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If you gravitate towards reading negative reviews in your research, or even just for fun, you can thank your brain's automatic negative bias. And our brains have the right idea because poor reviews serve us in practical ways. For consumers, they can warn against potential problems. For companies, they can indicate areas for improvement. The goal for borrowers: choose the best mortgage lender At Best Company, we believe data-informed decisions are better decisions. We recently performed a content analysis of all of the 175 1-star reviews in our Mortgage Rates category as of Fall 2019. Here we present our key data and insights on the most common mortgage lender complaints, including how to leverage this information to get — or provide, if you're a lender — the best mortgage purchasing experience possible. Within each theme, we describe specific issues in detail, what lenders can do to improve, and what consumers can do to avoid those particular problems when they're mortgage shopping. Because when something goes wrong with your mortgage, sometimes it's the company's fault. But sometimes it isn't, since buying a home comes with inherent risks. The opportunity for lenders: respond to reviews and use them to improve Even good lenders get the occasional bad review. Sometimes lenders drop the ball. Sometimes borrowers have unreasonable expectations. And sometimes reviews are highly emotional. Regardless of why negative reviews were written, consumers and companies stand to benefit from being aware of them. Prospective borrowers can watch out for common issues and avoid truly dishonest or otherwise problematic lenders, and companies can respond to reviews and improve their practices accordingly. Along with providing consumers the information they need to make sound decisions, we offer tools for companies to improve customer engagement. *Because this is an overview of general complaints, all specific company and reviewer names are removed. To better understand a specific company’s feedback, read their reviews. Poor customer support — 54% What are the common complaints about customer service? 1. Company representatives were difficult to reach. They never returned calls or emails. They took a long time to return calls or emails. They sent automated, rather than personal, responses. They didn't respond after an application was completed. They didn't respond after the applicant was denied a loan. Communication was poor between loan officers and underwriters. Communication was poor to other vendors like title companies and real estate agents. 2. Consumers didn't have a consistent contact point. Their contact person changed several times. Their contact person went on leave or vacation without telling them and failed to provide an alternate contact. Multiple divisions of a company contacted the consumer, asking for information already given to someone else. 3. Company representatives weren’t on the same page. They kept calling the consumer with loan offers after denying them a loan. They bombarded consumers with loan offers, then halted communication when an offer was pursued. They took too long to re-verify information over the phone. They sent frequent emails requesting information instead of sharing all needed details upfront. Multiple representatives within the same company asked for the same documents several times 4. Company representatives were unhelpful. They lacked training. They provided incorrect or vague information. They spoke rudely. They didn't convey genuine caring. Local support was good; corporate support was bad. What lenders can do Ask what the client prefers. "Put yourself in the client's shoes and communicate the way they communicate with you," suggests Meghan Handy, customer experience director and vice president at Embrace Home Loans. "For example, 'If something comes up, do I call you at work? Do you like to text?'" Sarah Alvarez, loan officer at Family First Funding, explains, "Many people don't have time during the workweek to think about their mortgage, so often the best time to chat is over the weekend." Prioritize communication. Develop a company standard where you commit to return emails or phone calls within a certain amount of time, such as 48 hours. In situations that require more immediate replies, such as the days after submitting an offer or the days leading up to closing, narrow the time gap even more. Respond to every applicant. Don't ditch a consumer just because their application was denied. Walk them through potential ways to improve their likelihood of being approved for a loan in the future. Share bad news right away. Regularly communicate the status of the loan, even and especially if you've hit a roadblock. "A simple weekly check-in can go a long way to ensure the client feels like they are in the loop," advises Realtor David Stroh, GRI, with RE/MAX Plus. Melissa Okabe, real estate agent with Alta Properties, says she recently had an experience where a direct bank lender stopped communicating with her and her client as they were nearing the final contingency removal period. "My client later found out, through a letter in the mail, that the bank denied the loan. It was extremely disappointing that this lender almost cost my client her house by lack of communication." What borrowers can do Test the system. You can test out more than one lender's customer service before committing. Call or email multiple lenders with your questions and see who responds first. Who will send you a personal response rather than an automated one? Who is available over the weekends? Who is willing to work with you on a holiday? Be upfront. Define and share your boundaries and expectations as you shop for a lender. How would you like to communicate? How often do you want to be notified throughout the process? How quickly do you expect responses to emails, calls, or text messages? Be understanding, within reason. Though there is definitely a need for urgency when you're pursuing a mortgage loan, the workers behind the company are people too. Just like you, loan officers get sick, take vacations, and have families. Plus, they have other clients to assist. Provide all of your documents as quickly as possible. Oftentimes, loan officers are waiting to complete the underwriting process because the borrower has not returned documents the loan officer has requested. The faster you can provide your loan officer with the required documentation, the faster you can get your clear to close. Lack of transparency — 34% What are the common complaints surrounding the lack of transparency? 