The Twelve Most Common Connecticut Homebuyer FAQS

Are you ready to buy a home, and have a few questions? It doesn't mean that you are naive if you have questions about the home buying  process and experience, and it doesn't matter if you have bought a home before or not. Conditions change, parameters change and the economy changes. There are many questions about the home buying process that are very common  for first time buyers to ask,  as well as anyone who has ever bought a home before.

How long does it take to buy a home?

You can expect the process to take anywhere from 45-60 days on average from the day you negotiate your home purchase. The time involved has mostly to due with fulfilling various contingencies and obtaining a mortgage.

How much should I spend for a house? How much can I afford?

The answer to this question is directly correlated to your income, your debt, and your liquid assets. You may have heard a few rules of thumb, such as purchasing a home between 1.5 and 2.5 times your annual income,  Other "rules of thumb"  say that you should spend roughly one quarter of your monthly income on a mortgage.

In general, your monthly prinicpal interest, taxes and insurance payment should not exceed 28 to 29 percent of your monthly gross income. Your total debt payments (car payments, credit card payments, etc. plus the monthly mortgage amount) cannot exceed approximately 36%-41% of your gross monthly income. The calculations can differ depending on your credit score, and the amount of time the current debt has to be satisfied  It's best to get initially pre-qualified from your real estate agent and ultimately through a lender.

What's the minimum downpayment that I need to buy a house?

Government backed loans are  available with as little as a three and one half percent deposit.  As a note, there are income and price parameters that must be adhered to within your area.

Should I buy a foreclosed home?

You can certainly save a lot of money on purchasing a repossessed home,  just be ready for the length of time it takes to come to an agreement with the bank, the additional paperwork necessary, and the deferred maintenance that will most likely need to be addressed at that particular property

How many houses should I look at before I buy?

 You can look at one, you can look at one hundred. The best thing for you to do is to have a good idea as to what your wants and needs are. When you see a home that "speaks" to you, whether it's the first home, or the tenth home, listen to what your heart tells you. Further, if your agent asks you enough questions, you may only need to see less than a dozen or so homes before you very comfortably find "the one".

How much should I offer for a house?

There is no simple answer to that question, since each property truly stands on its own, and  has its own unique set of circumstances.  Just as a seller obtains a market  analysis on a home, you should also receive one for the home that you want to buy. The analysis will help you decide what to offer, based upon list price to sales price ratios and comparable sales.

How do I know if I am spending too much for the house that I want to buy?

A market analysis  completed by your agent will tell you how much the home is worth, but ultimately it is worth what you are willing to pay, and what the bank is willing to lend you if you are getting financing. If the appraisal as commissioned by the bank does not equal your agreed upon price with the seller, the bank will notify you and you can either renegotiate or walk away from that house. It's a wonderful third party check on value.

How do I know if I am getting a good deal on a mortgage?

You must compare loan packages. There is just no way around it. Shop for rates, but do not give out your social security number to various lending institutions, as it will lower your credit score and raise your interest rate. Obtain your score from one  lender and use that  number to shop around. Make sure you add up all the fees  to compare apples to apples when you shop.

Do I really need to use an Agent to buy a house?

I would highly recommend it!  Buyer Agency contracts are generally  written with the proviso that the agent will obtain their fee from the seller. In that case, there is no cost to you to have an expert and advocate on your side, who is bound by law to hold a fiduciary responsibility to represent your best interests . 

Should I sell my current home first?

Although this will differ for some homeowners for  various reasons, generally speaking you should get your home under deposit first,  in either a buyers market or a sellers market.

Do I really need a building inspector?

YES! Unequivocally yes.  A home purchase tends to be emotional, and you may unconsciously overlook issues  even if you are very well versed and knowledgeable about homes, their components, and construction.

How much will my closing costs be?

Figure your closing costs to top out at about four percent of the mortgage amount, and we can work on shaving that number down depending on whhat time of year you close, what day of the month that you close, and what type of mortgage you obtain.

Just one closing thought (pardon the pun)  If you get the jitters the night that you put your offer in on your house, try and relax. It's absolutely normal.  It doesn't mean that you shouldn't buy that particular house. It's a big decision and having a  little anxiety as to whether you have done the right thing, or  whether or not the bank will approve your loan is quite normal- just try and relax.

If it makes you feel any better, I have been in real estate for 27 years, and every time I purchase a home I even get a little anxious. You would think that helping buyers for this amount of time would make me immune to that. It doesn't.  So yes, I've been there. I understand how you feel. Get a good nights rest and it will be okay, I assure you. If you happen to be one of my future clients,  remember-I am always there for you.

When you are ready to buy a home, contact me. I'm there start to finish ....and beyond.

