Keith and Kinsey's Real Estate Update


Choosing a Lender
January 9, 2013, 11:37 am
Filed under: Real Estate | Tags: , , , , , ,

Your lender will be one of the most important people involved in your real estate transaction choosing them wisely is important. Just like agents, not all people within one organization operate the same. One loan officer at your bank may be horrible to work with and another may be great.

I always suggest people start looking for a lender one of two ways:

  • Ask you real estate agent who they recommend? Realtors have worked with many different lenders, and they know who has done a good job in the past and who hasn’t.
  • Ask your friends who they recommend? Your friends, family, or coworkers who have been through the buying process may have worked with somebody they really liked (or didn’t like).

So, how do you know if this lender will be good to work with? Here’s a few things to look for and pay attention to when talking to a lender:

  • Responsiveness is a key necessity in a lender. I’ve worked with lenders who wouldn’t respond to their clients questions for 4 or 5 days. This makes the buyer feel extremely insecure and freaked out through the home buying process. Find someone who responds at least within 24 hours when you call or email them.
  • Knowledge is another must have trait of a good lender. There’s a million different loan programs out there, but after talking through your situation, your lender should be able to give you guidance on what loan program best meets your needs.
  • Honesty is extremely important too. Of course it’s tough to tell if somebody is being honest with you in the first conversation you have with them. Although, your lender should be able to give you general guidelines about closing costs, fees, and rates. If you ask them questions about these things and you start to get the used car salesman vibe, run away. No offense to car salesmen, but you know what I mean.
  • Deadlines within your real estate contract must be met by your lender. So, you want somebody that is prompt and organized to meet these deadlines. Usually if they fit all of the characteristics above, they’ll come through with your deadlines. Of course, there can be snags in underwriting that aren’t your lenders fault, but a good lender will advise of those potential snags ahead of time.
  • Local lenders tend to be better to work with. It usually feels like somebody cares more about what you need, when you can actually sit down face to face. People get loans all the time without ever meeting their lender, but it’s good to know you have the option. It’s much nicer not dealing with a national call center.

Lastly, there’s the question of should you go with a broker or a bank lender. There is definitely a place for both.

  • Bank (and credit union) lenders are usually great to work with for somebody who is in a strong financial position to buy, and they often have the best fees and rates. Shop around for the best rates and fees.
  • Mortgage Brokers on the other hand are great at figuring out how to get the deal done if somebody is border line on a loan. They have a full arsenal of loan options available to them, and can sometimes make loans work that bank lenders can’t. Their fees and rates can sometimes be a bit higher, but if you’re not willing to shop around, they do the shopping for you potentially saving time and money.

In summary, there’s a lot to think about when choosing a lender, but take your time, ask for referrals and make a good choice.  If you are in the Madison area, there are some great lenders that we recommend on our web page.



How Does A Buyers Agent Get Paid?
December 10, 2012, 2:27 pm
Filed under: Real Estate | Tags: , , , , , ,

Many first time home buyers stay away from buyer’s agents because they think it will cost them money. Well, the opposite is really true; a buyer’s agent will likely save you money. How, you ask? Well, most often the buyer doesn’t pay the agent, and the buyer gets the benefits of an agent’s knowledge, expertise, and negotiating skills. See our post about the benefits of a buyer’s agent for more info on how they can help.

So, how does the buyer’s agent get paid? With the typical sale, a seller pays an agent to list the property for sale. Within the listing contract this listing broker says they will offer a specified percentage of their commission to a buyer’s agent, if there is one. So, the seller is paying a commission to the listing broker, and the listing broker is paying a commission to the buyer’s agent. This is the way most deals work.

Where the buyer needs to be careful is with FSBO’s (For Sale by Owner) and lower commission MLS deals. It’s becoming more and more common that FSBO sellers are willing to pay a buyer’s agent, but it needs to be written into the purchase contract. Also, many buyer agencies contracts will say that the buyer’s agent gets paid a percentage of the purchase price or the MLS offer of compensation (what the listing agent is offering), “whichever is greater”. When you sign a buyer’s agency agreement, make your agent cross out the “whichever is greater” portion. If you sign an agreement to pay the greatest of 3% or the MLS offer of compensation and the listing agent is only offering 2.5%, you as a buyer could be on the hook for the extra 0.5%. These instances are rare, but you need to be aware of them. We’ve actually never had a buyer pay us any portion of our commission out of their pocket.