1. The lender didn't follow through on a promise. They advertised a special offer and didn't honor it. They offered a company guarantee and didn't back it. They promised a lender credit amount at closing, then decreased it. They offered to waive a payment, then didn't waive it. 2. The lender didn't adequately inform the borrower. They put private mortgage insurance (PMI) on a loan without explanation. They incorrectly explained the recast process. They changed the closing costs. They didn't explain requirements. They didn't explain fees. 3. The lender was dishonest. They changed agreement of sale without speaking to the buyer. They hid fees within the loan. They hid a prepayment penalty within the loan. They under appraised a home. They over appraised a home to approve a more costly refinance. They charged more for escrow even when taxes go down. They claimed to suddenly encounter a roadblock. What lenders can do Be cautious about what you promise. As with most situations, it's better to underpromise and overdeliver. Alvarez says, "I have heard about lots of people being strung along for months being promised one thing only to be told at the end that it is not actually possible. How frustrating for the client!" And ultimately, the situation is frustrating for the lender, too, when the loan doesn't close. Don't shy away from hard questions. Share all details about what is expected of the buyer in regards to the down payment, appraisal, earnest money, closing costs, PMI, prepayment penalties, and escrow payments. Ask about — and confirm — all relevant financial factors, especially student loan debt, which is often overlooked until the last minute. Share bad news right away. Matthew Yu, vice president of Socotra Capital explains that when scenarios don't go well, it's a natural human reaction to not want to disappoint clients by giving them the bad news. However, he explains, "That's a big mistake. Being upfront with the client about their loan situation will not only allow you to problem-solve but also to build credibility with your clients." Anticipate roadblocks. Before issues even come up, discuss potential roadblocks with your client. Brian Koss, executive vice president of Mortgage Network, advises lenders to "help borrowers understand how the process works and set realistic expectations." That way, he explains, "If there are bumps along the road, they don't come as a shock to the borrower. Ask direct, even probing questions and listen closely to determine a borrower’s true needs and fears, which they may not disclose without being asked." Create a F.A.Q. Borrowers will oftentimes have the same questions. To help streamline your operations, create a user-friendly frequently asked questions document or page on your website to guide your wayward borrower. What borrowers can do Do your research. Read the terms and conditions under any guarantees listed on a company's website. Generally, lenders reserve the right to change guarantees and promotions at any time. Ask your lender specifically about prepayment options within your loan. Be transparent yourself. You may not be able to control the transparency of your lender, but you can control the details you give them. In your loan application and afterward, share all relevant details that may impact your eligibility for a mortgage. Many borrowers are disappointed that their lenders don't identify problematic information until it's too late to resolve the issue before the initial closing date. You can avoid such situations by disclosing student debt, tax debt, and all other financial obligations upfront. Get a second opinion. An appraiser decides how much your home is worth, and, in turn, the maximum amount the bank is willing to loan you. As the borrower, you are responsible to pay for the appraiser, but you don't have a lot of control around who does it since your mortgage broker hires the appraiser (often through a third-party appraisal management company). The bank's chosen appraiser is the authority on that particular loan. However, you can hire your own appraiser to serve as a second opinion. Lender errors — 34% What are the common complaints about lender errors? 1. Important financial details were missed. They didn't add a partner's income to a loan. They didn't tell the borrower that they needed more money down. They didn't realize you needed a co-signer. They didn't catch a student loan account until late. 2. The lender had a typo or misclick. They processed monthly mortgage payments twice. They charged for a late payment after a refinance. They did four hard credit pulls in one week. They incorrectly recorded bank account information. They didn't get names down correctly. 3. The lender incorrectly handled escrow funds. They misplaced funds into escrow. They incorrectly assessed property taxes. They communicated poorly with the city. What lenders can do Admit error. Mistakes are inevitable. No matter how good a company is, it's run by humans. Alvarez explains of her company, Family First Funding, "If a mistake has been made on our end, we always admit it right away and may try to correct it by waiving an appraisal or application fee or whatever makes the most sense as a remedy." Respond from the top. Holly Andrews, managing director of KIS Finance says, "An effective way to resolve issues with unsatisfied clients is by having someone high up in the company, like the CEO, talk to the client directly. When the client realizes that their concerns have been passed to the top without them asking for it, they will feel that they are a top priority." What borrowers can do Repeat yourself. Be willing to share and re-share important details relevant to your loan, even if you've already included them in your loan application, including names, birth dates, assets, and debts. Don't assume your lender will catch any discrepancies because they might not, or they might not catch it until it's too late. Audit paperwork. Where possible, look over the paperwork before it's sent to underwriting and again before closing documents are finalized. Work with your loan officer to do this face to face if there's a branch location near you or over email, video chat, or a secure document sharing platform. Verify your taxes and insurance. To make sure your property tax payments from your mortgage servicer are going through, call the city or visit the property appraiser’s website yourself to confirm. You may also want to contact your home insurance provider, as yearly home insurance premiums are usually bundled in your escrow payments. Slow process or delays — 24% What are the common complaints about delays in the process? 