9 Dumb Ways You Are Ruining Your Home Value

Men wallpapering a home
Rawpixel.com / Shutterstock.com

Your home might be your biggest asset — and yet, you could be inadvertently making it less valuable. Some updates and renovations can backfire when it comes time to sell.

“What I have seen a lot of people do is rip out a closet,” says Steven Gottlieb, a licensed real estate salesperson with Warburg Realty Partnership in New York City.

Where he works, space is at a premium. That means eliminating a closet can be a costly mistake.

“I don’t know that it detracts from the [appraised] value,” he tells Money Talks News, “but it inevitably shrinks the [buying] audience.”

And with fewer people interested in a property, the chances of a quick sale or a full-price offer can decrease.

From removing closet space to painting walls garish colors, here are some dumb ways you could be dragging down your home’s resale potential.

1. Selecting the wrong color paint

Woman painting a wall
dotshock / Shutterstock.com

You may think neutral is boring, but buyers could be turned off by brightly colored walls.

That may seem silly, since it’s relatively easy to repaint. But some people don’t want the hassle, says Keri Rizzi, a real estate salesperson with HomeSmart in White Plains, New York.

“Buyers will judge based on paint alone,” she tells Money Talks News.

So, consider yourself forewarned if you decide to paint your rooms every color of the rainbow.

2. Using bold and busy designs

Living room with ugly wallpaper
ariadna de raadt / Shutterstock.com

It isn’t just colorful walls that can derail a potential sale. Busy or bright patterns on wallpaper, tiles or flooring can be a problem for some people.

“Those are much harder to change than just paint and can have more of an effect on value,” says Amanda Rogers, a Realtor with Rogers Real Estate Group in Ada, Michigan.

If you don’t have any reason to think you’ll be moving, go ahead and be creative. Otherwise, think twice about loud designs and bold colors.

“Always choose neutral options for permanent items, and add your personal style with accessories, furniture pieces, wall art, etc.,” Rogers tells Money Talks News.

3. Removing closets

Clothing rack
Pixel-Shot / Shutterstock.com

“In an urban setting, especially New York City, space is at a premium,” Gottlieb says. An apartment with minimal closets might not get a second look from buyers.

Even in a suburban or rural setting, storage space often is highly valued. Consider carefully before converting closets to living space or removing a rarely used pole barn from your property.

4. Ripping out bathrooms or laundry rooms

Older worker demolishing bathroom tiles
sima / Shutterstock.com

If you have a small household, you may be tempted to rip out a rarely used bathroom for closet or living space. Don’t do it, Gottlieb says.

“A bathroom is worth a lot,” he explains.

Even in urban areas, bathrooms and laundry hook-ups trump closet space.

5. Making trendy updates

Room with blue carpet
Artazum / Shutterstock.com

Renovating a home with the latest trends can backfire if the look becomes dated or is not the preference of a potential buyer. Rizzi has seen this happen when sellers install new wall-to-wall carpeting only to find that buyers really want hardwood flooring.

If parts of your house are looking tired and worn, consider giving buyers a credit to do their own work. Don’t sink money into updates that may not boost value.

6. Adding too much tech

Woman using a smart home control system
Andrew Angelov / Shutterstock.com

Technology changes quickly, which means an expensive smart home system may be obsolete in just a few years.

“People invest too much for the most current electronic system,” Gottlieb says. “Then, they are often disappointed in five to seven years when [buyers] are not impressed.”

Go ahead and install the latest bells and whistles for your own use and enjoyment. Just don’t expect such upgrades to boost your home’s sale price down the road.

7. Lowering ceilings

Workers plaster a ceiling
Daniel Besic / Shutterstock.com

Some people might want to lower their ceilings to accommodate lighting, but avoid that if possible, Gottlieb says. Ceilings on a main floor of 9 feet or more were among the most desirable features and design trends for 2020, according to the National Association of Home Builders.

By some estimates, high ceilings can add as much as 25% to the value of a home.

8. Failing to control landscaping

Man mowing weeds in an overgrown lawn
sherwood / Shutterstock.com

Curb appeal isn’t necessarily reflected in a home’s appraised value, but it can make or break a sale, according to real estate professionals.

“Make that first impression the best impression,” Rizzi says.

Clear out debris, trim overgrown bushes and pull weeds to create a clean exterior.

9. Letting your home fall into disarray

Plumber at work
Nor Gal / Shutterstock.com

Keep a home’s interior clean and well maintained.

“If something breaks, fix it,” Rogers says. “If you don’t know how to fix it, hire it done.”

