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Top 10 Myths That Trip Up First-Time Home Buyers

by Lorna Calder


If you’re thinking about buying a home, you’ve probably received your share of advice from family and friends. Add to that the constant stream of TV shows, news segments, and social media posts that over-simplify the home buying process for easy entertainment.

With so much information to sift through, it can be tough to distinguish fact from fiction. That’s why we’re revealing the truth behind some of the most common home buyer myths and misconceptions.

Buying a home is a big decision, but it doesn’t have to be a scary one. If you arm yourself with knowledge and a qualified team of support professionals, you’ll be well equipped to make the right choices for your family and financial future.

 

DON’T FALL FOR THESE COMMON HOME BUYER MYTHS

 

Myth #1: You need a 20% down payment.

Plenty of buyers are purchasing homes with down payments that are much less than 20% of the total cost of the property. Today, you can buy a home with as little as 3-5% down.

There are multiple programs out there that allow you to have a lower down payment, and a lender or mortgage broker can talk you through which option is the best for you. Since you’re putting less money down, you’re a riskier borrower to your lender than people who put down a full 20%. Because of this, you will most likely need to pay mortgage insurance as part of your monthly payment.

Myth #2: Real estate agents are expensive.

Your agent is with you every step of the way throughout your home buying journey, and he or she spends countless hours working on your behalf. It sounds like having an agent is expensive, right? Well, not for you. Buyers usually don’t pay a real estate agent’s commission. Your agent’s fee is paid for at closing by the seller of the home you’re buying.1 The seller knows to factor this cost into the property’s total purchase price.

Myth #3: Don’t call a real estate agent until you're ready to buy.

The earlier you bring in an agent to help with the purchasing process, the better. Even if you’re in the very early stages of casually browsing Zillow, a real estate professional can be a huge help.

They can create a search for you in the Multiple Listing Service (MLS), so you get notifications for every house that meets your criteria as soon as it hits the market. The MLS is typically more up-to-date than popular home search sites like Zillow and Trulia. Setting up a search a few months before you’re considering buying gives you a good idea of what’s out there in your town that’s in your budget. Reviewing the MLS and speaking with an agent as soon as possible can help you set realistic expectations for when you actually start the house hunting process.


Myth #4: Fixer-uppers are more budget friendly.

We’ve all watched the shows on HGTV that encourage people to go after fixer-uppers because they’re more affordable and allow buyers to eventually renovate the home to include everything on their wishlist. But, this isn’t always the case.


Sometimes, homes that need a lot of work also require a lot of money. Big renovations, like add-ons, a total kitchen remodel, or installing a pool, take a lot longer than it looks on TV. If you’re really interested in a fixer-upper, ask your agent to show you a mix of newer homes and older homes. If you fall in love with an older home that needs a lot of work, get some quotes from contractors before you buy so you know the real cost of the renovations and see if you can work them into your budget.

Myth #5: Your only upfront cost is your down payment.

Your down payment is big, but it isn’t the only money you’ll spend during the home buying process. At closing, you’ll pay your down payment, but you’ll also bring closing costs to the table. Closing costs are typically anywhere from 2-4% of the total purchase price of the home.2 This amount includes the cost for items like homeowners insurance, title fees, and more.

You’ll also need to pay for an inspection before closing, which usually costs a few hundred dollars. This price will be higher or lower based on the size of your new property. Your lender will also require an appraisal. An appraiser will come in and inspect the home to determine how much it’s worth. Depending on your lender, you may have to pay this when the appraisal is conducted or it might be rolled into your closing costs.

Myth #6: You need a high credit score to buy a house.

You don’t need perfect credit to buy the perfect home. There are loans out there that buyers with lower credit scores can qualify for. These are good options for people who have had credit issues in the past, but some of them come with additional fees you will need to pay. Speak to a few local lenders or mortgage brokers to talk through which options might be best for you.


Myth #7: You can't qualify for a mortgage if you're still paying off student loans.

While some buyers may feel more comfortable paying off their existing debts before taking the leap into homeownership, it’s not a requirement. When you’re applying for a mortgage, the lender takes a close look at your debt-to-income ratio.3 If you want to calculate this on your own, add up all of your monthly debt payments and divide those by your monthly income. When you’re lender does this, they’re trying to make sure that you will be able to afford your monthly mortgage payments along with your other existing payments. If your income is high enough to allow you to make all of these payments each month, having a student loan will most likely not stop you from getting a mortgage.

Myth #8: You should base your budget on what your lender approves.

