The Reality of Less Than 20% Down

The reality is…YES, you can put less than 20% down on the purchase of your new Edmond, Oklahoma dream home.  Yes.  Yes, you can.   But before you do, let’s first take a quick look at the pros and cons for putting less down:

Cons:

  1. Your interest rate will be a little bit higher than if you were able to put 20% down, raising your potential monthly payments
  2. Your lender will require you to carry private mortgage insurance (PMI), also raising your monthly payments
  3. By putting less down you are borrowing more, increasing the principal of the loan and in turn your increasing your monthly payments

Pros:

  1. Putting less down means you are able to save your down payment quicker, and in turn to move into your dream home sooner than if you have to wait until you save the 20%
  2. Getting into your new home gives you all the benefits of your new location like, for example, a new shorter commute to work, or having your children in their new school district.  Maybe you can now have that garden you always wanted, or even a dog.  Maybe it’s the kids being able to have their own bedrooms for the very first time.

The pros and cons of putting less money down on a purchase of a new home really come down to money and time.  Can you afford to put more down?  If so, maybe you should.  It will save you some money on monthly payments and total payments over the life of the loan.  If you don’t have 20% and you really wanted to get into a new home before the new baby is born (another great example), then go with the smaller down payment.  It all comes down to what you’re comfortable with, and the best way to determine that is to consult with a professional mortgage lender you trust and get pre-approved for a loan.  They will help you determine how much you qualify to borrow, what interest rate you will be looking at, and what your monthly payments will look like.

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.

Interview Questions for Your Realtor

You’re ready to start interviewing Realtors to help you sell your Edmond, Oklahoma home.  Following is a list of questions to ask during each Realtor’s presentation to make sure you get all the information you need to make an intelligent and informed decision on who will help you with one of the most important transactions in your life.

  1. How many sales did you complete last year?
  2. What is the price range where the majority of your sales take place?
  3. What was the average difference between the final sales price and original list price of homes you listed for sale? While this depends on your local market conditions, a Realtor who often sells homes well below list price may not be advising sellers to price their homes correctly or may be inadequately marketing homes.
  4. What is your marketing plan for my home? How many websites will include information about my home? Where will you look for buyers?
  5. Do you have advice regarding the condition of my home? Do you have expertise as a home stager or do you recommend that I hire a professional stager?
  6. Can you recommend contractors and moving companies?
  7. How often should I expect to hear from you when my home is on the market?  How will you communicate with me during the entire process?
  8. Will you provide me with regular feedback and updates about potential buyers?

A good Realtor will answer most if not all of these questions during their presentation.  Be wary of the agent who is unprepared for your questions.  How can they help you successfully sell your home if they can’t effectively sell themselves?

2 Do’s and 1 Don’t for Choosing a Listing Agent

If you’re currently (or soon to be) interviewing Realtors to represent you and the sale of your Edmond, Oklahoma home, here are a few tips to help you find the best qualified agent to assist you with one of the most important transactions in your life.

DO choose a Realtor who tells you what you need to hear instead of what you want to hear.  You may believe your home should sell for $250,000, and that may very well be a fair market price.  Any quality Realtor will show you comparable sales in your area that may or may not support your thinking.  If the comps suggest your home is currently closer to a value of $210,000, that’s the price you should be thinking about listing at.  If another Realtor comes in (maybe even with the same comps) but agrees to list your home for $40,000 more than it’s worth, what does that tell you about that Realtor’s negotiating skills?  That Realtor will gladly list your home, and over the next few months when the few showings you had come to a complete halt you will eventually realize you need to lower your price; you will realize you just wasted two, three, even six or more months of your time, and in Real Estate, time truly is money.  Find an honest, up-front Realtor who isn’t afraid to tell you what you need to hear instead of what you want to hear.

DON’T list with your best friend’s sister who just got her Real Estate License.  The sister may be a super person, and your best friend must be a great guy/gal, otherwise you wouldn’t have such a close relationship.  Likewise your best friend will be able to handle it when you gently decline their offer to interview the new wannabe Real Estate mogul.  Interview Realtors who have experience and a proven track record of helping people sell their homes for the most money, in the quickest time, with the fewest hassles.