Neglecting plumbing and electrical work could have dire consequences to your home’s value if it leads to structural damage.

Bottom line, according to Rogers: “Clean sells.”

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Source: moneytalksnews.com

Want To Build Your Own House? The Pros, Cons, and Costs

Building a brand-new home may sound like a dream come true. You get to choose the ideal layout for your family’s needs, and have a say in each and every design element. However, the process may also be daunting if you’ve never done it before.

To help you through it, we’ve created this Guide To Building Your Own Home. It will provide all the detailed information you need at each stage of the home-building process so that everything goes as smoothly as possible.

In this first article, we’ll offer a glimpse into the pros and cons of building a house, including how much it costs, how long it takes, how it’s financed, and much more that will help you decide if this option is right for you.

Pro: You can get exactly what you want

Building a home is a popular option these days. Construction on single-family homes was up 10% in November 2020 compared with the previous year, according to the National Association of Home Builders. And, it makes sense: When you build your own home, you get exactly what you want: an in-law suite for when the grandparents visit, a decked-out office for working from home, midcentury modern style, and more. Anything is possible.

“You get a blank slate,” says Marc Rousso, CEO of JayMarc Homes in Seattle. “The fun part about building a custom home is that it can be whatever you want.”

That might sound overwhelming, so Rousso suggests starting with a vision board. Check out websites like Houzz or Pinterest, and drive around snapping photos of homes you like. Then think through how big you want the home to be, how many bedrooms and bathrooms you need, and the bonus spaces you want to live as comfortably as possible.

The best way to make sure you get what you want (and that it fits within your budget): Hire a great builder from the start. This crucial step sets the best possible foundation (in every sense of the word) for your new home. Builders help you select others on your team (such as an architect, interior designer, and landscaper) and serve as your point person throughout the process.

Not sure how find a homebuilder? NAHB offers an online directory, and its members are committed to ongoing education and ethical standards. Hiring builders who have been in business for several years is also a plus, as they’ve proven they can weather both the highs and lows of economic cycles.

Pro: You can build just about anywhere you want

Have you always dreamed of living by the water or having a mountain view? Or maybe you want no neighbors in sight? Building a home lets you set up your residence just about anywhere you want.

Talk to your builder before making a land purchase, though, Rousso urges. The builder will need to do a feasibility study on the land to make sure it’s a suitable place for the home you want to build.

“We’ve talked more people out of buying land than into buying land, because there are so many pitfalls,” he explains.

Builders help make sure the land is zoned for residential development and identify any issues with building on the site, such as connecting to utilities or developing the land before building can start.

Another thing to note: Land development can be costly. HomeAdvisor estimates it to be $1.30 to $2 per square foot of land, including surveying, drainage plans, utility and septic mapping, permits, soil testing, land clearing, excavation, and demolishing any existing structures.

Pro: New homes typically come with less maintenance

An obvious advantage of building a home is that everything is brand-new. That means maintenance and repairs will be minimal or even nonexistent for a while, saving you plenty of headaches and thousands of dollars a year. According to HomeAdvisor, in 2020, homeowners spent an average of about $3,200 on home maintenance.

Nonetheless, a new house isn’t entirely maintenance-free. You’ll probably still need to do yardwork to keep up your newly installed landscaping. And you may want to pay for some preventive upkeep, such as a maintenance contract on your HVAC system, costing $150 to $500 a year. But that could save you money in the long run.

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Watch: How Much a Home Inspection Costs—and Why You Need One

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Con: Building usually costs more than buying an existing home

Building a house is an expensive enterprise, and typically costs more than buying a preexisting home. As such, you’ll need to have some in-depth discussions with your builder on what you want, and whether it’s affordable for you.

“A builder can help guide the design process starting with schematic design to give the prospective client an idea of the budget,” says Tim Benkowski, senior project manager at Balsitis Contracting in Lake Geneva, WI. “That way, design revisions can be made early without the owner falling in love with a home design only to find out they need to cut out their favorite parts or reduce the project scope.”

Several factors determine how much your newly constructed home will cost: location, size, complexity, and design elements.

The NAHB estimates that the median price of constructing a single-family home is $289,415, or $103 per square foot. Labor typically constitutes about 40% of the cost, followed by permits, design fees, and materials. Here’s more on how much it costs to build a house.

Con: Getting a construction loan can be complicated

To finance building a home, you’ll need a construction loan, which is a little more involved than getting a traditional mortgage to buy a preexisting house, says Steve Kaminski, head of residential lending at TD Bank.

