How do I find a home inspector?
Begin by only hiring one who is qualified and experienced, someone who belongs to an industry trade group, such as the American Society of Home Inspectors (ASHI). This organization has developed formal inspection guidelines and a professional code of ethics for its members. Also, membership in ASHI is not automatic; members must have demonstrated field experience and technical knowledge about structures and their various systems.
Should I hire a home inspector?
By all means. Buying a home without getting expert advice is risky. Once a home inspector uncovers major plumbing and electrical problems, for example, you may decide you do not want to spend several thousand dollars on repairs.
Always include an inspection clause in your written offer. This clause gives you an “out” from buying if serious problems are detected. It also gives you another chance to negotiate the purchase price if repairs are needed. The clause can even specify that the sellers fix any problem that is uncovered before you settle, or close, on the home.
You also may want to consider hiring experts to inspect the home for a number of health-related risks like radon gas, asbestos, or possible problems with the water or waste disposal system.
What is a Home Inspector?
A home inspector is a paid professional – often a contractor or an engineer – who checks the safety of a home. Home inspectors search for defects or other problems that could become your worst nightmare later on. They focus particularly on the home’s structure, construction, and mechanical systems.
It is not the inspector’s job to determine whether you are getting good value for your money. He does not establish value, only whether the home might collapse in a storm or if the roof might cave in.
A home inspection typically takes place after a purchase contract between the buyer and seller has been signed.
Should I save and wait to purchase my dream home or buy a starter home now?
It can take a long time to save for that perfect dream home. Meanwhile, the market has been flooded with some of the most favorable mortgage interest rates in years. Low rates make housing more affordable, which is why so many buyers have jumped on the home buying bandwagon.
Home-price appreciation has also been strong, making very solid gains in communities across the country. In fact, home prices are expected to increase 2.5 percent to 3 percent annually over the next five years.
If you purchase a starter home today, you can potentially begin to build value that can lead to the purchase of a larger, or more desirable, trade-up home in the future.
How do you decide whether to add on to an existing home or purchase a new one?
There are a few things to consider, including cost, individual needs, and what will add value down the road. Also important: your emotional attachment to the existing home.
As designer and builder Philip S. Wenz, the author of Adding to a House: Planning, Design & Construction, notes, an addition is much cheaper than building a new home and can offer a “new” home without the heartache of moving.
- Can you finance the home improvement with your own cash or will you need a loan?
- How much equity is in the property? A fair amount will make it that much easier to get a loan for home improvements.
- Is it feasible to expand the current space for an addition?
- What is permissible under local zoning and building laws? Despite your deep yearning for a new sunroom or garage, you will need to know if your town or city will allow such improvements.
- Are there affordable properties for sale that would satisfy your changing housing needs?
Explore your options. Make sure your decision is one you can live with – either under the same roof or under a different one.
What are closing costs?
Closing, or settlement, costs are expenses over and above the price of the property. Both the buyer and seller incur some of these expenses when transferring ownership of a property. Who actually pays, however, often depends on local custom and what the buyer or seller negotiates. Closing costs normally include title insurance, loan points, escrow or closing day charges, property taxes, and document fees. The lender provides an estimate of closing costs for prospective homebuyers.
How should I prepare for my closing day?
The following to-do list can help save you a few headaches and keep the closing on track:
- Keep extra money in your account. Something unexpected can pop up during the closing that will require more money out of your pocket. Take your checkbook. Even better, find out how much you will need to pay and write a certified check for the total amount.
- Take your loan commitment letter. Use it to verify loan approval in case of a mistake or misunderstanding with the lender.
- Take your contract to purchase. Pull it out if something a little suspicious comes up.
- Take your personal ID. A driver’s license or other personal identification will do.
- Do a before-closing inspection. It is always a good idea, when possible, to walk through the property to make a list of any problems.
- Utilities. Arrange in advance to have the water and electric meters read on closing day and the service switched to your name to prevent interrupted service. The same applies for the fuel tank.
Is it possible to save on closing costs?
Certainly, once you get past the sticker shock. Closing costs are expensive. They can average between 5 to 6 percent of the total home purchase price. But here are a few ways to save:
- Haggle with the seller. He may pay all or part of the closing costs.
- Nab a no-point loan. You may have to pay a higher interest rate, but if you are strapped for cash and can qualify for a higher interest rate, you may find this type of loan can significantly reduce your closing costs.