How much house you qualify for and how much you can afford are two totally different numbers. When you prequalify for a mortgage, your lender will look at your income, debt, assets, credit score, and financial history to determine how much money you might qualify for.4 For some people, this number might be much higher than you thought because lenders tend to approve for the highest amount they think you can afford. But that doesn’t mean that’s how much you should borrow.

Instead, figure out how much house you can actually afford. An online mortgage calculator can be a good first step in determining this number. We recommend thinking about what you want your monthly payment to be as a starting point. And remember to include your principal, interest, taxes, and, insurance. You should also think about ownership expenses that aren’t part of your monthly payment, like HOA dues and maintenance.


Myth #9: It's all about location.

You’ve heard the phrase. Location, location, location is basically the real estate industry’s motto, but we’ll let you in on a little known secret: It’s not always true. Yes, location is great to consider when it comes to school districts and commute times, but you also need to think about how the home will function for you and/or your family’s lifestyle. If a family of five is choosing between a one bedroom condo in the bustling city center and a 4-bedroom home out in the suburbs, the latter is probably the best, most functional choice for them. Also, by buying in a less sought after neighborhood, your property taxes will most likely be much lower!

Obviously, you might still want to choose an area with great resale potential, and this is something that your agent can speak to you about. They’re an expert in your city and are constantly monitoring buying and selling trends.

Myth #10: If you look hard enough, you'll find a home that checks every box on your wishlist.

You’ve seen that famous house hunting show. And while we have our suspicions about how real it is, the one thing they get right is that almost every buyer needs to compromise on something. Yes, the perfect house that meets every item on your wishlist is probably out there, but it’s also probably double or triple your budget.

A long wishlist can be a great starting point for figuring out what you want and don’t want, but we recommend narrowing that wishlist down to the top five things that are important to you in order of priority. We also recommend noting on your wishlist what your absolute deal breakers are, like “must have a yard for our dog,” and noting what you can live without, like “heated bathroom floors.”

This is a great list to discuss when you first start talking to an agent. A good real estate agent will be able to look at your list and find properties that might work for you. By coming to that first meeting with realistic expectations and knowledge about home buying rather than a bunch of myths heard here and there, you’ll be able to start the process off on the right foot and be in your new house in no time.

WE’RE HERE TO HELP

Whether you’re a first-time buyer or a seasoned homeowner, there’s no reason to go through the home buying process without an advocate on your side. We’re here to answer your questions and do the hard work for you, so you can spend your time dreaming about your new home. Call us today to schedule a free, no-obligation consultation.

Get a FREE copy of our Home Buyer’s Guide to Getting Mortgage Ready

Now that we’ve cleared up these common homebuyer myths, find out if you know the steps you should take to prepare financially before you apply for a mortgage. Contact us to request a complimentary copy of our “Home Buyer’s Guide to Getting Mortgage Ready.”


Sources:

  1. Realtor.com - https://www.realtor.com/advice/finance/realtor-fees-closing-costs/
  2. The Balance - https://www.thebalance.com/buyer-s-closing-costs-1798422
  3. StudentLoanHero - https://studentloanhero.com/featured/student-loans-buying-house/
  4. Zillow - https://www.zillow.com/mortgage-learning/pre-qualification-vs-pre-approval

It's Time to File for Your Homestead Exemption!

by Lorna Calder

Good morning to all, I have some great news for those of you who purchased a home in 2015! You are now eligible for a Homestead Exemption.

 

Basically a Homestead Exemption helps you save on taxes on your home. An exemption removes part of the value of your property from taxation and lowers your taxes. For example, if your home is valued at $100,000 and you qualify for a $20,000 exemption, you pay taxes on your home as if it was worth only $80,000.

 

Harris County – Residential Homestead Exemption Form

Harris County – Disabled Veteran or Survivor Exemption Form

Montgomery County - Residential Homestead Exemption Form

Montgomery County - Disabled Veteran or Survivor Exemption Form

 

What Kinds of Homestead Exemptions Are Available for Harris County?

 

§  School taxes — all homeowners.  If you qualify for the homestead exemption, you will receive at least a $15,000 homestead exemption on the value of your home for school district taxes.

 

§  County taxes — all homeowners.  Harris County currently provides a 20% optional homestead exemption to all homeowners. This means, for example, that if your home is valued at $100,000, the exemption will reduce its taxable value for Harris County taxes by $20,000 to $80,000.

 

§  Optional exemptions — all homeowners.  Any taxing unit, including a school district, city, county or special district, may offer an exemption for up to 20% of your home’s value. The amount of an optional exemption can’t be less than $5,000, no matter what the percentage is. For example, if your home is valued at $20,000 and your city offers a 20% optional exemption, your exemption is $5,000, even though 20% of $20,000 is just $4,000.The governing body of each taxing unit decides whether it will offer the exemption and at what percentage. This percentage exemption is added to any other homestead exemption for which the applicant qualifies.