For starters, you’ll likely need a 20% down payment since construction loans are considered higher-risk. Along with the usual financial documents needed for your loan application, you need to provide project plans, costs, and land value. You also need a signed contract or purchase contract with the project’s plans, specs, and budget details, and a timeline for the construction.

“The lender is not only evaluating the borrower, but also the project plans and oftentimes the builder to ensure they will be financially solvent throughout construction,” Kaminski explains.

Construction loans are usually shorter-term, covering just the duration of the build, and may have higher interest rates, usually about 1% higher than conventional mortgages, according to the Consumer Financial Protection Bureau.

Once the home is completed, you can pay off the balance or convert the loan to a conventional mortgage. The interest rate and the type and terms of the mortgage will depend on your credit history and lender.

When shopping around for a mortgage for a new home build, Kaminski urges borrowers to go with a lender experienced in working with construction loans.

Con: Building a home takes a while

Generally, it takes a bare minimum of three months to build a simple house, and it can take much longer. But it’s a “sliding scale,” says Benkowski. “A 2,500-square-foot and under [home] can typically be completed in seven to nine months with proper planning. A 7,500-square-foot home and up would likely take 12 to 30 months.”

Planning as much as you can will keep the project on track. Still, delays do happen. Weather is the biggest one, with temperature shifts and rain or snow postponing work. Your own choices could also be to blame. If you’re taking too long to choose your favorite flooring or windows, it could make it all take a little longer.

Here’s more on how long it takes to build a house.

In the next installments, we’ll cover how to buy land, design tips, the ins and outs of mortgages for home construction, and lots more.

Source: realtor.com

MBS RECAP: Looking For Silver Linings Despite Falling Sky

After a huge day of snowball selling yesterday, bonds started out in weaker territory today.  Hugely strong Retail Sales data and sharply higher inflation told rates to keep on rising, but they quickly refused.  Several hours later, a decidedly weak 20yr bond auction made the same suggestion (i.e. higher rates), but yields continued holding modest gains.  As far as days with intraday yields hitting their highest levels in almost a year are concerned, that’s about as much resilience as we could hope for.  Tomorrow will be critical in confirming or rejecting today’s defiant show of support.

Econ Data / Events

  • Fed MBS Buying 10am, 1130am, 1pm

  • Retail Sales 5.3 vs 1.1 f’cast, -1.0 prev

  • Producer Prices (Inflation, y/y) 2.0 vs 1.1 f’cast, 1.2 prev

Market Movement Recap

08:21 AM

Bonds tried to bounce overnight but hit technical resistance at 1.28%.  Weaker ever since with the sharpest losses at the start of the domestic session.  1.315% on the 10yr heading into Retail Sales data.  MBS are down an eighth.

08:43 AM

More weakness following balmy econ data.  10yr quickly hit highs of 1.33% before recovering back down to pre-data levels.  UMBS 2.0 coupons are still down an eighth.

01:12 PM

Much-needed technical bounce coincided with stock losses earlier.  Yields were as low as 1.27% but are up and over 1.29% now following a weak 20yr Bond Auction.  Selling seems relatively contained so far an both MBS and Treasuries are holding on to modest gains at the moment.  

02:35 PM

No reaction to Fed Minutes.  Treasuries still slightly green but off their best levels and MBS still slightly red, underperforming.


MBS Pricing Snapshot

Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.

MBS

UMBS 2.0

101-32 : +0-04

Treasuries

10 YR

1.2840 : -0.0150

Pricing as of 2/17/21 4:11PMEST

Today’s Reprice Alerts and Updates

2:35PM  :  No Revelations And No Major Reaction to Fed Minutes

1:45PM  :  ALERT ISSUED: Negative Reprice Risk Increasing as MBS Underperform

1:08PM  :  ALERT ISSUED: Bonds Stumble a Bit After 20yr Bond Auction

9:19AM  :  Bonds Turn Green as Market Says Too Much, Too Fast

8:33AM  :  ALERT ISSUED: Big Beat on Retail Sales = Big Bond Beat Down

8:20AM  :  Tepid Bounce; Pre-Data Weakness


Economic Calendar

Time Event Period Actual Forecast Prior
Wednesday, Feb 17
7:00 MBA Purchase Index w/e 299.5 318.8
7:00 MBA Refi Index w/e 4337.0 4549.2
8:30 Retail Sales (%)* Jan 5.3 1.1 -0.7
8:30 Core Producer Prices YY (%)* Jan 2.0 1.1 1.2
9:15 Industrial Production (%) Jan 0.9 0.5 1.6
10:00 NAHB housing market indx Feb 84 83 83
10:00 Business Inventories (% ) Dec 0.6 0.5 0.5

Source: mortgagenewsdaily.com

Buyer Demand Shores Up Builder Confidence

After dropping from record high levels by a total of 7
points over the last two months, the index that measures home builder
confidence has stabilized.
The Housing Market Index (HMI), produced by the
National Association of Home Builders (NAHB) and Wells Fargo, rose 1 point in
February to 84.

