The price you can afford to pay for a home will depend on six factors:
The amount of cash you have available for the down payment, closing costs and cash reserves required by the lender.
Your outstanding debts
Your credit history
The type of mortgage you select
Current interest rates
Lenders will analyze your income in relation to your projected cost of the home and outstanding debts. This will determine the size of loan you can borrow. Your housing expense-to-income ratio is determined by calculating your projected monthly housing expense, which consists of the principal and interest payment on your loan, property taxes and insurance. The sum of these costs is referred to as "PITI."
Monthly Homeowner Association dues, if you're purchasing a condominium or townhouse, and private mortgage insurance are added to the “PITI”.
First and foremost, we strongly recommend that you hire a professional property inspection company to inspect the home.
People buying a condominium must be told about covenants, codes and restrictions or other title and condominium board restrictions if the condominium board has any authority over the subject property and ownership of common areas with others. We recommend that when buying a condominium you have the condominium documents reviewed by a professional condominium document review company.
Be sure to ask questions about anything that remains unclear or does not seem to be properly addressed by the forms provided to you.
Finding the house you want to make your dream home can be an incredibly exciting moment. Making an offer on that home however, can be a daunting and stressful task. The written offer is a step in the home buying process that requires the finesse, experience and negotiating skills of a MaxWell Capital REALTOR®.
Deciding How Much to Offer
There are several factors to consider when deciding how much to offer: the listing price of the home, the prices of comparable properties that have recently sold, and of course what you can afford.
Listing Price: Also called the “asking price”, is what the Seller would like to receive. It is important to consider how long the property has been on the market and if there have been any price reductions. Other factors that should affect how seriously you consider the listing price include whether the property is a foreclosure or short sale, and if there are multiple offers being presented to the Seller.
Prices of Comparable Properties: Your MaxWell Capital REALTOR® can provide you with a list of comparable properties, or “comps” that have recently sold in the area near the property upon which you are about to make an offer. The most relative and supporting comparables should fall within these guidelines:
Sales that have occurred within the last three to six months - the more recent, the better.
Sales of properties similar to the one you're making an offer on, in terms of age, size, and bedrooms and bathrooms.
Sales within a reasonable proximity (six to ten blocks in an urban area; consult your MaxWell Capital REALTOR® in rural areas) of the property upon which you are making an offer. This radius may need to be reduced if a freeway or other dividing line splits the neighbourhood.
What You Can Afford: You should come to the offer table with a pre-approved mortgage. When figuring the total cost of the property, be sure to include closing costs in your budget. Closing costs are typically 2%-5% of the final purchase price.
Once you have considered the factors at hand, it is time to decide on a number. In competitive areas or “hot markets”, you may have to offer no less than the asking price. You should be mentally prepared for negotiations, and in some cases even bidding wars, which can erupt among aggressive buyers. In hot markets, properties often sell for 10% to 30% above the asking price.
If you are making an offer in a hot market, you may need more than just a well-priced bid. Considering the Seller’s needs is the best way to achieve an advantage in the competition. Your ability to close the deal quickly is often an advantage. For example: buying with all cash or having your loan pre-approved tells the Seller that you are a serious Buyer. Your flexibility and accommodation of Seller time frames can also be beneficial. For example: extending the closing time frame for a Seller that cannot move for several months; or making your offer for the property “as is”, meaning you will pay for any needed repairs.
In less competitive areas, or “cold markets”, you will have more room to negotiate with the Seller at a lower purchase price. Short sales and Bank Owned properties may be obtained at great prices, but be prepared for a long and challenging closing process.
In any market, you will want to bid to win. Be sure to discuss the best strategy for your offer with your MaxWell Capital REALTOR®.
Different Sellers price houses very differently. Some deliberately overprice, others ask for pretty close to what they hope to get and a few under price their houses in the hope that potential Buyers will compete and overbid. A Seller's advertised price is what the Seller would like to receive.
If possible try to learn about the Seller's motivation. For example, a lower price with a quick closing may be more acceptable to someone who must move quickly due to a job transfer. People going through a divorce or are eager to move into another home are frequently more receptive to lower offers.
Some Buyers believe in making deliberate “low-ball offers”. While any offer can be presented to the Seller, a “low-ball” offer often sours a prospective sale and discourages the Seller from negotiating at all. Unless the house is extremely overpriced, the low offer may be rejected in any event.
Before making an offer, also investigate how much comparable homes have sold for in the area so that you can determine whether the home is priced right.
Various types of loan programs exist. Some require a minimum of 5 percent down payment on high ration (75% or higher financing) loans.
Buyers using a small down payment may have a reserve for making unexpected improvements. It may be more prudent to make a larger down payment and thereby reduce the amount of debt that must be financed. Once a Buyer puts twenty five percent or more as a down payment on their desired home, the lender may waive the requirement for mortgage insurance.
