Real Estate May 19, 2023

Buying a Home: A Start-to-Finish Guide

You want to buy a home.

Where do you begin?

 

When you’re ready to buy—or maybe just ready to start seriously thinking about it—there’s a lot you can do to prepare. Here is a checklist to help you get started…

 

1. Determine a Price Range

Step one is finding out your budget for your new home. The best way to do that is to meet with a mortgage professional who will review your income, assets, and credit history in order to pre-approve you for a loan. Not only does getting pre-approved allow you to narrow your home search, but it also makes your offer stronger when it comes time buy. If you don’t currently have a mortgage professional, I would be happy to recommend one.

You can also use my Home Monthly Payment Calculator to experiment with different principal amounts, interest rates, down payments, taxes, and insurance to get an idea of what you can afford. Keep in mind that these calculations are meant to be estimates—interest rates change weekly and will be determined by your credit score.

 

2. Make a Wish List

Imagine your ideal home. How many beds/baths does it have? How big is the backyard? How close is it to the local park? Use our Wish List to guide you in your search online and with me.

 

3. Start Your Searching

Once you know how much you can afford and what you’re looking for in a home, it’s time to start your search. My online search tool makes it easy to search for homes, keep track of your favorites and subscribe to property alerts when a fitting listing hits the market in your area. I can also send you potential homes and take you to tour them in person once you’re ready to get serious.

 

4. Know What to Avoid

As you prepare to buy, knowing what not to do can often be just as helpful as knowing what to do. By understanding the pitfalls buyers can fall into, you can identify the signs of these common buying mistakes ahead of time. Check out this article on buying homes that have been flipped, too.


 

You’ve found the home.

What now?

 

Once you’ve found the home you can see yourself living in, what’s next? There are many steps to go through before you can officially call yourself a homeowner. I will guide you through this process, but in the meantime, here’s a preview of what you can expect.

 

1. Negotiation

When making an offer on a home, I will negotiate on your behalf in order to attain the best terms for you. This can include negotiating the price, repair costs, timelines, and contingencies.

 

2. Purchase & Sale Agreement (Contract)

This is the legal contract you and the seller will enter into once your offer has been accepted by the seller. It outlines the terms and conditions of the sale and is signed by both parties.

 

3. Inspection

Once the Purchase and Sale Agreement is signed, a home inspector is hired to examine the home’s health, safety, and major mechanical systems. If any issues arise from an inspection, you may be able to renegotiate.

In a competitive offer situation where you wish to waive your inspection contingency in order to make your offer more appealing, I may advise you to conduct a “pre-inspection”—that is, an inspection that is conducted before you put an offer in on the house.

 

4. Financing

After your offer is accepted, the next step is to get final loan approval. During this process the lender will decide if they’re willing to approve your mortgage based on things like your creditworthiness and the title history and appraisal of the home you want to buy.

 

5. Title Report

This is a report for you and your lender detailing the history of the home you’re buying to ensure there are no legal barriers to purchasing it.

 

6. Escrow

Escrow is an impartial third-party process in which documents and funds are deposited by buyers, sellers, and lenders to facilitate the closing of a transaction. To learn more, read this short guide to understanding escrow.

 

7. Closing

During this final step of the home buying process, ownership is transferred from the seller to the buyer, closing costs are paid, and several legal documents are prepared and signed, all leading to the closing date. After closing is finalized and recorded and the funds are disbursed, the home is yours!

 

8. Moving Day!

Check out my printable Moving Checklist as you get ready for the big day.

 


 

Windermere Mercer Island

 

© Copyright 2023, Windermere Real Estate/Mercer Island.

Real Estate November 17, 2022

What is an Adjustable-Rate Mortgage (ARM)?

Securing the most advantageous financing for your situation is an integral part of the success formula of buying a home. After getting pre-approved but once you’ve found the home you’d like to pursue, one of your primary tasks is exploring different loan products to see which best fits your situation. This is the fork in the road where you’ll need to decide between a fixed-rate mortgage and an adjustable-rate mortgage (ARM). The following information will help you gain a better understanding of ARMs to help you decide whether they’re right for you.