“Demand conditions remain solid due to demographics, low mortgage rates and
the suburban shift to lower cost markets, but we expect to see some cooling in
growth rates for residential construction in 2021 due to cost factors, supply
chain issues and regulatory risks,” said NAHB Chief Economist Robert Dietz. “Some builders are at capacity and may not be able to expand production due to
these headwinds
.”

“Lumber prices have been steadily rising this year and hit a record high in
mid-February, adding thousands of dollars to the cost of a new home and causing
some builders to abruptly halt projects at a time when inventories are already
at all-time lows,” said NAHB Chairman Chuck Fowke. “Builders remain very
focused on regulatory and other policy issues that could price out households
seeking new homes in a tight market this year.”

NAHB surveys its new home builder members each month, asking for their perceptions
of current single-family home sales and sales expectations for the next six
months as “good,” “fair” or “poor.” The survey also asks builders to rate
traffic of prospective buyers as “high to very high,” “average” or “low to very
low.” Scores for each component are then used to calculate a seasonally
adjusted index where any number over 50 indicates that more builders view
conditions as good than poor.

The component measuring current sales conditions was unchanged from January
at 90, while the component measuring sales expectations in the next six months
fell 3 points to 80.
The index charting traffic of prospective buyers rose 4
points to 72.

Regional scores are given as three-month moving averages. The score in the Northeast
rose 2 points to 78 and the Midwest declined 1 point to 81. Both the South and
the West lost 2 points to 84 and 93, respectively.

Source: mortgagenewsdaily.com

Home Builder Confidence Improves, but High Construction Costs Remain a Concern

The numbers: The construction industry’s outlook improved in February amid better foot traffic from home buyers, even as the cost of building homes increased.

The National Association of Home Builders’ monthly confidence index rose one point to a reading of 84 in February, the trade group said this week. The modest increase comes after two consecutive months where the index has dropped.

Index readings over 50 are a sign of improving confidence. Last spring, the index dropped below 50 as concerns regarding the coronavirus pandemic grew, but the index rebounded and later hit a series of record highs in the fall.

What happened: The index that measures sentiment traffic of prospective buyers increased four points to 72. Comparatively, the outlook regarding current sales activity held steady between January and February, while the index of expectations for future sales over the next six months declined by three points to 80.

On a regional basis, builders’ confidence regarding the housing market in the Northeast improved dramatically, rising from 68 in January to 89 in February. Builders also grew more confident about the state of the market in the Midwest and maintained their positive outlook on the South. Confidence worsened slightly in the West, however.

The big picture: Demand for new homes remains extremely high. The lack of existing homes for sale, plus renewed interest in suburban living amid the pandemic, is pushing buyers further out from major cities and toward newly-constructed developments. But price pressures could begin to affect builders and buyers alike in the coming months.

“Lumber prices have been steadily rising this year and hit a record high in mid-February, adding thousands of dollars to the cost of a new home and causing some builders to abruptly halt projects at a time when inventories are already at all-time lows,” Chuck Fowke, who is the current chairman of the National Association of Home Builders and a custom home builder from Tampa, Fla., said in the report.

“Builders remain very focused on regulatory and other policy issues that could price out households seeking new homes in a tight market this year,” Fowke added.

What they’re saying: “Housing starts and permits should moderate, but from the highest levels since 2006, as building activity continues to be supported by strong demand for homes — especially single-family construction — and low inventories,” Rubeela Farooqi, chief U.S. economist at High Frequency Economics, wrote in a research note.

Market reaction: The Dow Jones Industrial Average and the S&P 500 index were both down slightly Wednesday morning.

Source: realtor.com

Low Rates, COVID are Motivating Prospective Home Buyers

A
high percentage of those who told the National Association of Home Builders
(NAHB) late last year that they were thinking of buying a home have now turned
thought into action. Rose Quint writes in the NAHB Eye on Housing blog
that 15 percent of those queried in its 4th Quarter 2020 Housing
Trends survey said they were considering a purchase and now 56 percent of them
are actively looking
. A year ago, only 43 percent of those considering buying
had shifted into gear.