- Grab a no-fee loan. Although the fee is usually wrapped into a higher rate loan, it does offer one advantage – you get to save on the amount of cash you would need up-front.
- Secure seller financing. These loans typically avoid the traditional fees or charges imposed by lenders.
- Shop ‘til you drop for the best deal. Every lender has its own unique fee structure; you are bound to find one that works for you.
What are appraised value and market value?
A certified appraiser who is trained to provide the estimated value of a home determines its appraised value. The appraised value is based on comparable sales, the condition of the property, and several other factors.
Market value is the price the house will bring at a given point in time, once the buyer and seller establish a “meeting of the minds” on price.
How do you determine how much a home is worth?
The short answer: a home is ultimately worth what is paid for it. Everything else is really an estimate of value. Take, for example, a hot seller’s market when demand for housing is high but the inventory of available homes for sale is low. During this time, homes can sell above and beyond the asking price as buyers bid up the price. The fair market value, or worth, is established when “a meeting of the minds” between the buyer and the seller takes place.
Are there standard ways to determine how much a home is worth?
Yes. A comparative market analysis and an appraisal are the two most common and reliable ways to determine a home’s value.
Your real estate agent can provide a comparative market analysis, an informal estimate of value based on the recent selling price of similar neighborhood properties. Reviewing comparable homes that have sold within the past year along with the listing, or asking, price on current homes for sale should prevent you from overpaying.
A certified appraiser can provide an appraisal of a home. After visiting the home to check such things as the number of rooms, improvements, size and square footage, construction quality, and the condition of the neighborhood, the appraiser then reviews recent comparable sales to determine the estimated value of the home.
Lenders normally require an appraisal – which runs between $200 to $300 – before they will approve a mortgage loan. This protects the lender by ensuring the home is worth the money you want to borrow.
You also can check recent sales in public records, through private firms, and on the Internet to help you determine a home’s potential worth.
How do I respond to a low-ball offer?
Let your agent know it is too low to warrant a counteroffer and that you are willing to negotiate but only once a more reasonable offer is made. Ask the agent if the buyer was shown comparable market values of similar homes that have recently sold in your area; and ask if the buyer was ever properly qualified. You do not have to settle for less if you are realistic about your chances of getting more.
Do I have to consider contingencies made by the buyer?
You can reject, accept, or counter any offer that is presented to you. Most offers include contingencies, which protect the buyer in case something goes wrong.
The two most common contingencies deal with financing, which makes the sale dependent on the buyer’s ability to obtain a loan commitment from a lender within a stated time period, and an inspection, which allows the buyer to have a professional inspect the property to their satisfaction.
There really is no reason not to consider these contingencies because they are quite reasonable and standard.
However, think twice about a contingency that is predicated on you making expensive home repairs, such as a kitchen renovation. Now, if the roof is caving in, that is an entirely different story. You may need to spend money to replace it or lower the asking price of the home.
What should I do to prepare my home for sale?
Start by finding out its worth. Contact a real estate agent for a comparative market analysis, an informal estimate of value based on the recent selling price of similar neighborhood properties. Or get a certified appraiser to provide an appraisal.
Next, get busy working on the home’s appearance. You want to make sure it is in the best condition possible for showing to prospective buyers so that you can get top dollar. This means fixing or sprucing up any trouble spots that could deter a buyer, such as squeaky doors, a leaky roof, dirty carpet and walls, and broken windows.
The “curb appeal” of your home is extremely important. In fact, it is the first impression that buyers form of your property as they drive or walk up. So make sure the lawn is pristine – the grass cut, debris removed, garden beds free of weeds, and hedges trimmed.
The trick is not to overspend on pre-sale repairs and fix-ups, especially if there are few homes on the market but many buyers competing for them. On the other hand, making such repairs may be the only way to sell your home in a down market.
Should I sell my home first or wait until I have bought another home?
This is a tough decision, but the answer will depend on your personal situation, as well as the condition of the local housing market.
If you put your home on the market first, you may have to scramble to find another one before settlement, which could cause you to buy a home that does not meet all your requirements. If you cannot find another home, you may need to move twice, temporarily staying with relatives or in a hotel.
On the other hand, if you make an offer to buy first, you may be tempted to sell your existing home quickly, even at a lower price.
The advantage of buying first is you can shop carefully for the right home and feel comfortable with your decision before putting the existing home on the market.