1. Too much paperwork was required. The loan application was too long. The lender required irrelevant information. The lender required information to be notarized. The lender required information that took too much time to get. 2. Loan approval and closing took too long. The lender blamed the delay on underwriting. The process should have taken 30–45 days but took 60. The original closing date was postponed. The lender was slow to pay property taxes via escrow. The seller walked and the buyer lost the earnest money. What lenders can do Explain the process in detail. Most complaints are the result of unfulfilled expectations. So it's key to set realistic ones. "A good mortgage lender will explain the entire process on the front end so that clients will know what to expect," explains Corey Fager, a Realtor with Nashville Homes. He continues, "I appreciate when lenders share some possible road bumps and how they will handle them. "For example, I've had many clients who have shared their frustration halfway through the loan process because they're being asked to provide more and more paperwork. Had that lender framed the process and given the buyers an expectation that they may have to send additional paperwork through the process, it wouldn't be a big deal to them." Create a documentation reference sheet. Consider creating an all-inclusive list of everything you may need from the borrower prior to closing. When lenders ask for documentation from clients multiple times and fail to communicate why, that leaves clients in the dark, according to operations manager Matt Hackett of Equity Now. Anticipate and share needs before they arise. Set up a tentative timeline. Even though there are so many variables that can determine how quickly a loan closes, map out what borrowers generally experience — without making promises. Hackett recommends that lenders "set expectations from the beginning of the process with accurate timelines and the steps needed to move the loan from application to closing." He says it's important to ensure that clients know that the process can be protracted depending on the loan type, purpose, and complexity. What borrowers can do Gather paperwork ahead of time. Get a head start on your mortgage by gathering some of the information you'll need before being approved for your loan, including the following, where applicable: Tax returns Bank statements SSNs Auto loans Student loans Credit card debts Current mortgage(s) Rent payments Divorce documents Retirement accounts Recent income statements Down payment gift statement Lock your rate strategically. Many lenders offer buyers the option to lock into an interest rate in case rates rise. If a rate lock appeals to you, look for a lender that doesn't charge you for this service and that has an extended rate lock period such as Quicken Loans, which locks your qualifying interest rate for 90 days. Realtor Daniele Kurzweil asks her clients to consult with her before locking their rate. "From start to finish, the whole process of buying in NYC takes roughly 90 days. What inevitably happens is that a mortgage broker hears that we have an accepted offer and tells the buyer to lock their rate that day. "However, Kurzweil explains, "that doesn't take into consideration the time it takes to finalize the loan" in her local market including the following steps: 10 days for the contract to be reviewed and the financials of the building to be verified 30 days to gather and submit paperwork 2–3 weeks for the building representative to review the paperwork Kurzweil describes the disappointment that can come when things take longer than expected: "All of a sudden, the 60-day rate lock has come and gone and my clients are stuck paying for an extension." Expect delays. Some loans will close within a month, but unfortunately, it can take much longer. If you keep your expectations low, you create space to be pleasantly surprised if the process goes quickly. High rates or fees — 20% What are the common complaints about rates and fees? 1. The lender charged too many fees. The fees and closing costs were higher than quotes from other lenders. The lender's title company charged more than others. The lender upped escrow fees after acquiring the loan. The lender charged a fee for locking into a rate. The lender charged borrowers to submit a payment. The lender didn't refund fees such as a building survey, appraisal, and home inspection when loan didn't close. 2. The rates were too high. Interest rates were high despite borrower's excellent credit. The rate jumped arbitrarily while market rates went down. The lender didn't offer a rate lock or guarantee. New terms required a higher interest rate. What lenders can do Explain the details of a mortgage quote. "Lenders can often be too aggressive or too optimistic in their quotes — that is, they quote terms based on an exceptional client," explains Ashley Baskin, advisory board member for Home Life Digest. She continues, "But many people seeking loans have issues with their credit, income, or other factors, and therefore the interest rate is higher than anticipated or the terms are a bit different." Baskin's proposed solution echoes a common theme among all complaint categories: "Don't oversell what you can really provide." Explain fees upfront. Make sure borrowers know what fees they will be responsible to pay, such as a home survey where applicable, home inspection, appraisal, rate lock where applicable, earnest money, origination fees, and closing costs. Explain the terms behind each of these fees, including which ones are nonrefundable. What borrowers can do Be aware of standard fees. It's the