Saturday, March 23, 2013

SELLING YOUR HOME: Patio Appeal May Add Value To Your Home

Depending on where you live, a patio might not be the kind of thing you think about during the cold, and maybe snowy, winter months. But a patio is what many people enjoy on a sunny warm afternoon. It just feels good to sit outside and sip some iced tea or lemonade. That's the picture your real estate agent would want to capture when listing your home for sale.

Patios are appealing because they can create a sense of peace, open space, freedom, and they can seem to extend the square footage of livable space on those good weather days.

Set out on your patio some simple but comfortable patio furniture when you're listing your home and you might find that prospective buyers take a seat and think about your home. Good! Let them soak in the energy of the home. The way it feels. The way it allows them to relax. Set some brochures out on a side table. Maybe even a good book. You'd be surprised what these buyers pick up. If they enjoy themselves while sitting on your patio, you're likely to have piqued their interest in your property.

So, what if you have a backyard but no patio; is it worth investing in one? The answer depends on your financial situation but there's no doubt that having a patio or a deck - a space outdoors to relax - is a plus.

Inventory for Jamaica Plain Homes is at the lowest in many years

Inventory for Jamaica Plain Homes is at the lowest in many years

This is the lowest inventory in over 10 years and is translating to quick sales with multiple offers at over asking price. In short, it has quickly turned into a Sellers Market. Call me to find out what your home is worth.

Friday, March 22, 2013

INSURANCE: 7 Flood Insurance Myths

Much of what you know about federal flood insurance may be flood insurance myth.
Myth #1: Hurricanes, not floods, are the No. 1 natural disaster and cause the biggest economic losses in the United States.
Hurricanes grab the headlines, but because floods happen in virtually every part of the country, they cause more losses than any other type of natural disaster.
What causes floods?
  • Rising rivers
  • Storms
  • Early snowmelts
  • Manmade problems from the construction of roads, shopping malls, homes, and industrial complexes
  • Hurricanes

Myth #2: Everyone who lives in a flood zone has to buy flood insurance.

Nope. You must buy flood insurance only if you meet all three of these criteria:
  • You buy a home in a special flood hazard area where there’s a 1% chance of flooding in any year.
  • Your community participates in the National Flood Insurance Program.
  • You buy your home using a loan from a federally insured financial institution, or a Fannie Mae- or Freddie Mac-guaranteed loan.
If you don’t meet these three requirements, no one will make you buy flood insurance.

About 5.6 million home and small-business owners live in the more than 21,000 communities that participate in the flood insurance program, according to the Government Accountability Office.

Myth #3: Flood insurance is always expensive.

Flood insurance through the National Flood Insurance Program is sometimes expensive and sometimes cheap, depending on how much your home and its contents are worth.
  • It can cost up to $6,000 a year if you buy the highest possible coverage of $250,000 and live in a high-risk area.
  • It could cost $472 for $35,000 in damage coverage in a high-risk area.
  • It can cost as little as $129 a year for $20,000 of rebuilding coverage and $8,000 in contents in a low-risk area.
Premiums vary a lot based on where you live. If you want to buy $250,000 of building coverage and $100,000 of contents coverage, you’d pay about:
  • $6,000 in a high-risk coastal area
  • $2,700 in a high-risk inland area
  • $400 a year in a low-to-moderate-risk inland area.

Myth #4: Taxpayers are footing the bill for federal flood insurance.

The NFIP doesn’t spend any tax dollars. The government sets the premium rates high enough

Thursday, March 21, 2013

SELLING YOUR HOME: Find the Best Agent to Sell Your House

Ask detailed questions about their experience and skills to help you find the right agent for your home sale.

1. How long have you been selling homes?

Mastering real estate requires on-the-job experience. The more experience agents have, the more likely they’ll be able to handle any curveballs thrown during your home sale.

2. What designations do you hold?

Designations like GRI (Graduate REALTOR® Institute) and CRS® (Certified Residential Specialist), which require that agents complete additional real estate training, show they’re constantly learning. Ask if agents have designations and, if not, why not?

3. How many homes did you sell last year?

Agents may tout their company’s success. An equally important question is how many homes they’ve personally sold in the past year; it’s an indicator of how active and aggressive they are.

