How much should I spend on my next home?

Before deciding on the price range of the home you’re going to buy, think about how much you want to pay out each month in mortgage payments. Try to save as large a down payment as possible. The mortgage payment will be composed of the mortgage payment, the property taxes (in most cases), and the mortgage insurance. The lender will set a maximum on how much you can borrow. Use the maximum as a starting point to deciding how much you’ll borrow. Ask a real estate agent to help you get “pre-qualified” by a lender (to get an estimate of the maximum mortgage amount).

Lenders will be happy to “pre-qualify” you-give you a preliminary limit on the amount they would be willing to lend you. This pre-qualification is not a commitment on the lender’s part, but the maximum they provide you with is helpful to the buyer for planning purposes. Once you’ve set a price range for your new home, give it to the real estate agent during your first visits. Don’t be afraid to look at homes that are 15% to 20% over your price range. You will be able to negotiate the price down in many cases.

You will want to save as much of the down payment as possible. The reasons for this are two-fold: first, lenders will not require you to pay for private mortgage insurance if you can come up with a 20% down payment; second, the sooner you pay off your mortgage, the better off you are financially.

Can I save money by buying a home without a real estate agent?

You can shop for and buy a home without an agent, but you’ll need to put in a lot of extra time to do the things that agents do: search for properties, schedule appointments to see them, coordinate inspections, and negotiate. Home buyers who already have a property in mind that they want to buy are the best candidates to do the deal without an agent.

How can I negotiate the lowest price when buying a home?

Here are some negotiating tips:

  • Be willing to walk away from a deal. If you decide you must have a certain house, you have already lost negotiating power. There are other good properties out there.
  • Learn everything you can about the property before making your offer. For instance, how long has it been on the market? Has the buyer dropped the asking price? Why is the owner selling? The answers to these questions will help you to negotiate.
  • Know what comparable homes are selling for.
  • When the seller won’t budge on price, try to negotiate something else. For instance, try to get the seller to pay for repairs or improvements you would have done yourself.
  • Don’t forget the real estate agent’s commission. This is negotiable, too.

Which mortgage is best for me?

It may depend on how much risk you can tolerate. A traditional 30-year, fixed-rate mortgage is still the safest way to go. Your monthly payment will stay the same for the life of the loan. You are protected from rises in interest rates, and if rates go lower, you can always refinance.

An adjustable rate mortgage, or ARM, is riskier but often less costly. ARMs typically offer below-market teaser rates and then adjust according to current interest rates as often as every few months. These loans set caps on the interest rate and the amount it can ratchet up each period. Be careful of loans that have payment caps because they can leave you owing more money on your mortgage each time you make a payment if interest rates rise quickly. ARMs are best for people who need initially lower monthly payments, who expect their income to rise, or who expect to live in their home for five years or less.

Mortgages with 30-year terms are still the most popular although 15-year mortgages are gaining favor among people who want to build equity faster at a lower cost. Many homeowners with 30-year mortgages, however, can also lower their costs and shorten the term of their loans by paying extra each month.

How can I lock in a mortgage most effectively?

A lock-in, also called a rate-lock or rate commitment, is a lender’s promise to hold a certain interest rate and a certain number of points for you, usually for a specified period of time, while your loan application is processed. A lock-in that is given when you apply for a loan may be useful because it’s likely to take your lender several weeks or longer to prepare, document, and evaluate your loan application.

During that time, the cost of mortgages may change. But if your interest rate and points are locked in, you should be protected against increases while your application is processed. Remember that a locked-in rate could also prevent you from taking advantage of price decreases, unless your lender is willing to lock in a lower rate that becomes available during this period.

When considering a lock-in, you should ask these questions.

  • Does the lender offer a lock-in of the interest rate and points?
  • When will the lender let you lock in the interest rate and points?
  • Will the lock-in be in writing?
  • Does the lender charge a fee to lock in your interest rate?
  • Does the fee increase for longer lock-in periods?
  • If so, how much? If you have locked in a rate, and the lender’s rate drops, can you lock in at the lower rate?
  • Does the lender charge you an additional fee to lock in the lower rate?
  • Can you float your interest rate and points for now and lock them in later?
  • What rate will be charged if the lock-in expires before settlement-the rate in effect when the lock-in expires?
  • If you don’t settle within the lock-in period, will the lender refund some or all of your application or lock-in fees if you decide to cancel the loan application?
  • If your lock-in expires and you want to get another lock-in at the rate in effect at the time of the expiration, will the lender charge an additional fee for the second lock-in?

How much homeowner’s insurance should I buy?