Quint
says this is the fourth consecutive year-over-year
rise in the share of prospective buyers who have become active buyers. She identified
several possible reasons for the most recent uptick; fear of missing out on low
interest rates
, a need for more space due to COVID-19, and a desire to move to
outlying suburbs.

Most of the increase in buying
activity was among Millennials and Gen X’ers. Millennials who transitioned from
thinking to action rose from 46 percent in Q4 of 2019 to 65 percent in the same
quarter of 2020 and for Gen X’ers the change went from 43 percent to 57
percent. The shares among Gen Z and Boomer generations remained relatively flat
with a 1-point increase in each case to 43 percent and 38 percent,
respectively.

Geographically, larger shares of
prospective buyers in every region are actively trying to find a home to buy
than a year ago, but the increase is most notable in the West and Northeast.

Quint says that, as the share of
prospective buyers has increased, so has the length of time they spend
searching. In the fourth quarter of 2020, 69 percent of buyers actively engaged
in the purchase process have spent 3 months or longer looking, compared to 60
percent a year earlier. This marks the eighth consecutive year-over-year gain
in the share of active buyers looking for three months or more for a home to
buy.

Source: mortgagenewsdaily.com

Higher building material costs could push new home prices up

New home sales fell slightly at the end of 2020 due to higher prices offsetting the strong demand from buyers that was seen throughout the year, according to data from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau.

Although sales of new homes grew 1.6% in December, we saw much stronger sales growth in the preceding months, the National Association of Home Builders said in a blog post.

Throughout 2020, new home sales rose by 18.8% compared to the year before.

“While the market remains solid, median home prices are increasing due to higher building material costs, most notably softwood lumber, and a shift to larger homes,” said Robert Dietz, chief economist of the NAHB.

The NAHB reported that the median sales price of a new home in December was $355,900, compared to a median sales price of $329,500 in the same month one year ago.

Moreover, NAHB Chairman Chuck Fowke said that the affordability of new homes could be negatively impacted by increased regulatory burdens in 2021, as well as more increases in the cost of building materials.

In any case, reduced sales will at least have a positive impact on the available inventory of new homes, which currently stands at just 4.3 months supply at the current sales pace, down 19% from where it was a year ago.

Across the country, new-home sales saw the largest gains for all of 2020 in the Midwest, up 24.2%, followed by a 21.2% gain in the Northeast, an 18.9% increase in the West, and a 17.6% increase in the South.

Source: realtybiznews.com

True Cost of Home Ownership – Total Expenses, Hidden Fees & Taxes

The decision to rent or buy a home doesn’t just come down to comparing a neighborhood’s market rent to the principal and interest payment that a mortgage would cost. Neither, for that matter, does it come down to being able to pick your own paint colors or knock down walls.

Owning a home costs far more money than the average first-time homebuyer realizes. Beyond dollars and cents, it also comes with less tangible risks and downsides.

Before you write a check for $300,000 to buy a home, keep the following costs and risks in mind.

Financial Costs of Home Ownership

Some of the financial costs to own a home are obvious. Others, not so much.

As you create a monthly budget and plan out how much home you can afford, make sure you include all costs in your calculations.

Maintenance, Repairs, and Capital Improvements

New homeowners almost never fail to underestimate the cost of maintenance, repairs, and capital improvements.

Every single item in a house comes with an expiration date. From the hot water heater to the furnace, the pipes to the ductwork, the wiring, the framing, the joists, the flooring, the roof, the drywall, even the paint on the walls — it all deteriorates over time.

I hear homeowners say things like “Well, this year my budget got thrown off because I had to replace the furnace, but next year I’ll get back on track with my retirement savings.” Except they won’t, because next year it will be the roof. The year after that it will be the hot water heater. Then replacing the carpets, and so on, ad infinitum.

You still need to include irregular expenses in your monthly budget, even though they don’t hit you every month. As a landlord, I budget 10% to 15% of the rent each month for repairs and maintenance. It goes into a separate account that I tap when I get hit with a big repair bill.

The exact amount you should budget each month for your home’s inevitable maintenance and repair bills depends on the age, size, value, and overall condition of your house. For all their charm, older homes do require more maintenance. And pricier homes require more upscale finishes and materials.

Consider setting aside 15% of your monthly mortgage payment in a separate high-yield savings account at CIT Bank. You can leave it untouched until a home maintenance bill hits you.

Lawn Care and Landscaping

Aside from condos, most homes come with surrounding grounds, which require maintenance of their own.