What Is an Adjustable-Rate Mortgage (ARM)?

After your down payment, your mortgage will finance the remainder of your home purchase. Whereas fixed-rate mortgages allow you to lock in a specific interest rate and payment for the life of your loan, adjustable-rate mortgages’ interest rates will fluctuate over time, thus changing your loan payment. It’s typical for ARMs to begin with a low introductory interest rate, but once that first stage of the loan has passed, they will begin to shift up and down. ARMs generally have a cap that specifies the maximum rate that can occur for that loan.

Let’s say you secure an adjustable-rate mortgage with 30-year terms, the first five of which are at a fixed rate. When the variable interest portion of the loan kicks in, your mortgage’s fluctuations will be measured against an index. If the index is higher than when you secured the loan, your rate and loan payment will go up—and vice versa. How often your ARM rates change depends on your agreement with your lender. Talk to your mortgage broker to learn more about the characteristics of adjustable-rate mortgages.

 

A mortgage broker explains the terms of an adjustable-rate mortgage to a man and a woman looking to buy a house

 

Pros and Cons of an Adjustable-Rate Mortgage (ARM)

 

Pros Cons
  • If the index decreases over time, you could end up with a lower interest rate and monthly payments.
  • If you plan to live in the home for a long time, a fixed-rate mortgage may be a better option.
  • The low introductory rate allows you to save money and plan for when the adjustable-rate period kicks in.
  • Without knowing what will happen to interest rates, your monthly payments could become unaffordable.
  • If you plan on selling in a few years, you can use the proceeds to pay back your mortgage before the fixed-rate period ends.
  • Financial planning is more difficult with an ARM, since there’s no telling what your monthly payments will be one year to the next.
  • If the experts are correct and rates stabilize over the term of your ARM, you can save money now then refinance into a fixed rate mortgage when the time is right.

Different Types of Adjustable-Rate Mortgages (ARMs)

Hybrid ARM: As outlined above, a hybrid ARM begins with a fixed-rate introductory period followed by an adjustable-rate period. Typically, a hybrid ARM’s fixed-rate period lasts anywhere between three to 10 years, and its rates adjust at an agreed-upon frequency during the adjustable-rate period, such as once every six months or once a year.

Interest-Only ARM: With an interest-only ARM, you pay just the interest on the loan for a specified introductory period, then the principal payments kick in on top. The longer the introductory period, the higher your payments will be when the delayed principal payments enter the equation.

Payment-Option ARM: Not all states allow these loan products because they can get home buyers into hot water quickly if rates increase. They include flexibility to choose your monthly payments with a payment-option ARM, including interest-only payments and minimum payments that don’t cover interest.

 

Home Monthly Payment Calculator

To get an idea of how your mortgage payment will fit into your budget, use our free Home Monthly Payment Calculator by clicking the button below. With current rates based on national averages and customizable mortgage terms, you can experiment with different values to get an estimate of your monthly payment for any listing price.

 

Adapted from an article that originally appeared on the Windermere blog September 28, 2022. Written by: Sandy Dodge.


 

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© Copyright 2022, Windermere Real Estate/Mercer Island.

 

Real Estate June 6, 2022

How to Avoid Overpaying for a Home in a Transitioning Market

Look Carefully at the Home Itself

Here are four home attributes beyond the number of bedrooms and baths that you should have your eye on…

 

Home (building) quality: Very well-built homes are a rare find and typically worth every penny of their price. Don’t confuse them with so-so homes that just measure up to the city inspector’s threshold. Lesser quality homes will cost you more in upkeep and replacement as systems and components wear out. If you purchase a lesser quality home for less, the differential might just cover the added maintenance expense. But, if you purchase a fair quality home at the going rate of higher quality homes, you might likely be overpaying.


Deferred maintenance: Different than home quality, deferred maintenance includes the to-do list of items that need to be done to maintain a home’s integrity. A home that has been well maintained over its life typically is a better investment than one that hasn’t. The true cost of deferred maintenance often adds up to more than the cost of the repairs themselves. Don’t forget to factor in the reduced life span of other components—like replacement of damaged wood beneath peeling paint or mold remediation in a damp basement caused by a clogged foundation drain.


