Top Tips for Buying a Vacation Home (Part 1)

  1. Be realistic with what you can afford.  New mortgage lending regulations over the last couple years have gotten strict about borrower qualification and approval.  You’ll need 20% down, and your total monthly payments on homes and cars combined cannot exceed 36% of your income.  Additionally, don’t count on any potential rental income to help you pay for a second home.
  2. Plan for extra expenses.  If your home away from home is FAR away from Edmond, Oklahoma (over an hour) you may need to consider using a property manager or caretaker.  But having a local eye to watch over your vacation home is not the only potential expense you should plan for.  Beach homes need to be painted as frequently as every two to three years because of sand, salt, and wind.  Mountain homes may require yearly deck repairs.  What hidden expenses should you plan for with your second home?  Speak with a full time resident to find out what true costs you can expect.
  3. Avoid Timeshares.  If timeshares really ever were such a great bargain, why are record numbers of people racing to sell theirs yet struggling even to get a showing?  One of the largest scams in Real Estate today continues to be the (unlicensed) agent promising to sell your time share.  In fact, he already has a buyer ready to go for you.  All he asks is for you to pay a $1000 fee (much less than a Realtor’s commission, he’ll tell you), and once you pay the fee, Mr. Unlicensed Agent is never to be heard from again…

More vacation home buying tips next time.

Mortgage or Marriage Certificate

No, this in not one of those chicken or the egg conversations.  I want to touch on the practical side for those Edmond, Oklahoma friends and neighbors deciding whether or not to purchase a home with their partner before getting married.  Here are three factors to consider when contemplating taking out a mortgage before turning your significant other into your wife or husband.

  1. Mortgage approval.  Banks prefer to see two supporting incomes during the mortgage approval process, even if the couple applying together are not (yet) married; more income equals better ability to repay.  However, if one of the two applicants has a poor credit score their inclusion on the mortgage application can actually hurt your chances for securing financing.  In that case you might consider having the applicant with the superior credit rating apply alone.  Of course that leaves you with only one qualifying income to support your application, translating to an approval for a smaller loan amount.  Hmm…Much to consider.
  2. Down payment.  Are you both able to equally contribute to the down payment on the home purchase?  If not, why not take the practical step of including how much each of you do contribute in the mortgage paperwork just on the chance that the relationship dissolves before anyone ever walks down the aisle.  This way everyone protects their equity, and you both can move forward confidently purchasing a home before signing a marriage certificate.
  3. Title.  How will you, as an unmarried couple take title to the property?  Divorce, and the subsequent division of property can become a very messy ordeal.  Breaking up, for unwed couples who own property together can be just as trying because the individuals are not afforded the same legal protections as married couples.  If you’re considering buying a home before marriage write up a legal contract spelling out who is responsible in the event of a break for ongoing issues like the mortgage, taxes, maintenance costs, capital gains, and more.

The Pros and Cons of 20% Down

Saving for the down payment on a new Edmond, Oklahoma home?  It’s a difficult task cutting back on other spending just to sock away a few more dollars every month.  And paying less than 20% down, say, 10%, 5%, or even 3.75% can mean the difference between moving into your dream home in six months compared to six years.  So what are the benefits of hitting that 20% down payment in your savings account that make it worth waiting a little longer, and pinching a few more pennies and brown bagging it to work instead of eating out for lunch?  Let’s take a look.

The bank sees you as a more favorable borrower if you can put 20% down on a new home.  According to their approval process you are deemed less of a risk for defaulting on repayment because you are more vested (and invested) in the home, meaning you have more of your own money to risk in any potential default and less of theirs.  Translation here it will be easier for you to get approved for your new mortgage, AND you will get a lower interest rate.  Lower interest rate means lower monthly payments.

Putting 20% down on a home also means you are borrowing less.  Borrowing less means a smaller balance to pay off over the course of the loan, and in turn lower monthly payments.

Finally, with a 20% down payment you will not be required to carry PMI (private mortgage insurance) to insure the lender against potential defaults.  Although this insurance insures the lender, it is paid by you, the borrower.  At 20% down you don’t need PMI which means your monthly mortgage payments will (once again) be lower.

Noticing a trend here?  Putting more money down now not only decreases the amount of your monthly payment in many ways, but it decreases the total amount (principle and interest) you pay over the life of the loan.

The greatest negative of waiting to buy your new dream home until you have 20% down?  Time.  So what if you can’t wait?  Tune in next time when I discuss lower down payment options.