On the flip side, the advantage of selling your existing home first is that it maximizes your negotiating position because you are under no pressure to sell quickly. It also eliminates the need to carry two mortgages at once.
Talk with your agent for advice. Discuss the pros and of each and whether certain contingencies written into the contract can ease some of the pressures.
How can I get a quick sale, particularly in a slow market?
One of the most important things to consider is price. You may want to reduce the price of your home or, at the very beginning, set it at a low price that will generate more buyer interest.
Cash is often an incentive, both for the buyer as well as the agent. You could offer the buyer a $1,000 to $2,000 decorating rebate upon closing the deal. It is also not uncommon to offer the selling agent a $500 bonus. However, some brokers – who supervise agents and run real estate offices – may prohibit such incentives, as do some Realtor boards. Check to find out.
Other common incentives: paying for the property inspection and warranty policy and getting your home preliminarily approved for FHA and VA loans, thereby making it more attractive to a larger number of buyers. Contact a lender who writes FHA-insured and VA-guaranteed loans.
How long do bankruptcies and foreclosure stay on a credit report?
They can remain on your credit record for seven to 10 years.
However, a borrower who has worked hard to reestablish good credit may be shown some leniency by the lender. And the circumstances surrounding the bankruptcy may also influence a lender’s decision. For example, if you went bankrupt because you were laid off from your job, the lender may be more sympathetic. If, however, you went through bankruptcy because you overextended personal credit lines and lived beyond your means, it is unlikely the lender will readily give you a break.
Can a home be sold for less than its mortgage?
Sometimes. But it is a complicated process and a lot will depend on the lender. This process is called a “short sale,” which occurs when a lender agrees to write off the portion of a mortgage that’s higher than the value of a home. But, usually, a buyer must be willing to purchase the property first.
A short sale may be more complicated if the loan has been sold in the secondary market.
Then the lender will need permission from Freddie Mac or Fannie Mae, the two major secondary-market players.
If the loan was a low down payment mortgage with private mortgage insurance, the lender also will need to involve the mortgage insurance company that insured the low down payment loan.
The short sale can keep the homeowner from landing in bankruptcy or foreclosure. But it is not an easy procedure to approve, and it involves as much, if not more, paperwork than an original mortgage application.
Instead of proving your credit worthiness and financial stability, you must prove you are broke. And any remaining difference between your home’s value and the balance on your mortgage is considered a forgiveness of debt, which usually means it is taxable income.
Can I deduct improvements made to my home?
Yes, but only after you have sold it because improvements add to the basis of your home. Your gain is defined as your home’s selling price, minus deductible closing costs, minus your basis. The basis is the original purchase price of the home, plus improvements, less any depreciation.
The IRS defines improvements as those items that “add to the value of your home, prolong its useful life, or adapt it to new uses” – such as putting in new plumbing or wiring or adding another bathroom.
Are victims whose homes are damaged by natural disasters granted any tax relief?
Damage, destruction, or loss of property from fires, floods, earthquakes and other disasters are deductible from both state and federal income taxes.
If destruction is caused by an event deemed a federal disaster by the president, homeowners can deduct their losses in the tax year before the event happened by filing an amended return. This helps to dramatically cut the wait for tax refund money that can immediately be used to make repairs or pay for living expenses.
Are special tax breaks available for historic rehabilitation?
Certified historic structures now enjoy a 20 percent investment tax credit for qualified rehabilitation expenses, if they are income producing properties. A historic structure is one listed in the National Register of Historic Places or so designated by an appropriate state or local historic district that is certified by the government. The tax code does not allow deductions for the demolition or significant alteration of a historic structure.
For more information, contact the National Trust for Historic Preservation at (202) 588-6000, or visit its website at www.nationaltrust.org.
Many states offer tax incentives, reductions and abatement programs for owners of residential historic homes. These programs are described on the National Trust’s website.
How can I protect my home from creditors?
Check with your state. It may provide special protection through the filing of a homestead exemption, which exempts some or all of the value of your equity in the homestead – or home that you live in and the land on which it sits – from claims of unsecured creditors.
Whether to file a homestead exemption will depend on your situation. Contact your county recorder’s office for details.
If faced with foreclosure, what are my options?
Talk with your lender immediately. The lender may be able to arrange a repayment plan or the temporary reduction or suspension of your payment, particularly if your income has dropped substantially or expenses have shot up beyond your control.
