If your plans for having your dream wedding are getting bogged down in budgets, you should know that all you will need to buy a house is about 3.5% of the purchase price for the down payment. 

• Did you know that the services of a Realtor are FREE to home-buyers?  By tradition, the Buyer’s Realtor’s fee is paid by the broker listing the home that you and your fiancée buy.  You will never write a check to a Realtor as a buyer.

• Negotiating other items “for free” is a part of what Realtors are skilled at doing.  A good Realtor can save you thousands on the purchase of a used  or new home by making sure all standard items are included in the price.
• Even your closing costs can be FREE.  Your Realtor can request that the Seller pay these fees for you, keeping your front end costs low.

When planning “the big event”, those small charges begin to add up.  Pretty soon, your wedding budget has stretched beyond your original plan.  Home buying requires the same kind of discipline.  It’s easy to pay too much if you don’t know that:

• The best loans are those offered to you at market rate with no extra fees.  If you are paying more than 3.5% of the purchase price in closing costs, you are probably paying too much.  If you are paying more than quoted market rates for the mortgage, ask why.
• There are affordable homes in virtually every price range, so there is no reason to overspend on your home.  Pick a house payment range and stick to it, unless you have a really good reason to change (raise at work).  Hold your Realtor accountable to show you homes in this price range.
• Ask your Realtor and Lending Consultant for tips on how to save money on the purchase of your first home.  It’s their job to get you a good deal.

When you join as a married couple, your credit history and debt repayment records will be joined as well.  If one of the pair has a great credit history and the other has a few glitches, it is wise to prepare by:

• Try to keep the party with the good credit debt free.  You may need that good credit to qualify for the size mortgage that you want and need.
• Work on the credit glitches now by seeing a good mortgage consultant.  They will tell you what steps must be taken and when in order to get that good home mortgage with the good interest rates.
• Avoid making large investments or running up new debt when planning to buy a new home together.  Probably, you both don’t need a new car.

This answer may differ from state to state so I am talking about my experience in Minnesota in this response.  Condominiums or “condos” as they are called look a lot like an apartment.  The typical condo unit is in a building with a centralized entrance, often a security entrance.  Once you are admitted to the building, each floor of the building will have hallways with condo unit entrances off of the hallway.  A condo unit can be on the second or third or seventeenth floor of the building.  Thus, it has no land under it.  This is unusual in real estate and when condos were first introduced, it took awhile for people to accept the idea. 

When you buy a condo, you get two things.  You get private ownership interest in the condo unit and shared interest in the parts of the building and grounds that are shared with all the other homeowners.   The homeowners’ association, of which you are now a member, manages this shared property.   You can do whatever you want to your unit as long as it doesn’t impact any other homeowner and it follows association rules.  You can’t do anything you want to the shared space unless you obtain permission from the other homeowners.  For example, you can’t change the outside of your door which faces the shared hallway.  Most homeowner associations develop a list of rules and regulations to make sure that all owners respect each other’s rights.  Usually, the heat in a condo building is central and the costs of heat are included in your homeowner association dues.  Some other utilities might be centralized as well such as garbage removal or water and sewer services.

A townhome most typically will have its own front door.  Usually, that front door faces the outside rather than a hallway.  It will stand on a small piece of ground or on its own small lot.  The townhome will typically have its own furnace and hot water heater so you will pay these bills and replace these utilities when they wear out.  There still is a homeowners’ association and you still cannot make changes to the outside of the unit without association approval.   Many first-time homebuyers purchase a condo or a townhome first because they tend to be less expensive and less work than owning a single family home.

For more detailed information, come to our FREE NO OBLIGATION FIRST TIME HOMEBUYER class or wait for future blogs.  “Simple answers to home ownership questions”.

If you are actively shopping for your first home, it’s impossible to avoid looking at foreclosed homes.  They represent almost half of the homes on the market in Minnesota.  There are four things to remember when you consider purchasing a foreclosed home:

The owner of the home is a bank.  The bank representative has never lived in the home and will not tell you anything about it.  They don’t know how old the roof is, whether the furnace has had annual service, whether there has been a water leak in the home and if everything in the home works.  In other words, you will receive no information on the home except what you discover yourself.

The personal property remaining in the home is not owned by the bank and they cannot and will not sell it to you.  If there is still a refrigerator, a stove, a microwave, a washer and a dryer, technically they belong to the original home owner and not the bank.  If the home owner chooses, they can come and remove them before closing.  If they don’t come to remove them and they “abandon” them, then you can claim them at the time you move in.