The Contingency

Edmond Oklahoma home buyers looking to protect themselves during the purchase process have a very common contract tool at their disposal called the contingency.  Contingencies in Real Estate contracts allow a potential home purchaser the opportunity to get out of the contract if specified contingent requirements are not met without having to follow through with the purchase, and most of the time without losing their earnest money deposit.  There are three common contingencies that can be exercised at various points in the closing process as long as they are included in the original contract.

First is the Inspection Contingency.  The home buyer’s Realtor will include, as part of the contract, contingency language that states the purchase is dependent on the completion of a property inspection.  The inspection allows for a buyer to discover previously unknown defects in the property, and to negotiate with the seller how any inspection issues are to be resolved.  If a resolution cannot be agreed upon the buyer has the option to back out of the contract.

An appraisal contingency states that if a home does not appraise for the contracted sales price the buyer again has the option to back out of the contract.  If you’re currently in a buyer’s market, and you (as the buyer) still want to follow through with the purchase the bank will require you come up with any shortfall (by way of a higher down payment) when they apply their formula to the appraised value and not the sales price.

A mortgage contingency states that if the buyers are not able to obtain a mortgage to complete the purchase of the home they can walk away from the deal.  Rarely, nowadays, do buyers get to the point of an accepted contract without getting pre-qualified or pre-approved for their new mortgage up front.  Still, the mortgage contingency can protect against not only failure to get a mortgage, but failure to get a mortgage containing agreeable terms.

Buying a Home After Bankruptcy

First things first.  If you’re still somewhere in the process of your bankruptcy there’s not much you’ll be able to do to work toward obtaining a new mortgage until your bankruptcy is discharged.  I’m not qualified to give legal advice, so check with your lawyer on the status of your case.  In the four types of bankruptcy filings (chapters 7, 11, 12, and 13) discharge happens at different points in the process.  For our purposes, discharge is the point at which the legal obligation to repay a debt is removed from the borrower(s).  For more information check here for the US Courts government page on bankruptcy.

After your discharge has occurred you’ll want to get copies from all three credit reporting agencies to make sure those discharged debts are removed from your reports.  And yes, you do have to check all three.  Just because one report is up to date does not mean the others are in the same condition.  Each agency collects and processes data independently, so be thorough.  Everyone is entitled to one free report each year from each of the three agencies – Experian, Equifax, and TransUnion.  Don’t get roped into paying for extra unnecessary services from these companies.  You do not have to give them your credit card info for the free report.

After your bankruptcy is discharged and you clean up your credit reports it really comes down to making good financial decisions and rebuilding your credit.  Don’t plan on making any great headway quickly with this process; this is more of a marathon than a sprint, but it can be done.  Check out this great article for tips on credit rebuilding and responsible personal financing, and start working toward buying your first Edmond, Oklahoma home after bankruptcy.

Your Ideal Home Location (Part 2)

Okay, last time we discussed what goes into an ideal home location, taking into consideration school districts, views from the property, proximity to retail and service companies, and employment, and local economies.  Today I want to list some undesirable location features for our Edmond, Oklahoma home buyers so you’ll know what to look out for and avoid when searching for your next dream home:

  1. Near high traffic areas.  This includes homes next to railroad tracks and highways, or those which lie within flight patterns of nearby airports.
  2. High crime areas.  Do your research, and talk to your Realtor about areas in your town that have a higher occurrence of crime.
  3. Natural hazards.  Most of these don’t apply to our area, but in general teer clear of neighborhoods built on old landfill sites or in communities developed on old swamplands.  Likewise stay away from giant power stations.  Whether you believe they cause health issues or not, we can all agree they are awful to look at.  Proximity to the less frequently encountered nuclear power plant is just as undesirable.
  4. Locations next to industrial or commercial properties.  When you live right next to retail stores, restaurants, factories, or other businesses you are at the mercy of increased vehicle traffic, foot traffic and loitering, manufacturing noise, truck engines idling, lights from delivery vehicles at all times of the night, etc.

Your Ideal Home Location (Part 1)

What makes the ideal location for your next Edmond, Oklahoma dream home?  Is it proximity to shopping, medical facilities, entertainment?  Is it the actual size of the lot, or maybe the presence of large mature trees?  What about views of other natural landscape features?  You might say yes to all of these or none of them.  Today we present our list of desirable location benefits and features to help you sort through and prioritize your own list for when you’re ready to shift from home shopper to home buyer.