You also may be able to refinance the debt or extend the term of your mortgage loan. In almost every case, you will likely be able to work out some kind of deal that will avert foreclosure.
If you have mortgage insurance, the insurer may also be interested in helping you. The company can temporarily pay the mortgage until you get back on your feet and are able to repay their “loan.”
If your money problems are long term, the lender may suggest that you sell the property, which will allow you to avoid foreclosure and protect your credit record.
As a last resort, you could consider a deed-in-lieu of foreclosure. This is where you voluntarily “give back” your property to the lender. While this will not save your house, it is not as damaging to your credit rating as a foreclosure
Are there different types of contractors?
Home improvement professionals vary. Who you hire also will depend largely on the size and complexity of your project. What follows is a brief description of the different contractors who do work for homeowners:
- General contractors – they manage all facets of the project, including hiring and supervising subcontractors, obtaining building permits, scheduling inspections, and working with architects and designers.
- Specialty contractors – these are the folks who install products, such as cabinets, bathroom fixtures, and bookshelves.
- Architects – they design homes, additions, and major renovations.
- Design/build contractors – they offer one-stop service and will see your project through from start to finish.
What is a variance?
It is a request made to your local jurisdiction to deviate from current zoning requirements. If granted, a variance will allow you to use your land in a way that is normally not permitted by the zoning ordinance.
However, do not view a variance as something that changes the zoning law because it does not. Rather it waives a certain requirement of the zoning ordinance. For example, it may allow the owner of an odd-shaped lot to reduce slightly the setback requirements in order to accommodate a building, or permit the building of a gazebo in the back yard.
What do zoning regulations do?
Zoning is the government’s way of controlling the physical development of land and the kinds of uses to which each individual property may be put.
Zoning regulations establish how the land can be used, either for residential, industrial, commercial, or recreational purposes – although they also can allow for more than one use in a given jurisdiction.
Designed to protect you, your neighbors, and the community from undesirable, or inappropriate, land uses and/or construction, zoning laws in many communities can be very rigid and inflexible.
On the other hand, they can protect your property value and give you a piece of mind. This is particularly true in instances where the community debates whether to locate a prison in your neighborhood or a neighbor illegally builds a second story onto his home that blocks your view of the lake or mountains.
Before you begin any remodeling jobs, determine how your local zoning laws might affect your project.
Should I always get a permit before making home improvements?
To save both time and money, some people avoid getting building permits. But most cities require them. Besides ensuring safety during construction – housing inspectors sometimes stop by to check on the progress of projects at key points – they are also a source of revenue.
Cities charge a fee when a building permit is issued. Also, work done with a building permit can result in an increase in the homeowners’ property taxes because, in general, a home improvement increases the assessed value of the property.
Permits are usually required when any structural work is planned or the basic living space of a home is altered. They generally cover new construction, repairs, alterations, demolition, and additions to a structure. Some jurisdictions require the permit to be posted in a visible spot on the premises while the work is being done.
Besides structural changes, permits also may be needed to cover the installation of foundations for tanks and equipment, as well as the construction or demolition of ducts, sprinkler systems, or standpipe systems.
By law, all buildings must have a building permit and a certificate of occupancy before they can be used.
How do building codes work?
Building codes set minimum public-safety standards for such things as building design, construction, use and occupancy, and maintenance. The codes are established and enforced by local politicians and government officials, who also tend to modify them constantly. The codes are usually enforced by denying permits, occupancy certificates, and by imposing fines.
While codes vary from one state, county, city, and town to the next, specialized codes generally exist for plumbing, electricity, and fire. Each usually involves separate inspections and inspectors.
There are building codes for most remodeling jobs. So if you have done significant remodeling, make sure you save proof of the permits involved in the project. There is a good chance potential buyers may request them. Failure to obtain the appropriate permits before you undertake a project could later result in fines or other serious consequences, such as having a structure ordered to be torn down because it was constructed improperly.
How can I find out how my property is zoned?
Zoning ordinances and maps are a matter of public record. Visit your local zoning office, city hall, or some other local planning board and get a copy of your local ordinance.
In some areas, if you have a legal description of the property (name, address, tax map, and parcel number), you can call the zoning office or city hall, or even e-mail your request for information.
Some communities also have their zoning maps and ordinances online and in local libraries.