Mortgage insurance is a requirement on all high ratio loans. That means the premium for the insurance is collected "up front' at the closing or it may be added to the mortgage, as part of your PITI, principle-interest-taxes-insurance mortgage payment.
Buyers are required to be prequalified or pre-approved for a loan as their first step in the process. By being pre-approved, a Buyer knows exactly how much house they can afford. They can make more informed decisions in the market place.
Almost all mortgage lenders pre-approve people at no charge. Many of them will even do it on the internet. In order to be pre-approved, an application will be taken. For a fee, your credit report will be pulled, your employment and income will be verified and your chequing and savings accounts will also be verified. In other words, all the necessary documentation will be completed in order for you to obtain a loan. The only things remaining will be for you to find a home.
Compare the mortgage charts published in most newspapers.
Occasionally some lenders are willing to negotiate on both the loan rate. This isn't typical among many of the established lenders who set their rates. Nevertheless, it never hurts to shop around, know the market and try to get the best deal. Always look at the interest rate to get the best deal possible. This is reflected in what is called the APR or Annual Percentage Rate.
Sales price increases in either type of housing are strongly tied to location, growth in the local housing market and the state of the overall economy.
Some people feel that buying into a new-home community is a bit riskier than purchasing a house in an established neighbourhood. Future appreciation in value in either case depends upon many of the same factors. Others believe that a new home is less risky because things won't "wear out" and need replacement.
Distressed properties or fixer-uppers can be found everywhere. These properties are poorly maintained and typically have a lower market value than other houses in the neighborhood. It is often recommended that Buyers find the least desirable house in the best neighborhood. You must consider if the expenses needed to bring the value of that property to its full potential market value are within your budget. Most Buyers should avoid run-down houses that need major structural repairs. Remember the movie, "The Money Pit?"
Remodeling a home improves its livability and enhances curb appeal, making it more salable to potential buyers. Some of the popular improvement projects are updated kitchens and baths, enlarged master bedroom suits, home-office additions and increased amenities in older homes.
The resale market is often difficult because you are competing with new construction. You need to give your home every competitive advantage you can if you are selling an older home.
Home offices are a relatively new remodeling trend. Adding one to a house often recoups 58 percent of the costs, according to a survey found in a report called "Cost vs. Value Report" in Remodeling Magazine.
Buying a home may well be the largest financial investment you will ever make. Naturally you will want to know as much as possible about the property before you finalize the purchase at closing.
It's important to hire a knowledgeable, independent professional home inspector for advice on the overall condition of the property. The purchase contract usually requires specific time periods for each inspection, and it's critical that these time frames be met. Prices vary depending on factors such as size, location, city, town, age etc.
Many companies specialize in only one area of inspection, and others will group several together and offer a package price. Whichever route you go, assure yourself you’re getting the inspections you need. Many can be found in the yellow pages or your MaxWell Capital REALTOR® can provide a list of several of each to choose from.
Home insurance, also called homeowners insurance, is a type of insurance that covers private homes. It combines various personal insurance protections, which can include: losses to one's home, its contents, loss of its use, or loss of other personal possessions of the homeowner, as well as liability insurance for accidents that may happen at the home or at the hands of the homeowner within the policy’s coverage.
You should refer to the actual policy for specifics to what will and what will not be paid in the case of various events. Basic policies protect you and your house against losses from fire, theft, liability, vandalism, water damage, wind damage, tornados and loss of use. Traditionally, claims due to termites, floods, earthquakes or war (typically including a nuclear explosion from any source), are excluded; however special insurance can be purchased for these circumstances. Lenders generally will not provide loans on properties without insurance on the main residence.
The premium of a home insurance policy varies and typically depends on the cost to replace the property (including contents and personal possessions), and will also factor in the likelihood of the home being damaged or destroyed. Deductibles also vary and will affect the annual price of the policy you choose.
It is important to understand that the replacement value of your home is based on your insurance company's estimate of the cost to rebuild your home on your property. It is not based on the purchase or appraised value of the home. Most policies have a built-in annual increase of replacement cost coverage.
When purchasing home insurance, there are ways of lowering your premium. Many insurance companies offer discounts for smoke alarms, fire extinguishers, dead bolt locks, and whole-house alarm systems.
If your home is fairly new, or if you elect to insure your automobiles with the same company, you are likely to receive an additional discount on your premium.
Again, you can reduce your premium by electing to have a high deductible, but make sure to keep the number realistic should you need to make a claim.
Insurance is the type of service you buy hoping that you will never have to use it. Unfortunately, in the world we live in, there is always the potential for the unexpected.
Discuss your unique needs and concerns with your insurance agent before purchasing a policy, or whenever your needs may change. The right policy can give you a sense of security in knowing that you are adequately protected.
This information is meant as a guide. Although deemed reliable, information may not be accurate.
Please consult a MaxWell Capital REALTOR® for more information.