Setting: The saying “location, location, location” didn’t get its fame from out of nowhere. A home with an ideal setting on its lot and in the neighborhood—away from busy roads and utility poles/boxes, with adequate privacy, good topography, best positioned to capture views if available, and not adjacent to undesirable elements (poorly maintained homes, water towers or other unsightly public structures, high traffic facilities, etc.) will have more value than a less-ideally sited home. When deciding what to pay for a property it is critical that you evaluate these aspects and any others relevant to a specific neighborhood to determine the +/- effect on value.


Floor plan: How a home lives—flow from room to room, size of rooms, open/closed-off spaces, and below ground vs. above ground living are every bit as important as the total home square footage. You can change a lot of things about a home, but it is very difficult to change a bad floor plan. When you are deciding how high to make that multiple offer bid, consider factoring in the added value or take-away of the floor plan.

 

Beyond the Four Walls


Interest Rates: In addition to being more selective about the home itself, it pays off to understand how interest rates impact your monthly housing cost. It’s a bigger deal than you might think. Every 1% increase in interest rate equates to roughly a 10% decrease in buying power. Said differently, a 10% drop in home sale price would be wiped out by a subtle 1% increase in mortgage interest rate. This means you can obtain a much more expensive home when rates are low, whereas higher rates get you less home—even though you still pay the same monthly payment.


If you have $5,000 a month to budget for a house payment (before taxes and insurance), you could purchase a $931,000 house at a 5% mortgage rate. If rates went up to 6%, the same monthly payment would only get you an $834,000 home. Your buying power diminishes considerably with each bump up in rates.

 

What you can afford based on the current interest rate.

 

This second chart below shows how interest rates impact monthly payments. If you’re purchasing a $950,000 house at a 5% interest rate, you’ll be paying $596 less every month than if rates were 6%. That adds up quick…$7,152 in one year alone!

 

Your monthly payment based on the current interest rate.

 


Job and Location Stability: Like nearly any investment vehicle, being able to buy and sell on your own time allows you take advantage of ideal market conditions or hold until a more favorable market returns. In an uncertain market, you should plan to be able to stay put for a minimum of 5-7 years if needed. If relocation or job loss is a distinct possibility, waiting to buy might avoid loss as a result of an untimely sale.


Homeownership Lifestyle: For many, homeownership represents a life accomplishment, independence, and financial security. For others, one more thing requiring maintenance and upkeep. Knowing where you stand (at this moment in time anyway) when it comes to evaluating the pros and cons of homeownership as a lifestyle choice is a better first step than an afterthought.

 

Final Thoughts

Want to know how you can best protect yourself in a changing real estate market? Reach out to us for help evaluating whether it would make financial sense to buy now or wait.

 


 

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We earn the trust and loyalty of our brokers and clients by doing real estate exceptionally well. The leader in our market, we deliver client-focused service in an authentic, collaborative, and transparent manner and with the unmatched knowledge and expertise that comes from decades of experience.

2737 77th Ave SE, Mercer Island, WA 98040 | (206) 232-0446
mercerisland@windermere.com

© Copyright 2022, Windermere Real Estate/Mercer Island.

Real Estate August 3, 2020

Interest rates make a BIG difference when you buy…

How Interest Rates Impact Your Buying Power

 

You probably know that interest rates affect your monthly mortgage payments, but most of us aren’t aware of just how big an impact they really have on a home loan. Each 1% change in interest rate equates to roughly a 10% change in buying power. This means you can qualify for a much more expensive home when rates are low, whereas higher rates mean you qualify for less home—even though you still pay the same monthly payment.

 

This first chart shows how much house you can buy for a set monthly payment. If you have $4,000 a month to budget for a house payment (before taxes and insurance), you could purchase a $949,000 house at today’s historically low 3% mortgage rate. If rates went up to 4%, the same monthly payment would only get you an $838,000 home. Your buying power diminishes considerably with each bump up in rates.

 

What you can afford based on the current interest rate..