The utilities in these homes may have been disconnected without properly preparing the home.  If the heat has been turned off in the wintertime and the plumbing in the home has not been winterized and treated with antifreeze, the pipes may freeze and burst.  When spring comes and the water melts, it may cause mold to grow in the home.  These homes can cost a lot of money to repair and restore. 

There are usually one or more problems with foreclosed homes that require remedy by the buyer.  These may be big problems (burst pipes, mold, ageing roof) or these may be small problems (missing appliances, doors, kitchen cabinets etc.).  Be prepared to spend some money after closing to restore the home.

For more detailed information, come to our FREE NO OBLIGATION FIRST TIME HOMEBUYER class or wait for future blogs.  “Simple answers to home ownership questions”.

Many Home Buyers are surprised to learn that in addition to a down payment, they may need to pay other fees at closing, commonly referred to as “closing costs”.  The amount of these fees will vary from mortgage company to mortgage company.  A good estimate is about 3-3.5% of the purchase price of the home.  

When you are buying your first home, it may be hard for you to come up with enough money for both a down payment and closing costs.  Many first time Home Buyers ask for closing cost assistance from the Seller.  Most mortgage programs will permit the Sellers to help the Buyer pay for their closing costs.  All you need is the Seller’s consent.  Your Realtor will ask the Seller for this assistance when they write up the contract on your new home.  Asking the seller for closing cost help is very commonly done, especially when buying your first home.

For more detailed information, come to our FREE NO OBLIGATION FIRST TIME HOMEBUYER class or wait for future blogs.  “Simple answers to home ownership questions”.

If you bought or are buying your first home between January 1, 2008 and June 30, 2010, you will qualify for a refundable credit from the IRS.  There are two types of tax credit.  The non-refundable credits reduce your tax but only can reduce your tax to zero.  Refundable credits mean that once your tax is at zero, the rest of the credit will be mailed to you as a check.

For example, let’s say your taxes are $5000 this year and you have already paid $4500 towards those taxes in withholding from your paychecks.  So you would owe $500 to the IRS.  However, you bought your first home this year (2009) so when you file your taxes in 2010 for 2009, you claim the first time homebuyer credit.  The IRS would send you a refund check for $7500.  They would take $500 from the credit to pay the balance of the taxes you owed to them.  The rest would be refunded to you.

Now there are some differences in the tax credits available for first-time homebuyers.   If you bought between January 1, 2008 and December 31, 2008, the credit is $7500 and must be repaid over 15 years starting the second year after receiving the credit at $500 per year.  If you bought between January 1, 2009 and June 30, 2010, the credit is $8000 and doesn’t have to be repaid if you live in that home you bought for 3 or more years.  If you bought between January 1, 2009 and November 6, 2009, the credit is $8000 and you can e-file to claim the credit.  If you bought your first home after November 7, 2009 but before June 30, 2010, you cannot e-file your return to claim the $8000 credit as the IRS now requires you to attach proof of home purchase to your return.

If you have filed taxes for 2008 but bought your first home after you filed, you can file an amended return this year to claim the credit.  You don’t have to wait to file your tax return for 2009.  This is a great benefit for first time buyers, defined by the IRS as folks who haven’t owned a home for the three years prior to closing on their new home.  Good luck in buying that first great home!!

The mind boggles!!  $8000 in free cash, very few strings attached, from my favorite uncle, Uncle Sam.  I’m sure you’ve already spent this money in your mind but here area a few more suggestions related to home ownership.

Let’s say you are short of cash for the down payment but you have a blood relative who would “gift” you the money if you promised to repay them some time in the future.  If you were buying a home on an FHA mortgage, you would need 3.5% of the purchase price in down payment money.  For $8000, you could buy up to a $230,000 home (assuming you qualified for that much monthly payment) and take a loan from uncle/aunt/grandma/mom.  You could then collect your $8000 tax credit from Uncle Sam and pay them back this year.    If you’ve read some of our other blogs, you know that the closing costs can be paid by the seller.  You could get into that lovely home for FREE.