4. How many days on average did it take you to sell homes?

Ask agents to show you this data along with stats from their local Multiple Listing Service (MLS) so you can see how many days, on average, their listings were on the market compared to the average for all properties in the MLS.

5. How close were the asking and sales prices of the homes you sold?

Sometimes sellers choose their agent because the agent’s suggested listing price is higher than those suggested by other agents. A better factor is the difference between listing prices and the amount homes actually sold for. That can help you judge agents’ skill at accurately pricing homes and marketing to the right buyers. It can also help you weed out agents trying to dazzle you with a lofty sales price just to get your listing.

6. How will you market my home?

The days of agents putting a For Sale sign in the yard and hoping for the best are long gone.

Wednesday, March 20, 2013

TECHNOLOGY: Beyond Smart Home Security, Rise of Smart Appliances Coming in 2013

A new smart home appliance survey recalls a plot in a machines-take-over movie, but the new technology can actually help save the planet as well as energy costs.
about security issues, rather than gabby appliances telling them what to do.

More than half tech-savvy consumers told CEA they wanted to be remotely alerted to security problems and smoke detectors going off when they weren't at home.

They also said, at home and away, they wanted to be able to see who is at the front door and who enters or exits their home.

Terminating high utility costs
Apparently a similar number of households want to also juice up major appliances with smarts, according to Parks Associates, an international market research and consulting company specializing in emerging consumer technology products and services.
Park Associates said 44 percent of all U.S. broadband households would allow their power company to manage and monitor their home appliances to reduce energy consumption and save money.

They may just get their wish.
"Manufacturers are developing connected appliances to stay competitive in a mature market, where connectivity can differentiate products and add value through remote monitoring, enhanced functionality, and energy savings," said Tom Kerber, Director, Research, Home Controls and Energy, Parks Associates.

"Appliance manufacturers LG and Samsung have launched Wi-Fi-enabled appliances, and most major manufacturers are launching new connected products in 2013, which will continue to increase consumer awareness and strengthen the value proposition of connected appliances," Kerber added.

Manufacturers have already loaded appliances with sensors that do more than manage energy use; they also enhance control and convenience.

Smarter than consumers
For example, some washing machines "know" how much water to use for a given load of clothes. Clothes dryers shut down when they become "aware" the clothes are dry, even if the consumer has set the timer for a longer drying duration. Microwaves "sense" when a casserole has been zapped long enough.

Park Associates says households also want machines with smart troubleshooting features to help resolve appliance problems.

Perhaps, one day, they'll repair themselves.

The research and a recent energy summit, "The Role of Cloud-based Services and Connected Appliances in Energy Management," do however have an ominous "rise of the machines" ring to them.

Let's just hope this isn't the beginning of Skynet, the antagonist in the Terminator movie series - self-aware AI machines that ban together as war machines to replace humans.
But seriously, "The appeal of energy monitoring for appliances could be boosted by educating consumers about appliance energy consumption, which would ultimately provide more savings to consumers," Kerber said.

Tuesday, March 19, 2013

LOCAL NEWS: FBI says it has identified the thieves in Gardner heist

In a stunning development, federal law enforcement officials said today they had identified the people who stole $500 million worth of masterworks from the Isabella Stewart Gardner Museum in 1990.

The officials also said they had tracked the paintings’ movements after they were sold, but they did not know where they are now and were appealing to the public for their help.

“The FBI believes with a high degree of confidence in the years after the theft the art was transported to Connecticut and the Philadelphia region and some of the art was taken to Philly where it was offered for sale by those responsible for the theft. With that confidence, we have identified the thieves, who are members of a criminal organization with a base in the mid-Atlantic states and New England,” Richard Deslauriers, the special agent in charge of the Boston office of the FBI said in a statement.

Deslauriers said that after the attempted sale of the paintings about a decade ago, the FBI did not know where the paintings had gone.

“Unfortunately, we haven’t identified where they are right now and that’s why we are coming to the public for their help,” Geoff Kelly, the special agent who spearheaded the investigation in the Boston office, said in a statement.

The FBI said that it was continuing its search both in and beyond the Connecticut and Philadelphia areas and launching a public awareness campaign that would include outreach through both billboards and the Internet.

“With this announcement, we want to widen the aperture of awareness of this crime to the reach of the American public and others around the world,” said Deslauriers.