At a minimum, that typically means spending an hour or so each weekend mowing the lawn, at least during the warmer months. Or paying someone to do the work for you. But it could also mean caring for bushes, shrubs, gardens, trees, and other vegetation on your property.

For that matter, you might also need to rake leaves, remove weeds, clean gutters, shovel snow, salt ice, and otherwise keep the outdoor areas orderly. As an apartment dweller who rents my home despite owning other rental properties, I don’t have to worry about these headaches and costs.

Condo or HOA Fees

Of course, you could buy your own apartment, better known as a condominium. But you’d still end up responsible for maintaining the grounds and common areas.

In this case, that responsibility comes in the form of monthly condo fees. These usually cost hundreds of dollars each month, taking a real bite out of your monthly budget.

Even many single-family homes incur similar fees, as owners pay into a homeowners association (HOA) each month. Although usually less than condo fees, you still have to do all the lawncare and maintenance on your home, plus pay monthly fees. And then you get the privilege of being told what you can and can’t do around your home, like adding a shed or fencing in your yard, if your HOA has such restrictions.

As a final word of warning, remember that these fees can change. You might buy a home with a $100 monthly fee, only to have it double the following year. Or you might get hit with a special assessment: a one-time fee to pay for some large community expense, which you may or may not want anything to do with but must pay for nonetheless.

Property Taxes

Among the more obvious homeownership expenses, every homeowner in every state must pay property taxes. They vary wildly, from a median of $658 per year in Alabama up to an astounding $7,800 median tax bill in New Jersey, per the National Association of Home Builders.

Bear in mind that the existing property tax bill when you buy a property doesn’t necessarily represent the bill you’ll pay as a homeowner. Local governments look for any excuse to assess property values higher — the better to raise taxes on you, my dear. And the easiest excuse in the book is your purchase transaction.

Expect your local municipality to raise your tax assessment to the purchase price you paid. That means you have to calculate the future property tax bill based on the local tax rate and your purchase price. Then forecast a 2% rise in property taxes each year thereafter.

Welcome to homeownership!

Homeowners Insurance

You may have skated by without renters insurance as a tenant, but you can’t skip homeowners insurance as a property owner.

To begin with, your mortgage lender requires evidence of coverage every year, no exceptions. Fail to provide it to them, and they’ll go out and buy coverage for you — usually at exorbitant rates — then bill you for it.

But even if you bought a home in cash, you still need homeowners insurance. Otherwise, you’d find yourself living on the street the next time a pipe bursts, or a fire breaks out, or any other all-too-common disaster strikes. PolicyGenius allows you to compare multiple insurers in minutes. You’ll find the coverage you’ll need at a price you can afford.

Mortgage Insurance

If you make a down payment under 20%, your lender requires you to pay for mortgage insurance. Every single month.

Among conforming loans such as Fannie Mae and Freddie Mac loan programs, lenders call this private mortgage insurance (PMI). Among FHA loans, it’s called mortgage insurance premium (MIP). But the difference doesn’t end at nomenclature — borrowers can apply to remove PMI from their monthly payment when their balance dips below 80% of the property value. Borrowers with FHA loans must now pay MIP for the entire life of their loan, regardless of how far they pay down their balance.

When shopping around for mortgages, make sure you get estimates for mortgage insurance costs if you plan to put down less than 20%.

Utilities

Of all the expenses above, you’re probably most familiar with utilities. Many renters pay these already and know the drill.

Or think they do. But as someone who’s lived in everything from a small apartment with modern energy efficiency to a 150-year-old historic house, I can assure you that utility bills run the gamut from “mild inconvenience” to “there’s no way this can be accurate — wow, I’m screwed.”

Get the best sense you possibly can for the typical utility bills before you buy a home. That includes not just last month’s bill, but normal bills for each season. Energy bills can triple between gentle October weather and the blizzards of January.

Oh, and size matters. The larger the home you need to heat, cool, and power, the higher your energy bills will be.


Risks and Less Tangible Costs

The downsides of homeownership don’t end with the dollars and cents. Make sure you fully understand the following risks before signing on the dotted line.

Loss of Mobility and Flexibility

Renters can up and move to a new home when they get a job offer in another city, or get pregnant, or need to move in with their aging parents. Homeowners can’t, at least not without incurring enormous costs and headaches.

When you buy a home, you take an initial loss due to closing costs. Over time, you gradually recover that loss as you build equity, both from paying down your mortgage balance and — hopefully — from appreciation of your property’s value. Then, when you go to sell, you pay tens of thousands dollars in additional closing costs, this time on the seller’s side of the transaction.

