Updated: Wednesday, May 24, 2017
How To Buy A House Without Going House Poor
How much house can you really afford? Is it the amount the bank tells you when preapproving your loan? Thats what most people go by, oftentimes spending up to their max approval amount to get as much house as possible - or to be able to afford something at all in tight markets.
The debt-to-income DTI ratio, along with your credit score, is what is used by lenders to determine your loan approval and amount. The Consumer Financial Protection Bureaus CFPB efforts to keep this number low notwithstanding, it has been rising to levels that are concerning to industry insiders who fear a widespread wave of homebuyers overextending themselves and becoming unable to support their mortgage payment and other obligations.
The CFPBs Qualified Mortgage QM Rule went into effect in 2014, intended to curb overleveraging by capping a borrowers debt-to-income DTI ratio at 43 percent. "This means that a borrowers total debt expense including total mortgage payment does not exceed 43 of their gross income before taxes are withheld," said the National Association of REALTORS NAR. The rub: Many loans Fannie Mae, Freddie Mac, and the Federal Housing Administration FHA, are exempt from the 43 percent DTI limit.
The impact higher DTIs are having on the market is clear; a new WalletHub report "analyzed data from 2,533 U.S. cities and ranked all of them on the basis of a lsquo;WalletHub Home Overleverage Score," said 24/7 Wall St, finding that, in many cities, overleveraging is becoming the norm. "The score was derived from a citys median mortgage debt, median house value, median income, mortgage debt-to-income ratio and mortgage debt-to-house value ratio." The top 10 are all well over the 43 percent threshold, with the top three - San Luis Obispo, California at 59.62; Williamsburg, Virginia at 58.76; and Brooksville, Florida at 57.44 pushing 60 percent.
Getting in over your head with a house, either from the get-go when first purchasing, or later on with a home equity line that increases your monthly payments, is a dangerous scenario for homeowners and for the market in general. So how do you keep yourself in check to make sure the house youre buying is one you can actually afford and that youre not in danger of becoming house poor?
Do your own calculations
The bank may be telling you that a 350,000 house is within your means, but are you OK with the monthly payment attached to that price? No one is more familiar with your spending habits than you. Are you really going to be able to cut 500 a month in discretionary spending eating out, movies, clothes shopping, morning lattes to comfortably make your new house payment?
Dont forget about the extra expenses
If youre buying your first home, you may not be estimating your new monthly expenses accurately. Did you include the HOA fee, if the community in which youre looking to buy has one? What about any special assessments, if there are any? And private mortgage insurance PMI if you have an FHA loan and are putting less than 20 percent down on your home. That couple hundred dollars could put you over the top.
Have you also considered your utilities? You may not be accustomed to paying gas and electricity and water and trash if youve been living in an apartment. There could also be an increase in the cost of electricity if you have more square footage to heat and cool.
Watch out for HELOCS
A home equity line of credit HELOC can seem harmless. I mean, its your money, right? And youre using it improve your home, which will only raise its value, right? But what seems like a great idea can also get you in trouble when you tap your home equity. You may be calculating the additional payment for now, but what happens later?
Thats the conundrum thousands are facing right now, as "HELOCs are resetting higher rates and overleveraging homeowners," said Inman. "An analysis bynbsp;Black Knight Financialnbsp;shows that 1.5 million home equity lines of credit will see interest-only draw periods end this year with outstanding unpaid principal balances that average 62,500 per HELOC. The data reveals that average borrowers whose lines of credit reset will face an additional cost of 250 per month, more than double the current average payment."
Keep an open mind
Finding a house you can afford may be challenging - especially for first-time buyers and those in competitive markets that push the affordability index. If you have tight parameters for your house hunt that are making it hard to find something within your budget, consider:
> Full Story
- Extending your area search. You may not be aware of but your Realtor probably is adjacent cities or communities that offer a similar life>
- Buying a condo or townhome instead of a single-family home. Some buyers have an automatic aversion to condos and townhomes because they dont like the idea of living attached. But your real estate agent may know of properties that are end units, that have private yards, and that are two-story units with no one above or below you. It may be that this is your best bet for homeownership you can really afford at this point, and you may find you like it far more than you expected - especially because so many of these communities come with great amenities like a pool and gym, plus front-yard landscaping that is taken care of, saving you time and money.