norm for buyers to pay for some services out of pocket before obtaining a loan. You'll be responsible for some or all of the following fees, most of which are non-refundable: Appraisal Title insurance Home inspection Credit report Documentation Land survey Some fees, such as origination fees, escrow fees, and home insurance, are generally bundled within your loan amount to be paid off over time. Plan to spend anywhere from two to five percent of the purchase price of the home in closing costs. Prepare financially before you buy. To improve the interest rates to which you qualify, take steps to improve your credit. Pay off your other loans and debts where possible. Shop around. You can compare quote estimates from several mortgage lenders before initiating a hard credit pull and before committing to one. You can also explore how your mortgage terms can change based on down payment, credit score, location, and home value with online financial calculators. NBKC Bank has 17 financial calculators for mortgage shoppers to use for free. Borrower didn’t qualify — 13% What are the common complaints about being denied for a loan? 1. The borrower "should have" been approved. The lender didn't accept 1099 income (self-employment or independent contractor income). The lender wouldn't finance a manufactured home. The lender advertised that borrowers with bad credit would get approved, but still declined. 2. The borrower was given false hope. They were preapproved, then denied. They were approved all the way to closing, including signing and submitting final disclosure and closing costs, then denied due to an employment gap. They were charged fees, then denied. What lenders can do Explain why. "Outside of being told that their application for a mortgage was denied, what upsets clients the most is a lack of clear communication or reasoning behind it," explains Patrick Frank of Biproxi. Frank advises lenders to communicate thoroughly with prospective borrowers so they know how to improve their future mortgage eligibility. "If a client gets denied for one reason or another, there’s a chance they could come back to you once they correct their financial situation." Take local markets into account. Pay close attention to the local market of your clients, especially if you're an online lender. New York City-based real estate professional Daniele Kurzweil says that she often works with clients who have prequalification letters from their mortgage brokers approving them to buy apartments at a certain amount. "What they don't realize is that the requirements for the bank and the requirements for the buildings are vastly different. Their mortgage broker might be someone based out of Texas, whereas they are looking to buy in New York City." In this situation, Kurzweil explains, "All bets are off. They have to go back to the drawing board, and we start the process over from scratch." What borrowers can do Don't take it personally. If you've been turned down for a mortgage purchase, even at the last minute, it doesn't mean the lender doesn't like you. These decisions are almost all about numbers. In fact, nobody wins when a loan doesn't close, so your lender is most likely disappointed, too. Reapply. Your eligibility for a particular loan type can improve over time as you improve your credit and other financial factors. Plus, sometimes lenders change their standards or add additional mortgage products that may better fit your situation. Lenders often approve applicants with subprime credit for FHA loans. Don't keep a loan rejection from one lender stop you from applying elsewhere. Focus on your credit. Credit scores are probably the single-most-important factor in what rates and mortgage programs a borrower will be offered, according to Terence Michael of Omni-Fund Mortgage Brokerage. "Make sure that you do not owe more than 30 percent of the total available credit on any one of your credit cards, even for a day," Michael advises. "This is one of the best hacks for either boosting your credit score or keeping it from dipping right when it’s checked by a lender or bank." Be consistent and patient. "Keep in mind that you cannot fix your credit overnight," explains credit industry analyst Greg Mahnken at Credit Card Insider. "It takes time to build a strong credit file and demonstrate your worthiness as a borrower. You’ll need to demonstrate that you can make payments on time, keep your utilization low, minimize your applications for new credit, and have a healthy credit mix. The age of your credit accounts is also a factor, so keep that in mind before closing any credit card accounts." Other ways to build your credit include using a credit builder loan and adding rent and utility payments to your credit reports. Your loan officer should also have resources to help you improve your credit score. Harsh late payment penalties — 10% What are the common complaints about harsh penalties? 1. Lenders were inflexible or unreasonable when borrowers struggled financially. They wouldn't honor the plans arranged with a borrower's previous lender. They took funds without authorization. They foreclosed on the borrower's home. They wouldn't work with the borrower to adjust the loan during a slow time in employment. They sued the borrower for a late payment. They wouldn't approve an equity loan after a home disaster. What lenders can do Assume the client knows nothing. If you think you've over-explained some aspect of the loan terms, chances are, you haven't. Especially with first-time homebuyers, offer to go over the fine print with borrowers multiple times. Many consumers fail to ask questions because they worry about looking dumb. Explain exactly how to set up mortgage payments, what to do if the borrower struggles to pay, and what the consequences are for missing a payment. Be flexible when possible. Work to understand the borrower's situation if they can't make a payment one month. What is going on with their job? Their family? Is it temporary? Within reason, explore ways to cut the borrower some slack through a repayment plan or a loan modification. Would a refinance help the situation? Can PMI be dropped? Can escrow payments be rearranged? Craft a kind message delivery. If a penalty is necessary, remember that a human being is on the other side of the