  1. Great school district.  If you have children you undoubtedly want your kids to go to great schools.  But whether you have children or not, a good school district has a positive impact on the resale values of ALL homes within its boundaries.
  2. Great views can include views of mountains, lakes, the ocean, forest, city lights, golf course, etc.  A great view can also mean no neighbors within sight!
  3. Proximity to retail establishments like grocery stores, movie theaters, gas stations, shopping strips or malls, restaurants, and night life.
  4. Proximity to service establishments like the post office, medical facilities, dentist, dry cleaners, public transportation, the airport, etc.
  5. Proximity to employment.  Makes sense.  Shorter commute equals more personal time.
  6. Stable local economy.  Residential property in depressed economic areas tend to have lower property resale values than more stable areas.

Uh…Location, Location, Location? (Part 2)

Continuing from last time…

If your ideal location is the most important deciding factor when Edmond, Oklahoma home shopping, here are some items on your wish list you may have to consider altering or giving up:

  1. Home size.  Never say never.  It’s possible you can get everything you want in a home, or close to it, just in a smaller package.  More square footage is a boon, so ask yourself how much space you’re willing to part with to get where you want to go.
  2. Lot size.  Okay, your lot is part of your location, but if your ideal location if prohibitive because of cost can you go with a smaller lot to still get in the neighborhood?  Can you go with the smaller lot because if you gain proximity to neighborhood parks and/or open areas?
  3. New or newer home.  Are you willing to go with an older home, or a home that needs some renovation to meet your ideal home standards just to get your ideal location?  What about a fixer-upper?
  4. Time.  When many people finally make the decision that it’s time to move, they’re ready to do it right now.  As with any home purchase, getting into your ideal location must take your finances into account.  Can you afford to purchase in that dream spot?  If not, how close are you to being able to afford it?  Maybe you just need a little more time to save up for the down payment.  Keep in mind the time you need to get your finances in order also give the properties in your area time to appreciate.  Other alternatives?  Are sellers in your area open to the idea of rent-to-own, applying part of your monthly rent toward an eventual down payment?  Just a thought.

Uh…Location, Location, Location?

Everyone knows the hackneyed answer to the question, What are the three most important factors in determining the value of a home? right?  It’s Location, location, location, as if to say location is by far the most (only) important factor in determining the value of a home.  Who’s to say if this expression truly applies to you?

So here’s an exercise.  What if, as an Edmond, Oklahoma home buyer, you’re faced with choosing between your ideal location and your ideal home?  For the sake of argument let’s say the perfect home you’ve got your eye on has the four bedrooms, three bath, two and half car garage, breakfast nook, and full finished, walkout basement you’ve always dreamed of.  The problem is it’s in a poor school district, has a tiny yard with no trees, and is thirty minutes away from the nearest interstate.

The perfect location for you and your family, also for sale in your market, has a giant back yard with a gorgeous stream behind the back property line, mature trees, lies within the most desirable school district boundary, and has easy, quick access to the highway for commuting.  However, the home in this ideal location lacks many of the features and benefits you’ve been dreaming of.

You understand the conundrum.  So which is more important to you, house or location?  School district lines, setting, lot size, and proximity to shopping, hospitals, post office, highways, etc. are things you can’t change.  Homes can be improved.  You may not necessarily have room to add a bedroom, but maybe you can add a bath?  And you can always renovate or remodel interiors, replacing old cabinets, appliances, light fixtures…and on and on.  So the question becomes, Are you prepared to supply the (time, finances, patience) of a few home projects?  Or can you simply do without some of the items on your dream home wish list?

Think about your answer for a couple days and check back next time when I’ll give you some tips on how you can decide for yourself which way to go, dream home or location, location, location.

Buyer’s Closing Costs

The price of a new Edmond, Oklahoma home is more than just the sum of the size of your down payment and the mortgage you obtain for the purchase.  There are many other costs involved you should be aware of ahead of making an offer on a home.  Some can be paid with the mortgage proceeds at the closing table.  These generally are related to the paperwork end of the purchase, like loan application fees, etc.  Some costs relate more to the actual home, like inspections.  All of these costs affect your bottom line and need to be budgeted for so you’re not left scraping for extra funds at the last minute.  Here we go:

  1. Fees associated with obtaining the mortgage
  2. Home inspection costs
  3. Homeowner’s insurance
  4. Title insurance
  5. Title settlement fee
  6. Property taxes
  7. Transfer taxes (which may be shared with the sellers)

Closing costs generally range between 2 – 7% of the sales price of the home, and lenders are required to give you a good faith estimate shortly after you make application for the mortgage.