In other words, it takes time for homeowners to build enough equity to cover both rounds of closing costs — time during which you’re effectively locked into owning the home if you don’t want to take a loss.

The Risk (and Stress) of Depreciation

Ask anyone who lived through the housing bubble and the Great Recession, and they’ll tell you as many horror stories as you can stomach about what happens when home values drop.

It happens. Home prices aren’t an elevator that only go up. And I can tell you firsthand, it’s not fun when $50,000 of home value evaporates seemingly overnight.

At best, it makes you feel poorer and limits your options for moving. At worst, it can trap you in a home you no longer want to live in, potentially with a partner you no longer wish to share a life with.

Uninsured Risks to the Property

Homeowners insurance doesn’t cover every conceivable source of damage to your property.

It doesn’t cover external flooding, for example. That requires separate flood insurance, which can get expensive if your property sits in a flood plain or frequent hurricane paths.

Mold isn’t necessarily covered by your homeowners insurance either. Insurers typically only cover mold remediation — which can cost hundreds of thousands of dollars — if the mold was caused by a “covered peril.”

Likewise, homeowners insurance doesn’t normally cover termite damage. Or terrorist attacks. Or acts of war, or acts by the government.

Speaking of which, insurance certainly doesn’t cover changes in housing regulation. The rules today about lead paint, asbestos, and radon are far different than they were 50 years ago, leading to many homeowners getting stuck with the bill to bring their homes up to new regulations.

More Discipline and Budgeting Required

As a renter, I don’t have to budget for home repairs each month. When I was a homeowner, I did.

I paid thousands of dollars toward home updates each and every year I lived in my own home. It took me longer than I care to admit before I set up a separate emergency fund for home maintenance and repairs.

Contrary to popular messaging, not everyone should own their own home. Not everyone has the means or financial discipline that it takes to set aside extra money each month for irregular expenses, or the responsibility to constantly care for such an expensive asset. Know thyself: if you struggle with maintaining a monthly budget and an emergency fund with at least one or two months’ expenses, then work on paying off unsecured debts and improving your financial literacy before buying real estate.

False Sense of Wealth

Too many homeowners feel a false sense of wealth when they discover they have equity in their home. “I have $100,000 in equity in my home? That’s great! How do I tap into it?”

They often proceed to do just that, pulling out equity by taking on debt. These new debts cost them money in interest, and send their net worth tumbling in the wrong direction.

Home equity might make you feel rich, but unlike money in true investments, home equity doesn’t “work for you” by compounding. And the only productive way to realize that money is by selling your home.


Final Word

Buying a home is one of the largest financial commitments you ever make in your life. Don’t enter it lightly, and certainly don’t justify your decision with tortuous logic like “but it’s an investment” or “but I’ll get great tax breaks.” Your home is not a true investment unless you house hack or otherwise generate income from it, and 90% of Americans take the standard deduction per the Tax Policy Center, nullifying any homeowner tax deductions.

Homeownership helps many Americans grow their net worth and brings the joy of fuller control over your home. Yet it also comes with enormous responsibilities, costs, and risks that too many homebuyers gloss over in their excitement to buy their dream home.

As a general rule of thumb, don’t buy a home if you aren’t reasonably certain you’ll live there for at least three years, and preferably five years. Never feel shame for renting, which comes with perks such as flexibility, minimal maintenance and repair responsibilities, lower financial risks, and easier budgeting.

Buy a home if the time is right, but don’t force it, and include all costs and risks in your decision.

Source: moneycrashers.com

These Are the Top Reasons Home Buyers Haven’t Been Successful Lately

Posted on February 1st, 2021

In case you haven’t been paying attention, the housing market is en fuego. This is actually nothing new.

It’s been pretty red hot for years now, and home prices have risen consistently for about a decade since they bottomed around 2012.

But amazingly, the housing market has become even more competitive lately, despite us being in the midst of a worldwide pandemic.

I already explained that the 2021 housing market is akin to the toilet paper shortage, with too many buyers and not enough sellers.

This is why 2021 home prices will be roughly 10% higher than they were toward the end of 2020.

It also tells me you need to bring your ‘A’ game (and then some) if you want to be successful in winning a bid on a property.