As a buyer, having an agent work for you through a transaction rather than for the seller, at no cost to you, is a no brainer.



Benefits of A Buyers Agent
November 9, 2012, 11:30 am
Filed under: Income Property, Real Estate | Tags: , , , ,

A couple weeks ago, I wrote about the home buying process and picking a real estate agent. Although, I never really explained why you should have a buyer’s agent. There are tons of benefits to using a buyers agent! They will:

  1. Talk through your financials and recommend a mortgage lender who will work well for your needs.
  2. Analyze your wants and needs to help determine your requirements for a home and location.
  3. Guide you to homes that fit your criteria. Ask your agent to set up a search that will notify you every time there is a new listing or price change meeting your criteria.
  4. Educate you about the current market and help you make a wise decision on which home to choose.
  5. Look at comparable sales to determine a reasonable purchase price on the home you choose.
  6. Walk you through an offer contract and help you determine all the terms required in the contract to meet your needs.
  7. Negotiate on your behalf. Real estate professionals are trained negotiators and can often get a better price then a consumer can on their own.
  8. Keep you on track to meet all the dates and requirements outlined in your contract.
  9. Recommend inspectors and testers who will provide you knowledgeable input on the condition of your future home.
  10. Coordinate with the lender, inspector, title company, and listing agent to get everything ready for closing.
  11. Solve any problems that may arise related to the contract, financing, inspection, title, etc.
  12. Get the deal closed so you can start moving into your new home!

….and best of all…

In most cases you don’t have to pay a penny for the buyer’s agent, they’ll split the commission paid by the seller with the listing agent. For more info on this see How Does a Buyers Agent Get Paid. Don’t believe the lie that you get a better deal without a buyer agent.



Ditching The Credit Cards
October 31, 2012, 9:52 am
Filed under: Money | Tags: , , , ,

Since moving recently, we’ve been working on getting our address updated every time we get a piece of forwarded mail. It came to the credit cards and we decided, “why update the address, let’s just close them!”

I know, I know, many of you are probably thinking closing your credit card accounts will hurt your credit score, but here is why we made the choice to ditch the plastic:

  • We’ve been using a debit card for the past 2 years that is tied to an interest bearing checking account earning 2% interest at Heartland Credit Union. It beats credit card rewards.
  • We spend less knowing we are using actual cash.
  • The service from the credit card companies sucks. When I called Citi to cancel our card I spent 37 minutes on the phone (28 minutes of that was on hold) and I got transferred 4 times.
  • We have an emergency fund and don’t need to rely on credit.
  • We wanted to simplify our accounting by reducing the number of accounts we need to track.
  • The rewards aren’t worth the hassles.
  • Fewer accounts means a lower chance of identity theft.

We use to be people who worked hard to maintain a high credit score. Doing real estate investment and carrying multiple mortgages on multiple properties, a credit score was extremely important to purchase the next property. Although, we have come to realize, Dave Ramsey was right; a credit score really is a “I love debt score”. You borrow and pay back; just to get a good enough score to borrow more and pay it back more with interest.  Wash, rinse, repeat.

We’ve reached a point in our lives where we are happy and content where we are. We don’t plan to move for at least 20 years. We’ve steered our real estate investments into a more conservative approach, we’ve got an emergency fund and IRA’s if we really get in trouble, and we have simplified the ways we handle our finances. So, at this point, I’d be perfectly happy if we never borrow another penny. Ever again.

I know closing long standing credit card accounts will hurt our currently phenomenal credit scores due even though there hasn’t been a balance in years. …but go ahead (not so) Fair Isaac, ding our credit score for cutting up our credit cards and closing our accounts. Even if our credit gets a 100 point hit (I don’t think it will be that much), dropping to a 710 credit score won’t bother me a bit.

I will admit, I kept one card open just for a backup if we are traveling. I’ve had instances when on a motorcycle road trip where my card got locked out due to gas stops every couple of hours in multiple states across the country. So, I figure one backup card probably isn’t a bad idea.

Also for those of you that currently use credit cards and looking to buy a house soon, don’t go closing your accounts just yet. If you are planning to get a mortgage in the next few years and you have been a user of credit, you are better off just keeping the credit card account open but not using it. My credit score did stay over 810 without using a credit card for 2+ years. Although, if you close long stand accounts your score will drop and it could negatively affect your mortgage terms. Amount owed vs credit available, and a length of account history are a large part of what makes up your credit score.