Law enforcement officials have been puzzled for years by the 1990 heist.

The Globe recently reported that investigators, after years of frustration, are focusing on evidence that former museum night watchman Richard Abath may have been in on the crime — or may know more about it than he has admitted.

Monday, March 18, 2013

TAXES: 6 Home Deduction Traps and How to Avoid Them

Get an “A” on your Schedule A Form: Dodge these tax deduction pitfalls to save time, money, and an IRS investigation.
Trap #1: Line 6 - real estate taxes
Your monthly mortgage payment often includes money for a tax escrow, from which the lender pays your local real estate taxes.

The money you send the bank may be more than what the bank pays for your taxes, says Julian Block, a tax attorney and author of Julian Block’s Home Seller’s Guide to Tax Savings. That will lead you to putting the wrong number on Schedule A.

  • Your monthly payment to the lender: $2,000 for mortgage + $500 escrow for taxes
  • Your annual property tax bill: $5,500
Now do the math:
  • Your bank received $6,000 for real estate taxes, but only paid $5,500. It may keep the extra $500 to apply to the next tax bill or refund it to you at some point, but meanwhile, you’re making a mistake if you enter $6,000 on Schedule A.
  • Instead, take the number from Form 1098—which your bank sends you each year—that shows the actual taxes paid.

Trap #2: Line 6 - tax calculations for recent buyers and sellers

If you bought or sold a home in the middle of 2012, figuring out what to put on line 6 of your Schedule A Form is tricky.

Don’t simply enter the number from your property tax bill on line 6 as you would if you owned the house the whole year. If you bought or sold a house in midyear, you should instead use the property tax amount listed on your HUD-1 closing statement, says Phil Marti, a retired IRS official.

Here’s why: Generally, depending on the local tax cycle, either the seller gives the buyer money to pay the taxes when they come due or, if the seller has already paid taxes, the buyer reimburses the seller at closing. Those taxes are deductible that year, but won’t be reflected on your property tax bill.

Trap #3: Line 10 - properly deducting points

You can deduct points paid on a refinance, but not all at once, says David Sands, a CPA with Buchbinder Tunick & Co LLP. Rather, you deduct them over the life of your loan. So if you paid $1,000 in points for a 10-year refinance, you’re entitled to deduct only $100 per year on your Schedule A Form.

Trap #4: Line 10 - HELOC limits

If you took out a home equity line of credit (HELOC), you can generally deduct the interest on it only up to $100,000 of debt each year, says Matthew Lender, a CPA with EisnerLubin LLP.

For example, if you have a HELOC for $200,000, the bank will send you Form 1098 for interest paid on

Sunday, March 17, 2013

RETIREMENT: All-retiree housing isn’t for everyone

There seems to be a rule that if retirees move to a communal environment, it must consist only of other retirees. But some are challenging that notion by choosing intergenerational cohousing, living side by side with people of all ages, including singles, childless couples, and families with children.

Residents of cohousing make major decisions collectively, but these are not communes. Group meals and activities are optional, and members maintain separate residences.

“You have a choice between privacy and community,’’ said Charles Durrett, 57, an architect who has designed more than 50 cohousing communities.

Some communities that live by cohousing principles are for retirees only, and that is the best choice for some, Durrett said. Children can be raucous, and sometimes people want to spend their time in peace with like-minded friends and a glass of wine.

But other s prefer the energy and variety of cohousing, he said. The arrangement has value for younger residents, too: Children learn to respect their elders and ‘‘everybody’s seeing all of life,’’ Durrett said. That includes ‘‘what the end game looks like,’’ he said.

Cohousing is a way to avoid the isolation and depression that older people can face when they live alone, Durrett said. Cohousing residents are also more likely to check up on and care for their neighbors, he said.

Meg Palley, 95, lives in a four-bedroom house in Nevada City she shares with two caregivers, who receive reduced rent in return for services like driving and shopping. She said she chose

Saturday, March 16, 2013

TAXES: How to Get Your PMI Deduction

Deducting PMI premiums can save you hundreds of dollars. Here’s what you need to know to get the deduction.
Do You Qualify for the Deduction?