phone, mailbox, or computer screen. It's an ugly task to break bad news, but an understanding tone can soften the blow. Be willing to answer questions the borrower has about the situation, and don’t hide below the legal jargon. What borrowers can do Know the terms before you commit! Closing day is not the time to start familiarizing yourself with the terms of your loan. Ask questions about payment due dates, penalties, and other loan servicing details prior to signing the paperwork. Have your lender show you where everything is in writing. In some states, you’re given several days prior to closing to review this information. Alert your lender ASAP. Don't wait to communicate until you miss a payment. When you miss a payment, the lender reports the missed or late payment, called a delinquency, to the credit bureaus, which will negatively affect your credit score. If you anticipate struggling to make a payment, contact your lender right away to see if there are any options to keep you in your home and salvage your credit. Potential solutions for a late payment or multiple late payment balance include the following: Refinance Forbearance Loan modification Debt settlement Repayment plans If staying in your home is not possible, your lender and your real estate agent will work with you to choose one of the following options: Renting your home Selling your home Short sale Deed in Lieu of Foreclosure Track your loan servicer. Mortgage lenders will often buy loans only to sell them off to another company after closing or at any point throughout the term of the loan. If you make special arrangements with a particular lender, those may not be honored by the next loan servicer.
According to a recent Bankrate survey, millennials (age 25–40) are the most likely group to experience home buyer's remorse. In fact, the data shows us that nearly 64 percent of millennials experience regret or remorse after a home purchase. What is home buyer's remorse? Home buyer's remorse is a deep regret felt after buying a house. Because homes are large purchases, if not one of the largest purchases many consumers will ever make, feelings of remorse or regret are common. While these feelings typically fade over time, you can avoid some common mistakes, which can help you feel more at ease after buying a home. What are the most common home buying regrets? According to Bankrate, the biggest finance-related regrets that millennial home buyers have include some of the following: High maintenance costs (not accounted for) (21%) High mortgage payment (13%) Displeased with mortgage rate (12%) Don’t think buying a home was a good investment (9%) Overpaid on a home (13%) Additional regrets include physical characteristics of a property, including millennials who felt they bought a house that was too big (14 percent), a house that was too small (14 percent), or a house in a bad location (15 percent). Multiple factors contribute to these common home purchase regrets, including a competitive market with record-low mortgage rates, not shopping around for a mortgage, and skyrocketing lumber prices. The competitive market provides a sense of urgency in putting an offer on a home and closing as quickly as possible, which can result in more unfavorable payments and costs, compounded with the fact that materials are just more expensive today than in the past. 13 common mistakes and how to avoid them Underestimating the commitment level involved Not shopping around for a mortgage Neglecting to consider all costs Forgetting about your emergency fund Assuming "new" means "better" Visiting your potential property only once Not taking time to see the neighborhood Buying a fixer upper you can't afford to repair Skimping on a quality home inspection Not taking one last look at the property Not getting a home warranty Making renovation decisions independently Not tracking project costs 1. Underestimating the commitment level involved A house is a big purchase, and that typically comes with increased responsibility. For example, when you get a mortgage to buy a house, you are committing to make subsequent payments on that home loan for the next 15 to 30 years, which is a large financial investment. Tip: Analyze, strategize, and counselApproach your home purchase like the large investment that it is — a house should never be an impulse purchase. Take time to establish what you want and need in a property and its location, analyze all the pros and cons of purchasing, and speak with friends, family, and real estate professionals to assess whether or not you’re ready to become a homeowner. 2. Not shopping around for a mortgage Shopping around for a mortgage is one the most important steps in the homebuying process, but a step that is frequently overlooked by the majority of home buyers. Yes, it might take you more time to pre-qualify with multiple lenders, and rates are fairly similar across the board, but saving even the smallest margin of a point in interest could save you thousands of dollars over the life of your mortgage loan. And you won’t know what rates are available to you if you don’t shop around and pre-qualify with multiple lenders. Tip: Read customer reviewsRates and fees will be entirely dependent on your personal finances, including your credit score and debt-to-income ratio (DTI). But if you want an idea of what the rates and fees are like with a specific mortgage lender, reading customer reviews can be a game-changer. Since mortgage products and services and fairly similar among lenders, it’s important to get an idea of whether or not a company is trustworthy and if they provide reliable customer service — a mortgage is a large investment, so you wouldn’t want to be locked in with a lender that you can’t get a hold of or that can’t answer any of your questions. Read Mortgage Company Reviews [From Real Customers] Compare rates and fees, and see what customers have to say about the mortgage process experience with specific companies. Read Reviews 3. Neglecting to consider all costs There are a lot of homebuying costs to consider, and that’s just a fact. The down payment is the big one that’s usually on the top of mind, but don’t forget about closing costs, moving expenses, home furnishings, and home maintenance costs that will inevitably come up. Crunch some numbers before you get too far in the homebuying process, or to simply map out the costs that might arise. Tip: Don’t just focus on the down paymentLuke Babich, CSO/Co-founder of Clever, recommends the following: “I'd recommend anyone considering buying a house to make a balanced analysis of whether or not they can actually afford to buy a house. There's a common saying that just because you can afford the down payment does not mean you can afford the mortgage! Make sure you factor in important variables: house maintenance (which is on average $13,000 a year), mortgage payments, home insurance, and security.” 