For those of you that haven’t started using credit of any sort but want to get a mortgage someday, you can get a mortgage with no credit score (just not a bad credit score). So, don’t go opening credit cards just to build a credit score.



Deciding to Buy a House – When Are You Ready?
October 2, 2012, 8:08 am
Filed under: Money, Real Estate | Tags: , , , , ,

A couple weeks ago, we wrote a step by step guide to home buying, and step one is making the decision to buy. So, you’ve been thinking about buying a home, but aren’t quite sure if you’re ready. It’s a big decision, and now is an amazing time to buy. Prices are still low, the market seems to be starting to recover, and the current interest rates unbelievable. Are your lifestyle, your job, and your financials ready to buy though?

One of our goals is to never have a buyer/client go through foreclosure after selling them a house. Obviously some aspects of a person’s financial or job situation are well beyond our control. Although, we can offer advice as to when we think you are financially ready. We’ve had a lot of people come to us wanting to buy a house when they are on very shaking financial ground. We will be completely honest with these people and tell them, “We think you should wait a bit to buy a home.” We would rather see a buyer comfortable and happy in the long term rather than happy in the short term, but in serious trouble a year from now.

In our opinion, these items are must haves in order to buy a house:

  • 3 month emergency fund – Take your monthly expenses (including your projected mortgage payments) and multiply it by 3. You should have this much set aside as a safety net.
  • Stable income – If your job is questionable, or you go through temporary layoffs, you probably want to look for a more stable income. The exception would be somebody who has budgeted well and makes enough of an irregular income to spread out throughout the whole year.
  • Plans to stay for 3 years – If you don’t plan to stay in the same place for 3 years or more, your likelihood of losing money when you sell is higher. If your location is short term, just rent.
  • No credit card debt -If you have credit card debt, your part of the norm in America. Life and home ownership is so much easier without credit card debt. Please get rid of these payments before buying a home.

These are recommendations, but not necessities:

  • 6 month emergency fund – Take your monthly expenses (including your projected mortgage payments) and multiply it by 6. You should have this much set aside as a safety net.
  • No student loans – You’re likely going to be paying on that mortgage for a long time. Just knock this debt out before you have a mortgage payment.
  • No car payments – Seriously, you bought an expensive fancy car before a house? Cars go down in value; real estate generally goes up over the long term. I’d take a mortgage over a car payment any day.
  • No debts at all – If the only payment you have is a mortgage think of how much simpler and comfortable your finances will be.
  • 15% of your income going toward retirement – Many people look at home ownership as an investment, but let’s face it; your home is not a retirement plan. You still need a place to live when you are retired.
  • 20% Down payment -While there’s still low money/no money down loans out there. You’ll find yourself much more comfortable and getting a better interest rate if you have money to put down. 20% down will get you the best rate and avoid PMI.

These are signs you are not ready to buy

  • You live paycheck to paycheck – if you are waiting on the next check to come in to pay your next bill, you are probably too tight on cash for home ownership.
  • You pay minimum credit card payments – If you are only able to pay minimum payments now, how much harder is it going to be once you have a mortgage and home to maintain?
  • Unexpected expenses throw you off for months – When your car breaks down, does it take you several months to get caught back up? This is a sign you don’t have a good emergency fund. Keep in mind, once you buy a house, you no longer have the landlord to call for repairs, you’re responsible.
  • You’re worried about every penny of closing expenses – If you are stressed about your closing costs being $1800 vs $1725, you definitely don’t have enough cushion.

If you’re not quite in position to buy, there’s a lot you can do to get yourself in position to buy. First, start tracking your expenses and set yourself a budget. A structured budget will quickly help you see where you are wasting money. Then cut back on your wasteful expenses and pay down your existing debt. Lastly, if there’s still not much extra room in your budget, pick up some overtime or get a second job. Once you get accustomed to living on tighter finances to get rid of your debts and save a down payment, you’ll find paying a mortgage payment and maintaining a home a breeze.