Or let’s say you are interested in a home but it needs some redecorating such as new carpet or flooring throughout ($4000), new paint in all the rooms ($300) and some new appliances in the kitchen ($3000).  None of these fixes would make it hard for you to get mortgage approval but they might make it hard for you to LOVE your home.  Buy the home, claim your $8000 tax credit and use the cash to create a home you LOVE.  Put in the carpet, repaint the rooms in custom colors and buy those stainless steel kitchen appliances.  Then sit back and enjoy.

Or let’s say the home is pretty darn nice but the yard isn’t.  It’s been neglected, never had any landscaping or fencing for the kids and the dog, and the deck needs to be removed and rebuilt.  Let’s plan a new deck ($5000) and let’s get some landscapers out there to put in the perennials, replace sod and add a tree or shrub or two ($3000).  From ugly to lovely.  There’s lots more ideas too but these should get you thinking of the POSSIBILITIES for that lovely $8000 First-Time Homebuyer Tax Credit.

For more detailed information, come to our FREE NO OBLIGATION FIRST TIME HOMEBUYER class or wait for future blogs.  “Simple answers to home ownership questions”.

When people come to our class and ask me this question, we discuss three important issues about buying your Grandma/Mom and Dad/Brother or Sister’s home.

First, most people who are thinking of purchasing a relative’s home expect to get a “deal”.  They think that because they are related to the seller, they should be given some type of discount, especially if a Realtor will not be involved in the transaction.  I think it’s important for all parties to lay their cards on the table.  The seller should frankly discuss how much they think the house is worth and why.  The buyer should explain how much of a discount from market price they are expecting.  If the two parties are too far apart (more than $10,000 is probably too far apart), the deal probably will never come together. It’s better to find this out immediately.

Second, condition issues will come up.  If you were buying a home from a seller you didn’t know, and there were broken or cracked windows, you would ask to have them fixed before closing.  You may hesitate to do this with a relative.  People are often afraid of hurting the relationship or hurting someone’s feelings.  If there are lots of condition issues with your relative’s home, put together a budget of the money you would have to spend to make the house acceptable to you.  If that budget exceeds the discount you are getting on the price, you may want to rethink your decision to purchase this fixer-upper.  Be frank with your relative about why you are rethinking the home purchase.

Third, how you plan on financing the purchase may become an issue.  If your credit isn’t great, you might not qualify for a mortgage.  You may want your relative to carry a contract for deed instead.  They, on the other hand, may not want to lend you the money.  They may want to cash out the house so they can move on or purchase another home.  A contract for deed keeps them on the hook for the home.  This should all be discussed in advance. 

One overall piece of advice is to encourage both parties to treat this purchase as they would any other sale or purchase.  Keep it business-like. Don’t get personal. Work out the big issues in advance.  If it appears necessary, get a Realtor involved to help you out.

For more detailed information, come to our FREE NO OBLIGATION FIRST TIME HOMEBUYER class or wait for future blogs.  “Simple answers to home ownership questions”.

If the timing wasn’t right for you to take advantage of the 2008 tax credit, perhaps there is still hope.  The 2008 law gave home buyers who hadn’t owned a home in the last three years the right to claim an $8000 tax credit on their 2009 federal income tax return if they bought a home between January 1 and December 1 of 2009.  That law is due to expire at the end of November.  If you are a first time home buyer and you don’t have a purchase agreement written on a home at the time you are reading this, it’s probably too late to take advantage of the 2008 tax break.

Congress is debating several versions of a possible extension of this tax credit law.  One version would award the tax credit to anyone who purchases a home, not limiting it to first time buyers.  Another version would phase out the credit, extending the $8000 credit through April 1^st of 2010.  Then the credit would be reduced to $6000 if the home were purchased between April 1 and July 1; $4000 between July 1 and October 1 and then $2000 through the end of December 2010.  A third version would increase the credit substantially, to $15,000.  So you can see there is still a lot of discussion and no final decision as of October 28, 2009

There have been reports of fraud in connection with this tax credit including claims for the tax credit being submitted by children and by persons who are recent home owners. In addition, some have critiqued the tax credit stating that most of the people using the credit would have purchased a home anyhow.  Other sources state that the refund accounted for at least 20% of the purchases this past year.  In other words, people bought homes because of the refund who ordinarily might have waited.

When we do have a final answer, it will be published here.  In the meantime, if you have questions and need answers, come to our class.

For more detailed information, come to our FREE NO OBLIGATION FIRST TIME HOMEBUYER class or wait for future blogs.  “Simple answers to home ownership questions”.