 

Application Deadlines for HARRIS COUNTY

 

You should file your regular residential homestead exemption application between January 1 and April 30. Early applications will not be accepted. If your application is postmarked by April 30, this will allow the district time to process it before your tax statement comes out in the fall. If you miss the April 30th deadline you can still apply:

For a general exemption: up to one year after the date taxes became delinquent for the year (usually February 1 of the year following the tax year).

For an over-65 or disabled person: if you turn 65, become totally disabled, or acquire a property during the year, you can apply and have the over-65 or disability exemption activated for that year. The deadline to apply for an over-65 or disabled person’s exemption for the year in which you qualify is the first anniversary of the date you qualify. In other words, you have one year from the date you qualify to apply. For example:

 

1.      If you are already qualified and you purchase a different home, you have one year from the date you occupy the new home to apply.

2.     If you turn 65 during the year, you have until your 66th birthday to apply for the year in which you turn 65.

3.     If you become disabled during the year, you have one year from the date you became disabled to apply.

 

Otherwise, the deadline for applying for the over-65 or disability exemption is the same as the deadline given above.

 

For more information regarding Harris County Homestead Exemptions – Visit HCAD

 

 

If you have purchased in Montgomery County, please visit click this link to MCAD, for further information on available Exemptions and Deadlines

 

You can also call our Christina Terry at our office, 281-348-3081, for more information!

 

All information has been pulled from the following sources;

http://www.hcad.org/Resources/Exemptions/Homeowners.asp

http://www.mcad-tx.org/html/homestead.html

First-Time Buyers: How to Turn the Largest Investment You'll Ever Make Into the Best Decision of Your Life 

By Keith Loria

Purchasing a new home can be a huge undertaking, especially if you are in the market for your first home. That’s why it’s important to have an experienced real estate agent by your side to guide you along the way.

Almost every first-time buyer feels hopelessly confused in the beginning, but it’s important to remember that you hold the power and you shouldn’t feel forced into making a decision you are not comfortable with.

“In the world of real estate sales, you are the most important person in the entire process,” said John Adams, who has written six books on the process of buying and selling a home. “It’s easy to think everyone else carries more weight than you. The seller owns the house and has all the money. The agent talks fast and has an answer for everything. The lender may decline your loan application, and on and on. But the truth is that you, the buyer, are the one person in this transaction who makes it all happen. If you decide not to buy, the entire process comes to a grinding halt.”

According to the National Association of REALTORS®, the number of first-time home buyers rose to a record high 50% of all home sales last year, which can be greatly attributed to the first-time buyer tax credit which began in 2009.

For those looking to continue the upward trend in 2011, first-time buyers should consider a number of things to make the buying process as smooth a transition as possible.

First-time buyers need to look at their financial situation and crunch the numbers to see if now is the right time to buy. Chances are, the numbers they see today will be the best they will see for some time, which is why so many are considering homeownership.

Still, understanding the money that goes into a home purchase is important. The biggest mistake new buyers make is underestimating the costs of buying a house and maintaining it over time.

First-time buyers need to understand that it takes more than just the downpayment to purchase a home. When buying a home, one needs to consider the closing costs and future expenses that will come with the new property.

“As renters, people are accustomed to paying rent and basic utilities. As homeowners, you’ll also pay for water, sewer and trash collection,” said Ilyce Glink, author of “100 Questions Every First-Time Home Buyer Should Ask.” “Then there are property taxes, homeowners insurance and homeowners association dues, plus yard care, snow removal and other expenses unique to your location.”

Many experts agree that homeowners should have 1-3% of their homes’ purchase price in savings for improvements and surprise expenses. Mortgage experts also say it’s wise to have at least six mortgage payments in the bank after closing.

While those numbers may not be feasible for everyone, if you are spending above your means on a new home, you may quickly find yourself in financial trouble.

Inspections are also important for the first-time buyer, as they list repairs that will be needed for the home. A buyer should put together a short-term and long-term plan based on the inspection so they know how much money they will need in the months and years ahead.

Buying a home is one of the largest investments you’ll make and if it’s done wisely, it can be one of the best decisions of your life. Your real estate agent will help you do it right by providing you with a realistic price point for your home purchase and a clear understanding of monthly financial requirements.

For more information on purchasing your first home, contact our office today.

Lorna Calder is a RE/MAX REALTOR® helping home buyers and sellers in Kingwood, Atascocita, Humble, The Woodlands and Houston TX.

Licensed content reprinted with permission.