Just because you have PMI premiums doesn’t mean you can deduct them. Here’s what qualifies you:
  • You got your loan in 2007 or later.
  • Your mortgage is for your primary residence or a second home that’s not a rental property.
  • Your adjusted gross income is no more than $109,000. The deduction begins to phase out once your adjusted gross income (AGI) exceeds $100,000 ($50,000 for married filing separately) and disappears entirely at an AGI of more than $109,000 ($54,500 for married filing separately).
How to File for the PMI Deduction
You’ll have to itemize and use Schedule A.

If you make no more than $100,000 a year, put the amount of insurance premiums you paid last year on Line 13. Don’t include pre-paid premiums for this year. You’re doing taxes based on last year’s income and expenses, so this year’s premiums don’t count even if you pre-paid them last year. (More about deducting prepaid and upfront mortgage insurance here.)
If your adjusted gross income is between $100,000 and $109,000, use the worksheet included with Schedule A to figure out how much you get to deduct.

How Much Can You Save?

It depends on how much you’re paying. A good rule of thumb industry experts use: You'll pay $50 a month in premiums for every $100,000 of financing. Keep in mind, though, that the amount of the down payment, type of loan, and lender requirements can all affect your actual cost.
For example, if you put 5% down on a $200,000 house, you’ll pay monthly PMI premiums of about $125. Increase your down payment to 10%, and you’ll pay less than $80 a month.
So how does this affect your tax bill? Let’s say your adjusted gross income is $100,000. You bought a $200,000 house in 2012, put down 5%, and paid $1,500 in PMI premiums ($125 times 12 months). The deduction for PMI cuts your taxable income by $1,500. If you’re in the 15% tax bracket, you save $225 on your tax bill ($1,500 x 15%), and if you are in the 25% tax bracket, you save $375 ($1,500 x 25%).

The Best Savings of All: Canceling Your PMI

Although the tax deduction is nice — at least while it lasts — getting rid of PMI altogether is even nicer.

You can cancel your PMI when you have 20% equity in your home. Lenders are required to automatically cancel it once you have 22% equity. If you think you’re at that threshold, find out more about canceling your PMI.
Get more tax tips with our complete Home Owner’s Guide to Taxes.
This article provides general information about tax laws and consequences, but shouldn’t be relied on as tax or legal advice applicable to particular transactions or circumstances. Consult a tax pro for such advice; tax laws may vary by jurisdiction.

Friday, March 15, 2013

BUYING A HOME: How to Assess the Real Cost of a Fixer-Upper House

1. Decide what you can do yourself

TV remodeling shows make home improvement work look like a snap. In the real world, attempting a difficult remodeling job that you don’t know how to do will take longer than you think and can lead to less-than-professional results that won’t increase the value of your fixer-upper house. 
  • Do you really have the skills to do it? Some tasks, like stripping wallpaper and painting, are relatively easy. Others, like electrical work, can be dangerous when done by amateurs.
  • Do you really have the time and desire to do it? Can you take time off work to renovate your fixer-upper house? If not, will you be stressed out by living in a work zone for months while you complete projects on the weekends?

2. Price the cost of repairs and remodeling before you make an offer

  • Get your contractor into the house to do a walk-through, so he can give you a written cost estimate on the tasks he’s going to do.
  • If you’re doing the work yourself, price the supplies.
  • Either way, tack on 10% to 20% to cover unforeseen problems that often arise with a fixer-upper house.

3. Check permit costs

  • Ask local officials if the work you’re going to do requires a permit and how much that permit costs. Doing work without a permit may save money, but it'll cause problems when you resell your home.
  • Decide if you want to get the permits yourself or have the contractor arrange for them. Getting permits can be time-consuming and frustrating. Inspectors may force you to do additional work, or change the way you want to do a project, before they give you the permit.
  • Factor the time and aggravation of permits into your plans.

4. Doublecheck pricing on structural work

If your fixer-upper home needs major structural work, hire a structural engineer for $500 to $700 to inspect the home before you put in an offer so you can be confident you’ve uncovered and

Thursday, March 14, 2013

GARDENING: 5 Great Gardening Apps

Let’s just agree there’s an app for everything, and gardening is no exception. I tried out a number of apps for the iPhone (though some of these have Android versions) and picked a few that will help your garden grow.