4. Forgetting about your emergency fund The homebuying process includes many large upfront costs, not to mention that you will need to budget out your monthly mortgage payments throughout the life of your loan. Thus, it can be tempting to save up all money necessary to cover your home purchasing costs, but if you neglect to save up some money for emergencies, you may find yourself in deep water later on. Therefore, when you’re saving up to buy your dream home, also save up for your emergency fund. Tip: Buy less house than you can affordJohn Grimes, Realtor at BHGRE Metro Brokers, recommends the following: “It is very important that they draw the line at a level they're comfortable with going forward with no rosy assumptions of increased income. Ideally, a dual income couple should buy a house that either one of them can swing on their one income. That almost never happens, but it would reduce stress in the household. Buying below one's means leaves room for savings, vacations, entertainment, charitable giving, and other priorities.” 5. Assuming “new” means “better” Daniele Kurzweil, the Friedman Team at Compass, explains how a new home doesn’t necessarily mean it’s “better”: “Everyone loves walking into a home and seeing that there is no work to be done. Bring your toothbrush and you are home. Many developers and home flippers are catering to people who want new new new and design their projects to conform to whatever the latest trends are. Our clients walked into an apartment and fell in love with the open concept look with very modern finishes. Fast forward six months and our clients realized that while an open concept floor plan might be wonderful for a two-story house, in an apartment it poses its own unique challenges. Sound travels, and when you have one big open room you have nowhere to escape to. The modern finishes were beginning to look dated, and since everything was out in the open, it was the only thing they could focus on.” Tip: Consider the pros and cons of a new buy or build Kurzweil continues: “Design trends are just that — trends. When purchasing a home, be sure to consider what your needs are. Is this for starting a family? Empty nesters? First-time home purchase? Think of buying a new construction home kind of like buying a car: the second you drive it off the lot, it starts depreciating in value. You are buying new construction because it has never been lived in, and as such you are paying a premium. But when you go to sell, one of the biggest draws will no longer be there. . .it will no longer be new.” 6. Visiting your potential property only once Imagine that you find a property that you can just feel is the right one. The neighborhood is beautiful and quiet. The neighbors seem nice. You’re ready to put down an offer right there and move in the next day. While this can happen and your gut feelings shouldn’t necessarily be ignored, you might want to visit the property again on another day. When you only visit a property once, you might miss out on important factors, such as after school traffic, that might not actually be ideal. Additionally, a one-time visit might not provide you with enough time to take a close look at the property, which could cost you in the future if there were repairs or issues that you missed on your one and only visit to the property. Tip: See the property at different times on different daysGerard Splendore, Broker at Warburg Realty, recommends the following: “I sold a one-bedroom apartment to a first-time buyer and we only viewed it when school was in session, not at the beginning of the day for drop off or end of day for pick up. At the walk through the day before closing the street in front of the building was clogged with school buses and parents in cars. This came as a complete surprise to the buyers.I always suggest seeing properties during the week at various times, in the evening, and on weekends. This is a great way to avoid any surprises about the surrounding area.” 7. Not taking time to see the neighborhood Alison Bernstein, founder and CEO of Suburban Jungle, was the first of her friends and colleagues to leave the big city to live in the suburbs. She and her growing family found an area that seemed perfect on paper, but it turned out, after they moved, that the area wasn’t what they had anticipated at all and they realized that they really wanted something different. The trouble is that real estate agents don’t always know neighborhood and community nuances, so it can be hard to get a complete picture of an area. For this reason, Bernstein started The Suburban Jungle, a company committed to helping families make the move to suburbia by making connections in the communities they’re interested in. Tip: Meet people and make connections Bernstein recommends the following: “Talk to as many people that live [in the neighborhood] and try to get the real, non-sale pitch to understand what their day is like. Maybe meet them and run a few errands with them and see if you can see yourself there. You know, like even going to the school pick-up if you have kids, or going to some preschools and being there at the time of drop-off or pick-up. Those things go a long way because a lot of people see community on a Saturday and they're like, "oh, this looks fabulous," but it tells a different story on like a Tuesday afternoon.” 