RE/MAX Agents know the Tax Credit

by Lorna Calder

Do you want more information on the homebuyers extended and expanded tax credit? RE/MAX agents know the Tax Credit....

Considering a Home Purchase

by Lorna Calder

 

Considering a Home Purchase? With so much in the news about the housing market and lending industry, it can be challenging to decide whether to go forward. Fortunately with the help of a competent real estate professional, the decision making process can be less daunting.  Understanding how to navigate through the complex process of buying a home is important, and for that reason you should have a REALTOR® you are comfortable with on your side – even if you choose to wait to buy a home.

However, before you wait to buy you should consider that now is a great time to buy a home for the following reasons:

  1. CHOICE - The selection is tremendous – with more homes on the market, buyers have a better choice as to what fits their needs
  2. VALUE - The values are above prices – due to the increased supply on the market, prices are below actual values in many instances
  3. INTEREST RATES - The interest rates are incredibly low – current mortgage rates are lower than they've been in 50 years and we may not see them this low for generations.  The interest rates can have as profound an impact on the cost of housing as the price of the home itself.
  4. Tax advantages
    1. Deduction of interest and property taxes
    2. Capital gains exclusion
    3. Favorable LTCG treatment on balance
    4. Home Tax Credit
  5. Social benefits
    1. Provides shelter and security
    2. Provides stability – (12 years vs. 3 years; U.S. Census American Housing Surveys)
    3. Encourages community involvement
    4. Fulfills part of the American dream

Home Buyer Tax Credit Extended and Expanded

by Lorna Calder

Congress has now passed new legislation that extends and expands the home buyers tax credit. The bill extends the First Time Home Buyer Tax credit of up to $8,000 to first-time home buyers until April 30th, 2010. The bill will also expand the tax credit to included current home owners purchasing a new or existing home between November 7th, 2009 and April 30th, 2010.

To qualify for the extended First Time Home Buyers Tax Credit purchasing between November 7th, 2009 and April 30th, 2010 purchasers and/ or their spouse may not have owned a home in the past three years prior to purchase. To qualify for the expanded tax credit current home owners purchasing a home between November 7th, 2009 and April 30th, 2010 must have used the home being sold as a principal residence 5 consecutive years out of the last 8 years.

Who Qualifies for the Extended Credit?

·     First-time home buyers purchasing homes between November 7, 2009 and April 30, 2010 qualify for the extension.

·     Current home owners purchasing a home between November 7, 2009 and April 30, 2010, who have used the home being sold or vacated as a principal residence for five consecutive years within the last eight qualify for the expanded tax credit.

To qualify as a “first-time home buyer” the purchaser or his/her spouse may not have owned a residence during the three years prior to the purchase.

What Properties Are Considered Eligible for the Tax Credit?

The Extended Home Buyer Tax Credit may be applied to primary residences, including: single-family homes, condos, townhomes, and co-ops.

How Much Is Available?

The maximum allowable credit for first-time home buyers is $8,000.

The maximum allowable credit for current homeowners is $6,500.

How Much is the Tax Credit?

Each home buyer’s tax credit is determined by two additional factors:

1.     The price of the home.

2.     The buyer's income.

Price

The Extended Home Buyer Tax Credit has a limit on eligibility of homes that are purchased for $800,000 or less.

Buyer Income

Single buyers with incomes up to $125,000 and married couples with incomes up to $225,000—may receive the maximum tax credit  under the Extended Home Buyer Tax Credit, which is effective on November 7, 2009.These income limits have changed from the 2009 First-Time Home Buyer Tax Credit limits.


What If the Buyers Income Exceeds The Limits? Is there still a Credit?


Yes, in the case of exceeding income limits, some buyers may still be eligible for the credit.

The credit is decreased for buyers who earn between $125,000 and $145,000 for single buyers and between $225,000 and $245,000 for home buyers filing jointly. The amount of the tax credit decreases as the buyers  income approaches the maximum limit. Home buyers that earn more than the maximum qualifying income over $145,000 for singles and over $245,000 for couples are not eligible for the credit.

Can a Buyer Still Qualify If the Buyer Closes After April 30, 2010?

The Extended Home Buyer Tax Credit allows for a closing after April 30th as long as a written binding contract to purchase is in effect on April 30, 2010, the purchaser will have until July 1, 2010 to close.

Will the Tax Credit Need to Be Repaid?

No, the buyer does not need to repay the tax credit, if he/she occupies the home for three years or more. However, if the property is sold during this three-year period, the full amount credit will be recouped on the sale.

Chart Highlighting the comparision between the prior tax credit and the extended and expanded tax credit

Frequently Asked Questions

Source: NAR 2009

 

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