kind of insurance policy for where you live. Floods and earthquakes aren’t a problem everywhere, but in some places you may want to have that kind of coverage.

 

Have a larger down payment.

We were 20, and we didn’t have a lot of money saved up before we bought our house.

Therefore, we did not put down a 20% down payment. That might sound like a lot, but 20% is the recommended amount to put down if you want to avoid PMI (private mortgage insurance).

A lender charges PMI because putting less than 20% down makes the loan look like a riskier investment for them. PMI protects lenders from borrowers who default on their loans.

PMI is normally around 0.5% to 1% of the mortgage annually, and it’s added to your monthly payment. If you borrowed a $200,000 mortgage, you would likely pay between $1,000 to $2,000 a year until you paid down enough of your mortgage principal to remove PMI.

We put less than 5% down towards our house purchase, and this led to us having PMI.

I don’t remember exactly how much we paid each month for PMI, but looking back, I could have used that money to pay off my student loans faster, save more, and so on.

While having a larger down payment isn’t one of the home buying mistakes I could have easily changed back then, in general, just saving more money instead of frivolously spending it in the beginning would have been a good decision.

Related content: Can You Remove PMI From Your Mortgage?

 

So, what’s going on with the house now?

As many of you know, we sold our house over 5 years ago. We wanted to travel more, and selling our house made more sense than keeping it.

We actually sold it for quite a loss, as the market was further down than when we bought it.

I’m happy that we bought the house – it taught us a lot, gave us responsibility, and gave us a place to live! And, it taught us how to avoid home buying mistakes in the future.

One of the things I haven’t mentioned is what we paid each for our mortgage. Our monthly payments were just under $1,000. 

Where we lived in the midwest is known for being a low cost of living area. I can’t imagine how we would have bought a house in some other parts of the U.S.

But, the low cost of living meant that buying a house at 20 was more doable.

Is it normal to regret buying a house? Is it normal to have buyers remorse after buying a house?

I don’t know what the statistics are on home buyers remorse, but it does happen. Hopefully with the tips before buying a house above, you can avoid that as much as possible.

Also, being realistic when it comes to what to expect when buying a house can help greatly as well.

What home buying mistakes did you make when you purchased your home?

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Source: makingsenseofcents.com