 

Scrolling down, this second chart shows how interest rates impact monthly payments. If you’re purchasing a $950,000 house at today’s 3% interest rate, you’ll be paying $530 less every month than if you’d bought that same house when rates were 4%. That adds up quick…$6,360 in one year alone! This explains why so many renters are eagerly looking to buy right now, and why homeowners are refinancing at record rates.

 

Your monthly payment based on the current interest rate

 

Want to know how you can best take advantage of these historical low mortgage rates? Reach out to me for help evaluating whether it would make financial sense to refinance, buy, or sell while rates are low. I am always happy to be a resource!

 


 

 

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We earn the trust and loyalty of our brokers and clients by doing real estate exceptionally well. The leader in our market, we deliver client-focused service in an authentic, collaborative and transparent manner and with the unmatched knowledge and expertise that comes from decades of experience.

2737 77th Ave SE, Mercer Island, WA 98040 | (206) 232-0446 mercerisland@windermere.com

 

© Copyright 2020, Windermere Real Estate/Mercer Island.

Real Estate March 13, 2018

Planning ahead: how tax reform will impact your home deductions next year

2018 Tax Changes for Home Owners

 

While you may still be busy filing your 2017 taxes, it’s important to look ahead and be aware of how the new 2018 tax reform laws will affect next year’s return–especially if you’re a homeowner. Those who itemize will need to note some big changes in what they can and cannot deduct. Many will instead choose to use the new higher standard deduction ($12,000 for single individuals and $24,000 for joint returns) rather than itemizing their deductions.

What can you do now? Check in with your accountant for advice specific to your situation and filing status. Also, you’ll probably want to update your withholding amount to reflect the new deduction amounts. In the meantime, here is the skinny on 5 changes that may affect you if you own a home…

 

1. Mortgage Interest Deduction

The deduction that allows homeowners to reduce their taxable income by the amount of mortgage interest they pay has been scaled back.

  • For loans taken out after 12/14/17, you can now only deduct mortgage interest paid on the first $750,000 of combined debt for primary and secondary residences (or $375,000 if married filing separately).
  • Current loans of up to $1 million are grandfathered and are not subject to the new $750,000 cap if they were taken out before 12/15/17 (or if you entered into your purchase contract prior to 12/15/17 and the sale closed by 1/1/18).
  • You can continue to deduct the interest on grandfathered loans even if you refinance.

 

2. Home Equity Loan Deduction

Under the former tax law, you were able to deduct the interest on up to $100,000 of home equity debt even if the proceeds were used for something other than buying or improving the home (for example, an equity line of credit used to pay college tuition). This is now no longer the case.

  • New 2018 law eliminates the deduction for interest on home equity debt unless it’s used to buy, build, or substantially improve the home that secures the loan.
  • Loans to buy second homes do not qualify for the interest deduction if they’re taken out against the equity of your primary home.

 

3. Deduction for Property & Sales Taxes

Tax relief for homeowners who pay property taxes has also been limited.

  • Itemized deductions for property taxes, sales taxes, state income taxes, and any other local taxes will now be limited to a combined total of $10,000.
  • The combined limit drops to $5,000 if married filing separately.

 

4. Deduction for Moving Expenses

While you used to be able to deduct some moving expenses when you moved for a new job, this deduction has been repealed for everyone except active-duty members of the armed forces.

 

5. Deduction for Casualty Losses

Under former law, substantial losses to your home and personal property through things like fires and robberies could be deducted from your taxable income. Under the new law, this deduction is eliminated for everything except presidential-declared natural disasters.

 

Want to know more?

 

The above article is presented for informational purposes only and is not intended to replace professional tax advice from your accountant.

Sources:
“The Tax Cuts and Jobs Act – What it Means for Homeowners and Real Estate Professionals,” by the National Association of Realtors
“5 Homeownership Changes Coming Under New Tax Law” by NerdWallet
“Tax Reform” by the Internal Revenue Service


ABOUT WINDERMERE MERCER ISLAND

We earn the trust and loyalty of our brokers and clients by doing real estate exceptionally well. The leader in our market, we deliver client-focused service in an authentic, collaborative and transparent manner and with the unmatched knowledge and expertise that comes from decades of experience.

©2018, Windermere Real Estate/Mercer Island