- Looking at fixer-uppers. A little-known loan called an FHA 203k mortgage may be your "in" to a home you can afford and make your own. The bonus is that its also great for borrowers who may not have the credit and/or down payment to qualify for conventional loans. "The FHA requires a credit score of at least 580 if you want to make the minimum down payment; if you have 10 down, your score can be as low as 500," said Interest.com. "You can borrow more than the home is worth, as long as the repairs will increase its appraised value. The most you can borrow is 110 of what an appraiser estimates it will be worth after renovations, or the cost of the home plus the estimated renovation cost, whichever is less, minus your down payment. The minimum down payment on an FHA loan is 3.5."
Landscaping to Improve Resale: 9 Projects That Fit Within Your Desired Price Point
As the weather starts to heat up each Spring, so too does the housing market. Spring is an optimal time to get your house ready to sell. The first thing that potential buyers will see of your home is the landscaping, so make a great first impression with beautiful outdoor spaces. An investment in landscaping can help sell your home faster and for more money. There are simple projects at every price point that can help you achieve great curb-appeal.
1. Keep the Lawn Well-Manicured
The easiest and most obvious landscape project when hoping to sell your home is to get your lawn looking its best. Spring is a great season to try to sell because your lawn is helped by Mother Nature. Wet, mild Spring weather will help the lawn stay green with less effort. To show off that green lawn, make sure to mow and edge it often.
2. Keep Your Yard Weed Free
It may not cost much, but it will require some time and effort to control the weeds around your property. Spray or pull weeds in flowerbeds, on property borders, and along the driveway. A weed-free yard will help potential buyers feel confident that the home is well cared for, which can create an overall positive impression of your home.
3. Add Flower Pots Near Your Front Door
A splash of color in the yard is a great way to highlight your home. If you are looking to sell quickly, it might be too late to do major yard improvements since new flowers and plants will not have adequate time to grow and mature, but a few beautiful pots of flowers strategically placed near your front door can have a similar effect without requiring a lot of time and maintenance.
4. Add Outdoor lighting
Outdoor lighting has become a trendy feature that buyers have embraced. Lighting can add interest to your yard, highlight areas of beautiful landscaping, and make your home stand out at all times of the day. Solar lights are particularly easy to use because they will recharge during the day and automatically come on in the evening to illuminate your home.
5. Install Curbing/Edging
If you have a little extra money to spend, consider adding curbing or edging around your yard. It helps the landscaping appear crisp and clean, and makes the lawn easier to mow and trim. Savvy buyers will appreciate the ease of maintenance and the defined spaces that curbing creates.
6. Hire a Lawn or Pest Control Company
It is important when selling a home to make sure that their arent any obvious problems. If your lawn is dead or patchy or you have pest problems like spiders, mice, etc, you will need to get those under control. Some of these projects are beyond the scope of what an individual without training can quickly achieve and should be left to professionals. Lawn care companies and exterminators can assess the issues you may have and recommend treatments. This may even be limited to a one time visit that can quickly improve the chances of selling your home.
7. Create Outdoor Living Areas
If you have money to invest in your home, high-end landscaping projects can increase your bottom-line and draw attention from buyers looking for upgrades. Extra living area outside of your home is a huge attention grabber that attracts buyers. This could range from simple patios staged with outdoor furniture, to screened in porches, to full outdoor kitchen areas. Depending on your location, these upgrades may or may not be worth the investment, so do your research before proceeding.
8. Replace or Update Fencing
Fences provide a safe place for children and pets and also give homeowners a feeling of privacy, so they are highly sought after. Fencing is also one of the first things people see when coming to your home. If your fence is an eyesore, it will be worth it to make the effort to have it replaced or fixed up. A new fence is quite an investment, so first determine if your fence can be spruced up with some nails and a new coat of paint.