If you have a question about buying or selling Real Estate in Fairfield County, and are in need of representation, I invite you to contact me, and if you have an idea for a topic that you would like to see on The CT Realty Blog, please include it in the "Post a Comment" section link below this post. We appreciate the feedback and look forward to providing you with the best real estate content, advice and service in Fairfield County, Connecticut.

Tweet

Is a Short Sale Right For You?

A "short sale" is a real estate sales transaction in which the seller's mortgage lender agrees to accept a payoff of less than the balance owed on a property's loan. This typically happens when a borrower can’t pay the remainder of the mortgage loan on their property, but the lender decides that selling the property at a moderate loss is a better alternative than foreclosure.

Short sales are different from foreclosures because the lender forces a foreclosure, while both lender and borrower consent to a short sale. Consent between these parties may suddenly change, however, such as if the borrower becomes obstinate and forces foreclosure, or if the lender disapproves of the sale price. If the property is collateral for a second mortgage from a different institution, it, too, must agree to the short sale, which may further complicate the transaction. 

Short Sales from the Lender’s Perspective

Banks incur a smaller financial loss from short sales than losses resulting from foreclosures, which cost lenders billions of dollars, mainly through the expense and time required to foreclose on the borrower and subsequently market the property. If the borrower owes $30,000 on their home, it’s often worth it for the bank to waive that amount, as the expense may be as much as $50,000 per foreclosure, according to a study by the U.S. Congress Joint Economic Committee.

 

Short Sales from the Seller’s Perspective

While a short sale will damage the seller’s credit rating, a foreclosure causes even greater credit damage. The process for a short sale is also faster, cheaper and less emotional than a foreclosure, in which former owners are often forcibly removed from their homes.

 

Short sales, however, do not necessarily release the borrower from the obligation to pay some or all of the remaining balance of the loan, known as the deficiency. The bank, depending on state laws, might be able to go after the seller for the remainder of the loan after the home sells. Also, in these states, known as recourse states, the IRS can treat the unpaid portion of the mortgage as taxable income.

 

Communities, too, invariably prefer short sales to foreclosures, which drag down the real estate market of whole neighborhoods. Vacant foreclosed houses, many of which have been ransacked by former owners or vandals, further reduce the property value of neighboring homes which, in turn, increase the likelihood of more foreclosures. Of course, communities don’t have much of a say in whether a home short-sells or forecloses, which is partly why a federal rule was issued to streamline and encourage short sales.  As of April 5, 2010, the various parties that must consent to allow a short sale – the borrower, the lender, the investor who owns the loan, and the bank that owns the second mortgage (provided there is one) – are all offered financial incentives to consent to a short sale. 

 

Typically, the following conditions must be present in order for a short sale to be approved:

• The property’s market value has dropped.
• The mortgage is near or in default status.
• The seller can prove that they have few assets. Tax returns and financial statements may be required to prove that the borrower has no stocks, bonds, or other real estate, for instance, which may be used to pay off the balance of the loan.
• The borrower has fallen on hard times. The seller is required to submit a letter to the lender that describes why they cannot pay the difference due upon sale, and how they wound up in financial hardship. This plea to the lender to accept a loss, known as a letter of hardship, may include the following acceptable explanations:
  • unemployment;
  • divorce;
  • medical emergency;
  • bankruptcy; and/or
  • death.

The following circumstances are generally not accepted "hardships":

• bad purchase decisions, such as gambling or vacationing;
• unhappiness with the neighbors, such as if a meth lab opened up next door;
• buying another home. If you can afford another home, the bank will wonder why you can’t pay off the one in which you currently reside;
• pregnancy. Lifestyle decisions aren’t taken seriously in letters of hardship; or
• moving into an apartment.

If you are considering the purchase of a short-sale property, here are some tips:

• Obtain legal advice from a competent real estate attorney.
• Consult with an accountant to discuss the tax ramifications of buying a short sale.
• Hire an InterNACHI inspector to inspect for problems typical of short sales and foreclosures, such as pests, mold, water damage, and/or structural defects. Realize that short-sale sellers have fallen behind on their mortgage payments, making it likely that they have neglected basic building maintenance and repair, or even intentionally abused the building. Presale inspections, which are suggested for all real estate transactions, are as critical for short sales as they are for foreclosures.

In summary, a short sale is a compromise consented to by the lender and borrower in order to avoid foreclosure, and can be a better financial deal for all parties involved.

by Nick Gromicko and Rob London

 

Nick Gromicko, FOUNDER. http://www.nachi.org
International Association of Certified Home Inspectors (InterNACHI) is the world's most elite, non-profit inspection association.
President, ComInspect, www.cominspect.com
Director, Master Inspector Certification Board, www.certifiedmasterinspector.org
Author, 15 books and Co-Host of  http://www.NACHI.TV

Do you have a C.L.U.E. on That CT Home You are About to Purchase?

Every home has one, and there is important information contained in it.  The report will tell you what home  insurance claims have been brought against the property, such as fire, water and smoke damage, among others.Would that be a good thing for you to know?