Insure For 100% of Rebuilding Costs

The amount of insurance you buy should be based on the cost of rebuilding, and not on the price of your home. The cost of rebuilding your house may be higher (or lower) than the price you paid for it or the price you could sell it for today.

Do You Have A Replacement Cost Policy?

Most policies cover replacement cost for structural damage, but check with your insurance agent to make sure your policy does so. A replacement cost policy will pay for the repair or replacement of damaged property with materials of similar kind and quality. The insurance company won’t deduct for depreciation-the decrease in value due to age, wear and tear, and other factors.

Find Out About Flood Insurance

If your home is in an area prone to flooding, contact your insurance agent or the Federal Insurance Administration at (800) 638-6620 and ask about the National Flood Insurance Program.

How can I find a good real estate agent when selling my home?

First, gather a list of names of candidates you will interview. Possible sources of such candidates include recommendations from colleagues, friends, and professionals, and names listed on posted “for sale” signs-especially for houses that have been sold. Once you have at least three names, schedule a telephone or in-person interview with the agent.

Be sure to ask what problems she/he sees in marketing your home. The broker should be honest about potential problems, and able to think creatively about solutions. Ask for a plan to marketing the home. What can we (the homeowners) do to help you implement your plan? Listen to the answer to find out whether the agent exhibits a willingness to think creatively in approaching whatever problems might exist with the selling process, and whether she/he is co-operative. Ask if the broker will include any ideas she/he has for selling the home in a listing agreement. Make sure the broker knows the good and bad points about your area. Ask the broker for a list of comparable homes, which is essential in helping you arrive at an asking price for your home.

Which type of listing agreement should I enter into with the real estate agent?

The listing agreement is a contract between the homeowners and the agent. It states how much the agent will be paid, what services will be provided.

You will generally have to enter into an exclusive listing, which gives the agent the exclusive right to sell your house for a limited period of time. The listing agent gets 100% of the commission if he or she sells the house and part of the commission if another broker sells the house.

Tip: Use an exclusive right to sell agreement, for a period of three months. This will give the broker an incentive to sell the home, and it will still give you an out if you feel the broker isn’t doing enough for you. If you have a lot of confidence in the broker, and you have seen and approved his or her plans for marketing the home, you may wish to sign for six months.

Tip: If, at any time during the marketing process, you feel that your broker is not as effective as he or she could be, switch brokers. Do not waste time with a broker about whom you have doubts.

How can I minimize the problems in moving?

Right after you have scheduled your move, start taking care of the following items.

  • Decide which items you are leaving behind for the new owners, and tag them.
  • If your move is job-related, ask whether your employer will reimburse you for part of the cost.
  • Save any receipts relating to the move, since part of the cost will be deductible.
  • Start shopping for a new bank in your new neighborhood.
  • Get a change of address kit from the post office, and start notifying everyone of your impending change. Note that you will need to follow the directions given by credit card companies, banks, and others to effect a change of address-sending them a change-of-address card will generally not be effective.
  • Call the schools in the new area to enroll your children.
  • Get copies of your medical and dental records (and veterinary records). Be sure your move is covered by insurance-either the moving company’s insurance, or your homeowner’s insurance. Also, take care of transferring your homeowner’s insurance to the new home.

As you get closer to the date of your move, take care of the following.

  • Call utility companies and tell them to turn on service in the new place, and arrange terminate service in the old place.
  • Switch your direct payroll deposit, and any automatic payments, to your new checking account.
  • Two or three days before you move, take the money out of your old account and transfer it to your new account. Be sure to leave your new address with the old bank.
  • Shop for auto insurance in the new area (if moving out of state).
  • Transfer your brokerage account to your new area.
  • Defrost your refrigerator.
  • On moving day, check your contract with the mover. Be sure the total cost of the move is clearly detailed. Make sure the moving date, location, and insurance information is correct.

Whom should I notify of a new address?

Here is a list of people you should notify when you change your address and phone number. Although the list is not all-inclusive, it can be used as a starting point.

  • The IRS-use Form 8822-and state and local taxing authorities
  • The U.S. Post Office
  • Insurance agents-home, auto, and life
  • Debtors and creditors-mortgage holders, car lien holders, other lenders
  • Credit card companies
  • Publications
  • Clubs and services to which you subscribe
  • The Social Security Administration
  • Any organization that periodically mails you a check
  • Banks
  • Employers
  • Doctors, dentists, veterinarians
  • Motor vehicle departments
  • Places of worship and non-profit agencies you are involved with
  • The registrar of voters
  • Utilities, telephone service, answering service, and trash collectors
  • Your CPA, your attorney, and your broker