1. Food Gardening Guide (free for iPhone, iPad, Android): Mother Earth News has produced this delightful and comprehensive guide on how to grow your own food. Chapters are titled “All About Growing (whatever),” and they deliver info on planting, harvesting and storage, saving seeds, pest and disease prevention, growing, and kitchen prep. For instance, did you know you can harvest carrots, store them over the winter, and replant in spring to generate seeds? Now you do.
Food Gardening Guide

2. Landscaper’s Companion ($5.99 iPhone, iPad; $4.99 Android): This is a planting reference for just about anything you can stick into soil — trees, shrubs, annuals,perennials, bulbs, and on and on. For each species, the app provides its growing zone, watering and sun needs, height, width, and bloom time -- plus a pretty picture. You can also scroll through images, pick a plant that sparks your interest, and then research it.
Landscaper’s Companion

3. Garden ID (free for iPhone, iPad): A personal gardening guru that customizes information for your particular slice of heaven. Allow the app to use your current location, and it suggests fruits, vegetables, and herbs that can thrive in your edible garden anytime, and even varieties you can plant now. Select a veggie, and Garden ID gives you planting, growing, and harvesting tips. As a bonus, it also names plants that like to grow together, like corn that shades lettuce, giving it a longer growing season. You'll also learn which plants don’t get along, like cauliflower and tomatoes.
Garden ID

4. Garden Tracker (99 cents for iPhone, $3.99 for iPad): A digital gardening journal that helps you keep track of what you planted where, when you watered and fertilized each plant, and days until harvest. It also gives info on sunrise, moon phases, and USDA Hardiness Zones. It’s a great planning

Wednesday, March 13, 2013

TAXES: Your Top Home Ownership Tax Questions Answered

Which tax benefits do home owners miss? Will you get audited if you take the home office deduction? Find out the answers to these questions and more before Tax Day.
There are a lot of home ownership tax benefits — if you don’t forget to take them. To make sure you get your due, HouseLogic asked tax expert Abe Schneier, a senior technical manager with the American Institute of CPAs, for tax-filing tips.
HouseLogic: What’s the most common home-related tax deduction or credit claimed by home owners?
Abe Schneier: The mortgage interest deduction, [which the NATIONAL ASSOCIATION OF REALTORS® estimates amounts to about $3,000 in tax savings for the average itemizing home owner] and [the deduction for] real property taxes.
HL: Which tax provision do home owners often overlook?
AS: You can deduct mortgage insurance premiums [or PMI] if you were required to get PMI as a condition of receiving financing on your home. Some people will overlook that, although it’s typically disclosed on the 1099 that you receive from the bank, along with all the deductible information you need.
HL note: The PMI deduction has been extended through 2013 and is retroactive for 2012.
[Another area of tax-filing confusion is] whether you’ve correctly treated any points you paid if you refinanced. In a new home purchase, the points can be deducted [in the tax year you paid them]. But typically in a refinancing, you have to amortize and deduct any points you paid over the life of the mortgage, and people tend to forget that after a couple of years.
HL: What’s the No. 1 mistake home owners make when filing their taxes?
AS: Because you receive a statement from the bank with details [such as] how muchmortgage interest you paid over the year, and how much the bank pays on your behalf in real estate taxes, the number of mistakes has dropped.
But if you’re in a state where you pay the real estate taxes on your own — the bank doesn’t handle it for you — [people] make mistakes because sometimes real estate tax bills include other items besides pure real estate taxes. It could be trash collection fees; it could be snow removal fees that the state or county is assessing on the real estate tax bill. Since the items are included in the same bill, home owners sometimes deduct [those fees] regardless of whether the items are actually taxes.
HL: What’s the single most important piece of advice for people filing their taxes as a first-time home owner?
AS: You have to take a look at your closing statement from when you bought the house. It’s commonly called the HUD-1 form and you receive it at the closing. Occasionally, there are fees such as prepaid taxes or interest at closing that can be deductible.
HL: What tax advice do you have for someone who’s owned their home for 10 or 20 years?
AS: If you’ve been a longtime home owner and you’ve been through refinancings, you have to be careful about how much interest you’ve deducted, especially if you have a home equity loan or equity line. A lot of people who’ve refinanced have sizable equity lines. The maximum outstanding home equity debt that’s deductible is $100,000; the maximum deductible amount of interest paid on mortgage debt is $1 million.
HL: What home improvement-related records should home owners keep?
AS: Absolutely keep your receipts for couple of reasons:
1. You want to make sure — if there are any warranties attached to the work that was done — that you maintain those records and you have something to go back to the person who did the work in case something doesn’t function properly.
2. If you’ve added value to the home — you’ve added a deck, you’ve added a room, you’ve added something new to house — you’ll need to know what the gain is on that capital improvement when you sell the house.
HL note: Tax rules let you add capital improvement expenses to the cost basis of your home, and a higher cost basis lowers the total profit or capital gain you’re required to pay taxes on. Of course, most home owners are exempted from taxes on the first $500,000 in profit for joint filers ($250,000 for single filers). So it doesn't apply to too many people.
HL: How do I tell the difference between a capital improvement and a repair?
AS: Typically a repair is [done] to allow an item, like a home furnace or air conditioner, to continue. But if you were to replace the heating unit, that’s not a repair.
HL: Does taking any home-related tax benefits, such as the home office deduction, make a taxpayer more likely to be audited?
AS: Only if numbers look out of the ordinary — for instance, if one year you were writing off $20,000 in mortgage interest debt and the next year you’re writing off $100,000 in mortgage interest. Taking the home office deduction in and of itself doesn’t usually generate an audit. However, if you claim nominal income and significantly higher expenses in an effort to create artificial losses, the IRS will see that there’s something else going on there.
HL: Once filing season is over, when should home owners start thinking about next year's taxes?
AS: Well, hopefully, when you visit your CPA to give information about or pick up [this year's] tax return, your CPA has spoken with you about your plans for [next year]:
  • If any major improvements are scheduled
  • If you’re planning on moving
  • How to organize any expenditures for fixing up the home before sale
If you’re planning to do any of those things, talk with your CPA so that you’re prepared with documentation and so that the [tax pro] can help minimize your tax situation.

