Doh! You Missed Out on a Great House…

If you are thinking about buying a house any time soon, please keep “speed” in mind. No, I am not talking about drugs. By “speed” I mean your ability to react quickly if you happen to come across the house of your dreams. Here are two perfect scenarios where you will almost always lose out:

1. You have a house to sell that is not yet on the market, and you can’t afford to carry two mortgages at once.

2. You go open housing on the weekend and are not actively working with a real estate agent.

In the past two weekends I have seen this happen twice to two different couples. In the first scenario, the couple had just started thinking about moving into a larger home. So they went open housing on Sunday. And they fell in love with a house that is in perfect condition. The sellers of the house want nothing to do with a Hubbard clause, where the buyer has to sell their house before they can actually buy. The potential buyers now have to get their current home on the market pronto and hope that they can secure an offer before someone else comes in and has an offer accepted on their dream home. Chances of this happening are slim to none and, as they say, Slim just left town…

In the second scenario, the buyers were actually working with a real estate agent, just not very actively. They also went to an open house and fell in love with a house. But then they waited 2 days to contact their agent to let them know about it. Unfortunately in the meantime, another offer was accepted on the house. They missed out by about an hour. I am not kidding. And now they are very disappointed.

There are a few morals to these stories.
1. If you are in either of the two categories above and cannot deal with disappointment, please don’t go to open houses on Sundays.

2. If you think you have one iota of interest in a house and are working with an agent, call them immediately. They will go look at the house with you and help you understand if it’s really for you. And if it is, they should be able to help you react quickly enough to at least stand a chance of putting in an offer.

3. If you own a house, think you want to move, and cannot afford to carry two mortgages, at least put your house on the market with the contingency “Sale contingent upon seller finding acceptable housing.” This at least throws your hat in the ring. Otherwise you are just sitting on the sidelines with no real chance.

Hopefully this helps because it’s painful to see disappointed buyers doing “Shoulda, Woulda, Coulda”…

Keep a House File

I know being organized is a challenge for some, but when it comes to your home, it’s very important to keep detailed records.

When you purchase a house or condo, you’ll be hit with a flurry of paperwork. The Purchase and Sale agreement, various disclosures, inclusions/exclusions forms, your home inspection, the insurance policy, and mounds and mounds of mortgage documentation. Keep all of this. DO NOT throw it away. It will only serve to help you later on when you decide to sell.

Additionally, keep track of improvements and maintenance that you perform on your home. Save invoices and receipts and organize them chronologically, if you can. This history will help your real estate agent understand what value you put into your home and how it affects the listing price. These expenditures also help you calculate your cost basis so you can understand if you have a taxable gain. For a primary residence, there would be a tax if the gain was more than $250,000 for a single homeowner or $500,000 for a couple. A primary residence is defined as property that the owner lives in for at least 2 of the past 5 years. If you keep your receipts, you will be able to prove a higher cost basis, which will lower your capital gain and potentially reduce your tax liability.

Finally, if you have any hazardous/environmental items removed (ie- asbestos, in-ground oil tank, etc.) be sure you have a licensed professional carry out the removal and that all proper documentation has been filed with necessary city and state offices. Additionally, keep disposal reports for your records (these should be provided by the contractor you hired), as these will be VERY important when you sell your home. The next owner will want to insure that everything was removed safely and there will be no negative residual effects from improper removal.

At times keeping records for your home may seem like a tedious chore, but it always pays off when it’s time to sell.

Understanding Home Pictures on the Web

These days approximately 80% of home buyers use the internet to research homes. An important part of that research is pictures, as it allows the prospective buyer to get a sense of updates, layout, and room sizes in the home. However, often these pictures can be deceiving, or at least deliver a message. Here are some patterns I’ve seen after looking at hundreds of pictures online, and then actually viewing those homes in person.

1. On, if there is only 1 picture available, it doesn’t necessarily mean that the house needs a lot of work. charges agents thousands of dollars a year for an “enhanced” package, which allows us to post multiple pictures. If the agent doesn’t pay for the enhanced package, they only get one picture fed in from the Multiple Listing Service, and that’s usually an exterior shot of the home.

2. If you are looking at a company-specific website, say, and there is only 1 picture, the house may need a lot of work. Company-specific sites let the agent upload multiple pictures. If you don’t see multiple pictures on a company sponsored website, the house could need a lot of work, or the agent may be lazy and didn’t take more than 1 picture.

3. If there are no pictures of the yard, it may not be usable or it might be undesireable in some way. For example, it may be very close to the neighbor’s house or sloped and rocky.

4. If there are no pictures of the kitchen or bathrooms, they may need to be updated. Kitchens and baths sell homes. If the agent didn’t take pictures of these rooms, they are sending a message.

5. If the bed appears to be taking up the entire room in a bedroom picture, it most likely is. You can confirm bedroom sizes by looking at the dimensions which are usually provided.

6. If there are multiple photos of the kitchen and not many other pictures, the kitchen may be the nicest part of the house and other areas may have been sacrificed to fund the kitchen improvement.

These are some general rules of thumb that may help you narrow down house choices when you’re searching online. Or, it may be the starting point for a conversation with your agent. S/he may have seen the house and could provide some insight on whether it might be a good fit for your needs.

Rising Mortgage Interest Rates

Mortgage rates have been on the rise over the past couple of weeks. They have been the subject of numerous articles, but authors rarely take the time to translate the increase to something we can all understand – an actual cost in dollars. Let’s fire up Excel!

We’re going to look at homes at two price points; a starter home at $250,000 and a mid-level home at $500,000. Both are very common in Greater Hartford. We’re also going to assume that we have good credit scores and can get close to the lowest rates possible. At the beginning of the year, 30 year fixed rates were about 6.25%. Recently they rose to about 6.75%.

For those interested in learning how to use Excel to calculate mortgage payments, I’ve posted the file used in these calculations. Instructions are included in the file. Note that taxes vary widely from town to town, so be sure to update that input before relying on the calculation.

Let’s begin with the $250,000 house. At the beginning of the year the mortgage portion of the monthly payment would have been about $1,231 at 6.25%. The increase in rates to 6.75% adds about $66 dollars per month, bringing the mortgage portion of the monthly payment up to about $1,297.

Keep in mind that the actual check you write each month contains homeowner’s insurance and property tax payments in addition to the mortgage amount. With a fixed rate mortgage, the portion that goes towards repaying the mortgage remains the same for the life of the loan. However, the insurance and property taxes can (and usually do) increase over time.

The mid-level house would have had a $2,463 mortgage payment on a 30 year mortgage at a fixed 6.25%. Recent rate changes have bumped that payment to $2,594, and increase of about $132 per month.

The difference in monthly payments seems small compared to the overall total, but let’s try to put it in perspective. An increase of $66 per month for the entry-level house is about the same as a typical electric bill (without air conditioning). The $132 difference for the mid-level house is comparable to cable TV, internet and phone.

Although it seems like a bit of an exaggeration to say that the recent increases in interest rates have a major impact on the affordability of housing, homebuyers will feel the impact. Despite the increase, buyers shouldn’t delay their purchase in hopes that rates will decrease – the financial markets are expecting more increases.