C.L.U.E. stands for "Comprehensive Loss Underwriting Exchange" and is a claims history database that enables insurance companies to access consumer claims information when they are underwriting or rating an insurance policy. As C.L.U.E. reports play an increasingly important role in real estate transactions, inspectors will find their clients more curious about how C.L.U.E. reports can affect them.
 
C.L.U.E. was created in 1992 and is administered by ChoicePoint, a data aggregation company. Roughly 600 homeowners' insurers (about 90% of insurers) contribute claims data to the database. Most insurers renewing existing policies do not access C.L.U.E. reports at renewal, largely because they already have loss histories for these properties in their own databases. Many buyers now stipulate that a C.L.U.E. report on a home must be included with the real estate transaction.

What information is included in a C.L.U.E. report?

The report contains consumer claim information provided by insurance companies. Policy information, such as date of loss, type of loss, and amounts paid, and a description of the property covered, is all included in the report. Only loss history information within five years prior to the current date is stored in the database. No other sources of data, such as credit reports, civil lawsuits, criminal records or legal judgments, are incorporated into C.L.U.E. reports.

How can C.L.U.E. reports benefit potential home buyers?

C.L.U.E. reports let potential home buyers know about water damage, mold, and other issues that can make it difficult or even prohibitively expensive to insure a home. Without viewing the report, big trouble may be brewing for buyers who simply assume that they will receive an insurance policy for their new home.

Imagine a typical real estate transaction, in which the property sells, ownership is transferred, the buyer gets the keys, and the real estate agent gets paid. But a few weeks later, the buyer gets a letter from their insurance company rescinding the policy due to a previous claim. Many mortgage documents state that a property must remain insured. If the homeowner can't find insurance elsewhere, they can be forced into paying the mortgage company's premium insurance rates or foreclosing on the home. Understandably, many of these situations result in lawsuits:  buyers sue the seller for non-disclosure, the home inspector and the real estate agent if they did not insist upon obtaining an inspection or C.L.U.E. report for their client. This entire situation may have been avoided if a C.L.U.E. report had been ordered by the seller and reviewed by the buyer.

Note that you cannot order a C.L.U.E. report for a home that you are merely interested in buying. Only current owners, insurers and lenders for the property can order C.L.U.E. reports. However, you can request that the current owner of the property order a C.L.U.E. report for you to view.

Why should inspectors care about C.L.U.E. reports?           

During a buyer’s inspection, the inspector is tasked with exposing the property’s dark secrets that may make its purchase less desirable for the buyer. While this process traditionally involves inspection for current defects that affect the safety or functionality of household components, buyers should be concerned with previous defects that, as detailed above, can create nightmare scenarios after the house has been purchased.

If the inspector finds evidence of major damage that has since been repaired – even if the repair has made the component safe – he should advise his client to request that the seller order a C.L.U.E. report, if this has not been done already. Flood damage from four years prior, for instance, can make a property uninsurable under a new policy. Even if the inspector finds no such evidence, it couldn’t hurt to mention the report to the prospective buyer.

How do you get a C.L.U.E. report?
Homeowners can get an electronic or mailed copy of their own C.L.U.E. report for a small fee, depending on which state they reside in. If a homeowner lives in Maryland, Georgia, Massachusetts, Colorado, Vermont or New Jersey, they are entitled to a free copy of their consumer report.
 
In summary, C.L.U.E. reports play an important role in real estate transactions. Inspectors should be ready to inform their clients about the ways in which these reports can affect their ability to receive future insurance coverage.

Submitted by Nick Gromicko

Nick Gromicko, FOUNDER. http://www.nachi.org
International Association of Certified Home Inspectors (InterNACHI) is the world's most elite, non-profit inspection association.
President, ComInspect, www.cominspect.com
Director, Master Inspector Certification Board, www.certifiedmasterinspector.org
Author, 15 books and Co-Host of  http://www.NACHI.TV

Why You Should Consider Buying the Worst House on the Street.

It just sounds funny- but consider how much money you can save on your purchase by  buying a home so discounted from its appearance that even after repairs or minor remodeling, that you come out with additional built-in equity?

Just as there are reasons why you shouldn't buy the best house on the street (without serious consideration), there are plenty of reasons that you should consider buying the worst house on the street.

Those sellers aren't getting many showings. As a matter of fact, homes with less than great curb appeal don't get shown as often even in a sellers market, and that can only be amplified in today's market.

There are a number of buyers that won't even look at a house if it doesn't have curb appeal. And just so you know,  the definition of curb appeal can be quite broad. Most commonly, it is the landscaping, and/or the initial reaction of driving up to the home for the first time and not getting that warm and fuzzy feeling. Maybe there is a an addition that doesn't appear to "fit" the property, or is downright ugly.