Radon Testing When Buying a Home
September 20, 2012, 7:07 am
Filed under: Real Estate | Tags: , , , , , , , ,

In the last several years, radon testing has become a bit more common when buying or selling a home. I am far from a radon expert, but I often get drilled with questions about radon from buyers or sellers. Here’s what I know…

  • Radon is a radioactive, colorless, odorless, and tasteless gas that forms from the decay of elements like uranium that are found in soil and rock.
  • Radon is considered a carcinogen and high levels of radon are linked to about 20,000 lung cancer deaths every year (according to the EPA).
  • Radon is more than 8 times heavier than air. So, testing would be done in the lowest level of a home.
  • Radon levels can sometimes be high in one home, and not the home next door. I’ve seen plenty of houses in Madison, Verona, Middleton, and Mt Horeb test good and bad. It is extremely hit or miss.
  • Radon levels are measured in picoCuries per lieter (pCi/L) and it is recommended to mitigate radon if levels are higher than 4.0 pCi/L. (or 2.0 pCi/L depending on who’s literature you read).
  • Radon has been found all over the world and the United States.
  • Dane county falls into the EPA’s zone 1 which means there is a high likely hood of radon gas.

When determining if you want to test your new home for radon here’s some things to ask:

  • Has the home recently been tested for radon?
  • Is the basement sealed to help reduce the risk of radon entering the home?
  • Is there a radon mitigation system currently installed, and is it functioning?
  • How much time do you plan to spend in the lower level?

If you choose to test for radon in the process of a real estate transaction, make sure your agent writes it into your offer as a contingency. Radon tests normally range from $100 – $150, and many home inspectors can do them. If you choose not to test for radon at the time of your real estate transaction, you can test later with a $15 test kit from any home improvement store. The reason this doesn’t work as part of a real estate transaction is you have to mail in the test in to a lab and wait for the results. This is not timely enough to satisfy most real estate contract requirements. A home inspectors test will provide you results in a shorter time frame.

What do you do if you have high radon levels?

Radon levels can be reduced in your home by, sealing cracks in the basement and exhausting air from below the basement slab. A typical radon system runs from $700 – $1300 to install, and can be installed by a quality contractor in a day. Who pays for it is entirely up to how you negotiate your real estate contract.

 



Home Buying – Your Step By Step Guide
September 15, 2012, 8:26 am
Filed under: Real Estate | Tags: , , , ,

Home buying can be a complicated and scary process, especially for first time home buyers. We are here to make it easy and walk you through the process. This is a basic step by step home buying checklist of what you should expect throughout the home buying process. Follow our blog and we’ll detail out each step of this process in future posts.

  1. Decide to Buy – The first step is making a decision that it’s time to buy. If you’re in a good financial position and plan to stay in one place for at least 3 years, it may be your time.
  2. Select a Real Estate Agent – A good agent will walk you through step by step, and help you find other professionals (lenders, inspectors, title companies, etc) throughout the process. They will listen to your needs and wants, educate you about the market, negotiate for you, and advise you all the way. This one is critical.
  3. Select a Lender – Your lender is another critical person in your home buying process. They can advise you on available loan programs and help you determine how much you can spend. A great lender is one who can give you a good explanation and respond in a reasonable time frame.
  4. Obtain Loan Preapproval – Give your lender your financial info and make sure you are qualified before you shop.
  5. Analyze Your Needs – Meet with your agent and discuss what you want in a home, your price range, and the location you prefer, and your agent will start sending you properties meet your criteria.
  6. House Showings – Pick some properties you want to see and have your agent set up the showings. Visit these properties with your agent and hopefully you’ll fall in love with a great home.
  7. Make An Offer – At this point, ask your agent to look at recent comparable sales to determine a good value and write an offer.
  8. Negotiate Terms – After the initial offer there will often be a series of counter offers until the buyer and seller agree on terms. Everything is negotiable.
  9. Accepted Contract – Once the buyer and seller both sign off on the same terms, a home is considered “under contract”. At this point you work on lining everything else up to move towards a closing.
  10. Obtain Home Owners Insurance – Your lender will require you to get a home owners insurance policy lined up before they give you a loan commitment and fund your loan.
  11. Remove Contingencies – Most contracts have contingencies such as; inspections, financing, appraisal, etc. Your agent will help you step through these contingencies and work out any issues that arise.
  12. Settlement Statement – Your agent and lender will coordinate details with the title company to get you to arrive at a final settlement statement. This will tell you how much money you need to bring to closing.
  13. Closing Day – Closing is the process of signing loan documents and title transfer documents. It is at this point that you actually take over ownership. Your lender will send funds to the title company for your loan amount. You will need to bring a cashier’s check for what is due on the settlement statement, and the sellers will give you your keys to your new house!
  14. Move In – Finally, you get to take possession and move in! Or you get to paint, remodel, or do whatever else you planned on doing before moving into the property.