Tuesday, March 12, 2013

MORTGAGE & FINANCE Mortgage applications leap as rates fall

The number of mortgage applications for the week ending March 6, 2013  increased 14.8 percent on a seasonally adjusted basis from one week earlier, the Mortgage Bankers Association announced today. On an unadjusted basis, the Index increased 15 percent compared with the previous week.
The Refinance Index increased 15 percent from the previous week to its highest level since mid-January. The seasonally adjusted Purchase Index increased 15 percent from one week earlier.  And unadjusted, the Purchase Index increased 18 percent compared with the previous week and was 17 percent higher than the same week one year ago.
The refinance share of mortgage activity held at 77 percent of total applications. The adjustable-rate mortgage share of activity also held at 4 percent of total applications.
Interest rates for 30-year fixed-rate loans with conforming balances, decreased to 3.70 percent from 3.77 percent. Interest rates for jumbo loans also decreased to 3.80 percent from 3.93 percent. Rates for Federal Housing Administration-backed 30-year fixed-rate loans decreased to 3.47 percent from 3.54 percent and 15-year fixed-rate mortgages decreased to 2.96 percent from 3.03 percent, the lowest contract rate since the week ending January 25, 2013.

Monday, March 11, 2013

BUYING A HOME: The 7 Top Home-Buying Mistakes You Should Avoid

Insanely low mortgage interest rates—and the knowledge that they’ll eventually go up again—make a lot of people feel like it’s time to buy a house right now. And maybe it is … if you go about it the right way.
Buying a home is a major purchase (to put it mildly), and there are plenty of ways to trip up. But don’t worry—we’ve got your primer right here.
1. Don’t … buy a house if you’re planning to move again soon.
If you’re a renter, it can be frustrating to write that rent check every month and have no home equity to show for it at the end of the year. But if you aren’t certain that you’re going to stay put for a few years, it’s probably not the right time to buy—equity or no equity. “Some people tend to buy a house knowing that they’re going to be relocating after a few years,” says LearnVest Planning Services certified financial planner Ellen Derrick. “Don’t buy property and automatically assume that you’ll be able to rent it out or sell it when you move.”
What to do: If you aren’t in an area with a strong rental market that would allow you to cover the mortgage on your home if you move elsewhere, then stick with a rental for now.
2. Don’t … bust your budget.
Shopping for houses can make you a little giddy. Look at this one! And this one! For a little bit more, you could get granite countertops, plus an office nook! You’re dealing with such large numbers when you’re browsing real estate that it might not seem like such a huge deal to stretch another $10,000 or $15,000 to get the home you really love. But that’s not a game you want to play. “People look at the top end of their affordable monthly payment, and they don’t really think about what happens if their income goes down or they have to change jobs,” says Derrick. (If you’re wondering what percent of your budget should go toward housing, check outthe 50/20/30 Rule.)
What to do: Get preapproved for a mortgage. Not only will this prove that you’re serious to your realtor and to home sellers, but it will also give you an idea of your upper limit. “Remember that the lender is there to make you a loan, and the more money you borrow, the better it is for them,” Derrick says. “They want you to max out. I would take the pre-approval number and cut about 20% off.”
3. Don’t … forget about added costs.
Buying a home isn’t just a matter of replacing a rental payment with a mortgage payment. There are also maintenance costs, utilities (which will likely cost more) and property taxes. “People tend to forget about both property taxes and insurance when they’re thinking about how much house they can afford,” Derrick says. “The actual monthly payment could end up being well out of your price range when you figure those things in.”