I remember one house in Fairfield that was... mmmm... let's say "unattractive", (and that's an understatement). It had all the features that my client wanted, but .. as I said, it was unattractive. I had to almost drag the wife in to look at. It was brick, stone, and three different colors of vinyl siding that highlighted a dormer addition on the second floor.. Yuccch!  But the house was absolutely stunning inside. Once we figured out what it would take financially to change the outside appearance and how inexpensive it was to implement, my clients bought it. They changed the siding to one color, and it transformed the house entirely to a beauty.

So maybe it's even the color of the house, maybe the home just looks kind of plain and unadorned, or maybe it looks a bit run-down.

No matter which of these factors play into a home's less than desirable curb appeal, there's one thing that they should all have in common. The price of the home reflects it (or it should).

There is something that nobody thinks of when they look at these types of homes. Some homeowners are more concerned with the inside than they are the outside. The inside of that home can be absolutely beautiful  and you would never know it if you judged that house from the outside alone. (Just like my clients were judging that house that they ended up buying)  Maybe you have seen a house that looked immaculate on the outside, and was just a wreck inside. Same principle, just reversed.

For example,  we all know people who love to tinker in the garage or basement, and you might be able to eat off the floor in those areas of the house- but the rest of the home? maybe a tad  on the messy side? Everyone has different priorities- just like what is clean to one person would be considered filthy to another, and we all have our individual tastes, too.

Remember, just as you pay premium pricing for pristine condition, you'll get the opportunity for a greater discount with a home that just needs inexpensive  cosmetics to dress it up. My very cute and very petite grandmother had a little saying that used to crack me up- "A little powder... a little paint.... makes you look like what you ain't".   Well, the same goes for real estate.

So think of that home with less than great curb appeal as a very good investment opportunity. How much would it cost to  fix that less than attractive front of the home? Would the cost of the improvement be worth it if you were to buy that home? If the house isn't priced accordingly,  is it possible to negotiate with the seller to a price that would make it worth your while? All things to consider when you are buying your next home. Be open in your search.. and don't count out that less than attractive house just yet.

Tweet

What NOT to do Before Buying A Home: WORST Moves for Homebuyers

There are a number of things that could either hurt your chances of buying a home, or severely hinder them, but just a few very smart preparations  on your part can make the process exponentially easier. When you decide that you are ready to buy a home, or sell your existing home and buy another home, remember these important tips:

1. First things first, get your finances in order.

2. As a rule, do not deposit a large sum of money into your bank account within three months of purchasing a home without being able to explain in detail and prove exactly where the money came from.

For example, If you are getting any money as a gift for the downpayment, get it now and put into your bank account. As a safeguard, also have whomever is "gifting" you this money maintain the prior three and following three months statements on the account from which the money came from. This may be a requirement from the bank.  The bank may also require a signed "Gift Letter".

3. Do not change banks, or move money around from bank to bank. Your future lender will require to see proof of your  source of funds for your down payment and closing costs. Most banks request statements for the last two or three months on any of your liquid assets. This includes checking accounts, savings accounts, money market funds, certificates of deposit, stock statements, mutual funds, and even your company 401K and retirement accounts.

4. Do not apply for any credit cards, and if you have balances on your credit cards, PAY THEM OFF. It is not uncommon for a credit card balance to hurt your buying power. There are guidelines on the amount of debt that you can have without cutting into your ability to obtain a mortage at the desired amount. Going to a store and  obtaining a credit card for just that store for a purchase you intend to make is just as bad. Just wait.

5. Do not co-sign a loan for anyone, period.

6. Do not make any major purchases. That means wait to buy the car until after you have closed on your home, and wait to buy any furniture or appliances as well. If you have to make a major purchase, speak with your loan officer.

7. If you haven't already contacted a loan officer or a real estate agent, do so now.

8. Don’t change jobs, especially in today's teetering economy. A lengthy employment history with one company shows stability in your life and in your work. Believe me, that counts significantly.  A number of recent job changes even if they are in the same field does not look good on an application. Likewise, if you have only been at your current job for less than a year, it is not ideal as far as lenders are concerned.  Wait until aftter you close on your new home.

9. None of the above should change AT ALL until you actually have the keys to your new home in your hands. Do not apply for any credit between the time your loan is approved and the time that you close on your home, either. The bank will do a final credit check, and any inquiries at all are red flags. You will also be asked AT THE CLOSING to verify your original application and whether or not everything is correct on your original application. Heaven forbid something changed, and you didn't disclose it to the bank and major repercussions ensued. Just don't do it.

10. If you happen to be buying a home direct through the owner, NEVER give a deposit or  earnest money directly to that seller.

Lastly, and most importantly, don’t go through the process without the professionals that you need. That means an attorney, a real estate agent (that would be me!), a loan officer, and a building inspector.

Tweet