You Better Be Ready If You’re in the Market to Buy

pending sales

  • New for-sale listings fell 12% from a year ago, the largest decline since May
  • Active listings declined 35% from 2020 to reach a new all-time record low
  • 43% of homes had an accepted offer within the first 2 weeks, up from 35% a year ago
  • Last week that number hit 55%, the highest point since at least 2012 (when Redfin began tracking such data)

Just when you thought real estate was cooling off, it got even hotter. Don’t believe me? Check out the latest data from real estate brokerage Redfin.

The company noted that new for-sale listings fell 12% from a year ago, the largest decline since May.

Meanwhile, active listings, which are the total number of homes listed for sale at any point during a given period, slipped 35% from levels seen in 2020 to reach a record low.

This supply issue resulted in nearly half (43%) of homes receiving an accepted offer within the first 2 weeks on the market, up from 35% a year ago.

And that number hit a staggering 55% during the week ending January 24th, which shows it’s only accelerating.

Prospective Buyers Are No Longer in the Planning Phase

planning

In another report from the National Association of Home Builders (the Q4 Housing Trends Report), they found that 56% of prospective buyers have exited the planning stage and are now actively attempting to purchase a home.

That number is up from 43% in the fourth quarter of 2019, and reflects a climate filled with more serious buyers, as opposed to lookie loos.

The NAHB said this is being driven by a mixture of record low mortgage rates, COVID-19, and the fear of missing out (FOMO).

Remember, we’ve just entered February. The traditionally hot housing market doesn’t begin to reveal itself until March and April. I can only imagine what that will be like.

In other words, this situation is only going to get worse as 2021 rolls on, so you better be ready if and when you find a house you like because your competition will be…

FYI, don’t buy a house because you don’t want to miss out.

Why Prospective Home Buyers Aren’t Winning

missing out

  • The most common issue is being outbid on a property
  • Which replaced the inability to find an affordable home
  • Another common gripe is finding a home in a desirable neighborhood
  • Or locating a property that has the desired features/amenities

The NAHB report also looked at why prospective home buyers aren’t closing the deal, and after years of its being an affordability issue, it’s now a matter of being outbid.

While bidding wars aren’t new, and certainly ebb and flow over time, they appear to be gaining traction again.

As you can see from the chart above, there are four main issues that have kept active home buyers from landing a property.

They include housing affordability, features/amenities, desired neighborhood, and getting outbid.

For the first time in the NAHB’s series history, getting outbid was the number one reason a long-time searcher hasn’t made a home purchase.

It usurped the “inability to find an affordably-priced home,” which had long been the issue for most prospects.

Interestingly, home buyers are less burdened by affordability and more held back by higher bids from their competition.

Of course, you could argue they are somewhat one in the same, with a higher bid possibly reflecting a price that becomes too far out of reach.

However, it further illustrates just how strong the seller’s market has become yet again.

There were some periods over the past few years where buyers had the upper hand, but it appears those days are numbered, at least for the foreseeable future.

Prepare for War (of the Bidding Variety)

  • You have to be pre-approved for a home loan (no ifs, ands, or buts), you won’t even get into a showing
  • Expect to provide your “best and final” offer right off the bat
  • Don’t be surprised if you’re outbid, but also don’t expect home prices to get any cheaper this year
  • Consider properties that aren’t picture-perfect which could offer value and help you avoid a bidding war

If you’re a buyer, you need to get your ducks in a row, now more than ever.

At a minimum, this means being pre-approved for a mortgage, having assets set aside for down payment and closing costs, and being ready to make an offer at a moment’s notice.

Oh, and if you’re currently a homeowner, how to get rid of that property without it being contingent.

If you’re worried about affordability, it’s likely only going to get worse, whether it’s higher mortgage rates or even more expensive home prices.

Remember, they’re forecast to rise another 10% by November nationally. As far as interest rates go, the 2021 mortgage rate forecast calls for mostly higher rates, or flat at best.

With regard to the features/amenities issue, the NAHB noted that 41% of buyers in the fourth quarter of 2020 were considering a newly-built home, more than double the 19% share a year earlier.

Generally, new homes have all the latest features a home buyer could want, and/or they can be paid add-ons depending on the builder.

The tradeoff is typically a home in a subdivision that isn’t as centrally located, so you might get the home you want, but not the neighborhood.

If you must have the neighborhood, home renovation isn’t as daunting as it looks, assuming we’re just talking about new paint, flooring, appliances, curb appeal, etc.

Because the market is so competitive, it might be better to look at the homes that aren’t staged to perfection, but have potential.

These diamonds in the rough good could offer a discount, or at least help you avoid a bidding war.

Read more: 2021 Home Buying Tips to Help You Seal the Deal

Source: thetruthaboutmortgage.com