9. Hire a Professional Landscaper
If you are serious about creating a stunning yard, a professional landscaper can add massive amounts of curb appeal to make your home one of a kind. A landscaper can help you add impressive things like paving stone walkways, decorative retaining walls, and water features. Outdoor improvements definitely increase house values, but it is always good to know what the market will support in your area before moving forward.
No matter how much money you have to invest in your homes landscaping, there are projects you can do this Spring to improve your homes curb appeal and get it noticed by buyers.
> Full Story
Buyers Remourse: The Legal Ties That Bind
Question: We are both in our upper sixties and retired. Last October, we put money down on a condominium apartment that is to be completed around September of this year. We put down ten percent of the price in cash and the money is earning a modest amount of interest until settlement. We have some savings, but the balance would be paid in cash from the proceeds of the sale of our present home.
Although we believe the price of the condominium has gone up slightly since we signed the contract, we now have serious thoughts about apartment living and about putting most of our resources into this transaction because of some new and serious health concerns.
Is there any way we can cancel our agreement and not lose the down payment?
Answer: The lawyer in me says that a contract is a legally binding document that must be upheld. The humanitarian in me suggests that, at the very least, you should try to get out of the contract, especially with the facts you have described.
First, review the terms of the contract very carefully to determine your rights and responsibilities. Are there any contingencies in that contract, such as your ability to obtain financing or the necessity to sell your house? If any of these contingencies legitimately cannot be met, it is possible you have the legal right to declare the contract null and void.
Next, determine whether the contract can be assigned. Although most developer contracts are not assignable, it may very well be that you have the right to sell your contract to someone else. And even if you do not have that right, it never hurts to ask the developer.
For example, if the contract is for 100,000 and the market value now is 110,000, if you have the right to assign that contract, you may find someone who would purchase your contract for the contract price -- or even a few thousand dollars above the contract price.
The person who buys your contract would be obligated to follow through on all of the terms of your contract. In effect, the buyer would be stepping into your shoes, assuming all the rights and responsibilities you presently have.
As I have indicated, although most developer contracts do not permit such assignment, it is worth looking at this aspect of your contract.
Next, do not hesitate to discuss this matter with both the real estate firm representing the seller and try to speak directly with the seller. Explain your situation. They may be sympathetic. If the market for your condominium is anticipated to be strong, the seller-developer may be able to make more money by reselling the property to someone else.
Finally, you may want to consider buying the property and then trying to sell it yourself. Unfortunately, this is risky because there never is any guarantee you will find a buyer quickly and the duplicate settlement costs, financing charges and other settlement->You may also have to pay a real estate commission for that second sale. Realize that until the developer has sold most, if not all of the condominium units, you are competing against the house. And as we know, the dealer always wins.
You indicated you have put down a deposit of ten percent and you do not want to lose the money. However, there are times when a buyer would prefer to walk away from a transaction, lose the money and avoid subsequent aggravation.
Peace of mind sometimes cannot be measured in terms of dollars and cents. Although I cannot recommend forfeiting your deposit, if this is an option you are willing to consider, make sure you discuss the situation with the seller before deciding. Sign a >Basically, if a buyer defaults on a real estate contract, the seller has three options available:
o Suing for specific performance, in effect, asking the court to require you go ahead with the transaction.
o Suing for damages if there are substantial monetary damages involved as a result of your failure to live up to your part of the contract. For example, if the seller has to resell the property at a lower price than your contract price, this would be the measure of damages.
o Electing to retain the deposit as the only remedy. Remember, if you decide to forfeit, make sure the seller agrees, in writing, that the only remedy will be the forfeiture of the deposit. This may also be spelled out in the form contract you signed.
Although I recognize that conditions often change and new circumstances often arise after a contract is entered into, it must be pointed out that, in most cases, the time to decide whether you want to purchase property is before you sign a contract.
After your signature is on the contract and you have given some money down as a deposit, you are legally bound to comply with all the terms and conditions of that document. Your fate basically depends on how the developer reacts to your situation.
> Full Story