DO be prepared with critical interview questions when interviewing Realtors for the job.  Far too many people who allow a Realtor to set an appointment and come in and do their listing presentations are wowed by the practiced performance without getting all the important information to make an intelligent decision on whether or not to work with the person.  What questions should you be prepared to ask interviewees?  Check out my next blog for the complete questionnaire!

Real Estate Tax Related Articles

It’s tax season again.  Most of you have already filed your income taxes.  Some of you haven’t yet.  I imagine some of our Edmond, Oklahoma friends and family are even filing for an extension.  Regardless, below are a handful of helpful links to articles on a variety of Real Estate tax related topics that I felt important to pass on to everyone.  Who knows, maybe one of these articles can help you save a little money this tax season…and the next, and the next…

Here are the topics and the links:

Top 10 Tax Deductions for Homeowners
Tax Implications of Selling Your House
9 Sins Homeowners Often Commit on Their Taxes
This Could Be the Last Time to Claim 3 Popular Tax Benefits
Moved Recently? Check Out These 5 Tax Tips
6 Home Deduction Traps to Avoid
Energy Tax Credits You Can Claim
Tax Deduction Options to Know About If You Work from Home

Until next time…

Most Popular Homeowner Tax Deductions for 2013

If you’re an Edmond, Oklahoma homeowner don’t miss out on any available tax deductions you may qualify for on your 2013 Federal income taxes.  Check these out, and check with your tax preparer to make sure you received all the deductions you deserve.  Here we go:

1.  Mortgage Interest Deduction
2.  Home Improvement Loan Interest Deduction
3.  Private Mortgage Insurance (PMI) Deduction
4. Mortgage Points/Origination Deduction
5. Energy Efficiency Upgrades/Repairs Deduction
6. Profit on Sale of Real Estate Deduction
7. Real Estate Selling Cost Deduction
8. Home Office Deduction
9. Property Tax Deduction
10. Loan Forgiveness Deduction

Want more detailed information on each of these deductions?  Check out this great article.

Positive Signs

Nationwide, mortgage default rates and credit card defaults have been on the decline.  Further, for the first time since September of 2008, credit card default rates are higher than foreclosure rates.  When the housing bubble burst many homeowners found that they owed more on their mortgages than their homes were worth.  Couple that with higher unemployment and you have a sector of folks who valued their credit cards (and the safety net of funds) more than their homes.  Today, unemployment is more than 3% lower than in September of 2009 when mortgage defaults peaked at 4.92%.  Positive Signs for our Edmond, Oklahoma friends and family.

Mortgage Delinquency:          1.71%  (September 2008: 5.03%)
Credit Card Delinquency:       1.83%  (September 2008: 5.12%)
Auto Loan Delinquency:        0.87%  (September 2008: 1.65%)

Why do car loans today and historically have lower delinquency rates?  People have to drive to work.

How Far Will Your Dollar Stretch in a New City?

Your career is primed to take a new step – maybe even a giant step – forward.  You have been offered a new promotion and opportunity, both dependent on moving your family to Dallas, Texas, or Atlanta, Georgia, or Seattle, Washington…or Oklahoma City, Oklahoma.

Not all cities and states are created equal, or maybe it would be more accurate to say, The cost of living in all cities and states is not equal.

Before we go too far let’s start with the government’s share of your new paycheck.  Yes, you’re still going to have to pay Federal taxes every year, and you may even be moving up a tax bracket (or two) with the new promotion.  But what about state taxes?  How much would you expect to pay in Texas, or Georgia, or Washington compared to where you live right now?  Does your current or destination location even have state income taxes (Texas and Washington have no state income tax, and Georgia’s ranges from 1 – 6%, for example).  My point: Don’t forget to take into account Uncle Sam’s share when reviewing your family’s potential new income and considering a move to further your career.

Back to cost of living.  Here’s a handy tool to help you see just what you can expect to pay, more or less, for the same products, services, utilities, housing, transportation, and health care, comparing your potential new city with where you’re currently living.

Better to have an idea up front on potential changes to the family budget before you pack up and move.  You know what they always say, Knowledge is power…And congratulations on your promotion!