8. Buying a fixer upper you can’t afford to repair Perhaps you’ve spent some time watching HGTV and have been entranced by shows like Fixer Upper or Good Bones. Maybe you think that buying a run-down home could be a fun and easy project. This could be true if you have a background in construction or home renovation, but for the average individual, buying a fixer upper home could cause more headaches and stress than you really want or need. Tip: Don’t get in over your headAlison Bernstein from Suburban Jungle explains: “If you have the appetite for fixing up and you don't get in over your head, and that's what you're excited about, then great. It's important to make sure that people have enough time because a lot of people are working full-time or have kids, and it is definitely a very time-consuming process. So as long as you can enjoy it and take it on, and like I said, more importantly, enjoy the process, then it's great. If you don't have a choice, you're stuck and you're renovating because you have to, I think it takes on a different light, but hopefully it's well worth it.” 9. Skimping on a quality home inspection One of the best ways to induce remorse or regret is by skimping on a home inspection. In many cases, this might be a required part of your mortgage process. But if it isn’t, that doesn’t necessarily mean that it should be optional. Tip: Pay more for a highly qualified inspectorWally Conway, president of HomePro Inspections, recommends the following: “The single best way to avoid buyer’s remorse is to have clarity on what you are buying and have protection for the unexpected. Your home inspection should be performed by the most experienced and technically competent home inspector that money can buy. Most buyers are taking on a 30-year mortgage, and that’s a long time to live in regret. It's also 360 mortgage payments! Wouldn't it seem wise to invest a mortgage payment to ensure that you have done as complete a job in due diligence as is humanly possible? Consider protecting your home after the inspection is done by choosing a home inspection that includes protection to cover the cost of the unexpected problems that will come up with home ownership, such as live sewer line failures, mold, and roof leaks.” 10. Not taking one last look at the property David Pipp, Personal Finance Blogger at Living Low Key, shares his experience not noticing an issue that could have been avoided: “Shortly after we moved into the house, we had a massive rain storm and ended up with water in our basement. It wasn't until that issue arose that we noticed there were no gutters on the back side of the house where water got in. $2,000 later we had new gutters on the house and our water problem was fixed. Since we moved in, we have had to add a water filtration system to the well, replaced both of the decks on the house, replaced a leaking toilet, and countless other small fixes totaling close to an additional $10,000. Next summer we plan to have the house re-insulated because it gets really cold during the Minnesota winters.” Hire a second home inspector One way you can ensure that nothing is missed, or any issues are overlooked, is by hiring a second home inspector. This might be an additional upfront cost, but having a second opinion at the start, and a comparison to your initial home inspection, could save you thousands of dollars later on. 11. Not getting a home warranty After putting money into a mortgage, a home inspection, and more, you may want to shrug off getting a home warranty — after all, it would just be one more expense, right? However, you never know what could happen once you close on your home. Perhaps, just days after closing, your water heater breaks or your air conditioning stops working. Without a home warranty, you could be spending a large amount of money out of pocket, whereas a home warranty could save you from some of these expenses in the long run. Tip: Understand how a home warranty worksJlyne Hanbak, REALTOR® Keller Williams Realty, explains: “A home warranty is a relatively inexpensive way to protect the major appliances and systems of a home for a specific period of time after the home is purchased. A home warranty can — and should — be negotiated into the contract on behalf of the buyer so that they are protected after their home closes.” 12. Making renovation decisions independently When renovation decisions come up, it can be helpful and important to have a second, professional opinion on your next steps. While you might think that you could save more money by doing a Google search or seeing what other people have done on YouTube, these options may not be the best for your specific situation and could cost you more overall. Tip: Hire a professional When buying a fixer-upper home you need to get advice from a home improvement professional on its overall potential for making the improvements you're expecting to make. 13. Not tracking project costs John Bodrozic, co-founder of HomeZada, explains: “When you don’t budget and track costs on home remodel projects, you can end up way over budget. Plus, you don’t have a record of costs that can help you adjust the tax basis of your home at tax time.” Tip: Budget and record expenses from day one Keep a record of your home expenses from the very beginning, it’s really as simple as that. Move forward without regret The answer to avoiding home buyer’s remorse really comes down to three things: financial preparation, education, and awareness. Learn about the different mortgage products available to you. Get loan offers with interest rates from multiple lenders. And before settling on a particular lender, read customer reviews about the top-ranked mortgage lenders. Are there hidden lender fees? Are the loan officers prompt to return calls and emails? Are other borrowers pleased with their experience? Remember that a professional opinion could be a big money and time-saver. While it may seem like a hassle to get a contractor, home inspector, or other home professional to take a look at your property, it could save you from stress later on. Buying a home, unfortunately, can often come with some buyer’s remorse — it is a large purchase after all. But if you prepare properly and learn from the mistakes of others, you can make the best decision possible without looking back. Compare Top-Rated Mortgage Lenders Read verified customer reviews and find the best mortgage lender for your needs. Compare Article updated by Kalicia Bateman Contributors: Luke Babich, CSO/Co-founder of CleverJohn Grimes, Realtor at BHGRE Metro BrokersDaniele Kurzweil, the Friedman Team at CompassGerard Splendore, Broker at Warburg RealtyAlison Bernstein, founder and CEO of Suburban JungleWally Conway, president of HomePro InspectionsDavid Pipp, Personal Finance Blogger at Living Low KeyJlyne Hanbak, REALTOR® Keller Williams RealtyJohn Bodrozic, co-founder of HomeZada