What to do: Ask the homeowners about their average utility costs and property taxes, get a homeowner’s insurance quote and budget about one percent of the home’s purchase price for annual maintenance. Then run the numbers to see if you can afford the home. (And don’t forget about closing costs. The average cost to close on a $200,000 mortgage is about $3,754, according to, but your broker should be able to give you an estimate.)
4. Don’t … put down a nominal down payment.
Even with lenders tightening requirements to qualify for a mortgage, it’s still possible to buy a house with as little as 3% down. That’s not necessarily a bad thing, but it does mean that you’ll have very little equity in your home when you first move into it. So if something comes up, and you have to sell, you’ll end up owing more than you can get out of the sale once you factor in closing costs. It puts you in a precarious position. Even if that doesn’t happen, you’ll have to pay private mortgage insurance (PMI) every month until your equity in the home exceeds the 20% mark—and that could take years. (If you can’t put 20% down, your loan is technically considered risky—PMI is insurance that protects the bank if you default on your mortgage.)
What to do: Consider whether it’s prudent to buy a home now if you’re nowhere near having a 20% down payment. Yes, interest rates are low, but if you have to borrow thousands more because you don’t really have a great nest egg, it may be a wash in the end. You could avoid years of PMI, and owe a lower monthly nut, if you spend a year or two saving aggressively toward a down payment.
5. Don’t … neglect to get everything in writing.
You wouldn’t be the first home buyer to assume that the kitchen appliances come with the deal—only to discover an appliance-free kitchen on the final walk-through. “I’ve heard of buyers going ten rounds because the seller took the drapes down, and the buyer expected them to be left,” Derrick says. “I’ve seen all kinds of deals blow up over stuff like that.” Common points of contention: window treatments, hot tubs, light fixtures, shower and bath fixtures, ceiling fans and big appliances, such as washers and dryers. Replacing something you thought was staying could cost hundreds, so it’s not a small thing.
What to do: Go through your contract with a fine-toothed comb. If the item that you expected to be there isn’t, ask about it—and get it added in writing.
6. Don’t … skip the inspection.
Even if the home looks like it’s in winning shape, it would be foolish to skip a thorough once-over by a professional. “People tend to think that the inspection and the appraisal are the same thing,” Derrick says. “They’re not.” An inspector is there to spot the things you don’t know to look for, like if the chimney is in great shape or whether those little cracks in the foundation are a big deal. He’ll look for signs of water damage and check the insulation in the attic. If there are conditions that will need repair, you may be able to negotiate with the seller to drop the price. In other words, the inspection is worth every penny.
What to do: Get recommendations from your realtor or friends who’ve bought in the area, and have a professional inspection done before you close on the house.
7. Don’t … think a brand-new home entitles you to brand-new everything.
“A lot of people buy this nice house, and then look at the ratty car sitting in the driveway and think, ‘We better buy a new car,’” Derrick says. Or you suddenly have a formal living room but no formal living room furniture—so you buy some! It’s a mistake to feel like you suddenly have to upgrade all of your stuff to match the shiny new home. “You don’t want to get yourself into a pile of credit card debt just so you can keep up with the house,” Derrick says.
What to do: Live in your house for a while, so you can figure out what you really need. Then save up for it!