Among non-homeowners, 75 percent consider owning a home part of their American dream. So what's stopping them from making it happen? According to a recent survey, the top three barriers to homeownership are Cost of a down payment Cost of monthly payments A lack of overall savings Money, money, and more money. Enter tiny homes. With 91 percent of single-family home buyers favoring homes 2,000 square feet or bigger, living large is still king, and tiny homes are the exception rather than the norm. But they’re becoming more popular, and finances play a role. Say what you want about the lifestyle aspects of this “trend,” but tiny houses — especially DIY ones — are dirt cheap compared to the typical single family home or condo. The financial barriers to tiny home ownership simply aren’t as daunting.Still, a professionally built tiny house costs around $60,000 on average — far more cash than many potential buyers have on hand. And tiny home financing can come with unique challenges. So, how can (and can’t) you finance a tiny house? Can I finance a tiny home with a mortgage? The short answer is no. There are a few exceptions, but you should assume you won’t be able to finance your typical tiny home with a mortgage. Why not? The bank wouldn’t make enough from the arrangement While there’s not a universal minimum loan amount, banks generally won’t fund mortgages under $50,000. It’s not cost-effective for lenders to do the work with less than that because they only charge origination fees of 0.5 percent to 1 percent of the total loan amount. It’s not considered real estate A mortgage cannot finance anything mobile, including a mobile or manufactured home, a titled trailer, or a tiny home on wheels. It requires a permanent, foundation-affixed home. Shawn Breyer, owner of We Buy Houses Chattanooga, describes the distinction: “Not all tiny homes are considered real estate. If a tiny home has wheels, then it is considered personal property. To be considered real estate, there must be property taxes on the asset. Without a recorded title and plat [a map showing the divisions of a piece of land], there are no property taxes and it is not considered real estate. There's a difference in financing options for personal property versus real estate.” The property can’t be appraised An appraisal is primarily based on comparing a home to homes with comparable square footage that have sold within the previous year. And since tiny homes are relatively new, there generally aren’t enough homes for a meaningful comparison to take place. Matt Hackett, operations manager of Equity Now, expounds on the roadblocks to appraisal: “Fannie Mae doesn't have a minimum square footage requirement for a home, unless the property is a condo, coop, or a manufactured home. In that sense, there is nothing in the standard underwriting guidelines preventing the financing by mortgage of a very small home, but the home needs to conform to the neighborhood and there have to be enough similar sales for an appraiser to be able to determine an opinion of market value.” There are exceptions to the ruleHowever, you may be able to secure a mortgage in certain regions if specific conditions are met. Joe Toms, president of FreedomPlus explains how: “Mortgage loans are offered only for homes that are built on permanent foundations. While most tiny homes are built to be mobile, if someone is building a tiny house on a foundation — and complying with local building codes and requirements — they may be able to qualify for a mortgage.” Buildings Guide is a good resource to check out the requirements and codes in your area. Can I finance a tiny home with an RV loan? Yes. Some tiny home manufacturers, such as Tumbleweed Tiny Houses, provide financing to purchasers through RV loans. To obtain an RV loan, the home must first be certified to meet manufacturing and safety standards by the Recreational Vehicle Industry Association. Adele Alligood, financial advisor for EndThrive, says the benefits of using an RV loan include the relative simplicity of the process compared to that of a mortgage and the fact that you generally aren’t required to put up collateral. However, this solution isn’t perfect. Alligood explains that “to secure an RV Loan, you need a steady income, good credit, and somewhere else that you can call your primary residence.”An RV loan works if your tiny house will be your traveling home, your second cottage, or getaway. But if you intend for your tiny home to be your primary residence, you need another answer. Can I finance a tiny home with a personal loan? In almost every case, yes. A personal loan can help you pay for the costs of building a new tiny home or purchasing a pre-owned one. Typical personal loan amounts range from $2,000-$50,000, but some companies will lend borrowers up to $100,000. It offers flexibility The main advantage to a personal loan is that it can be used for any purpose the borrower wants, whether that’s paying for materials for a DIY build, labor costs for a professional builder, a plot of land, or a F-350 sized truck, which you’ll likely need to pull a movable tiny home. It may be easier to qualify Independent personal loan companies use different criteria than a traditional bank or credit union to evaluate a person’s repayment liability. According to Toms, “This can be especially helpful for someone whose credit profile may not reflect his/her ability to repay, or for someone wanting to use the loan for a non-traditional purchase such as a tiny home.” Conditions still apply However, that doesn’t mean personal loan standards aren’t stringent. The higher your credit score, the better interest rate you’ll qualify for. Conversely, a personal loan can be a disadvantage if your credit is poor. Alligood warns, “If your credit is less than ideal, a personal loan could cost as much as a credit card loan or more.” Plus, some personal loans come with prepayment penalties. Can I finance a tiny home with my home equity? With a home equity line of credit (HELOC), you can use your home as collateral for a loan amount, which could go towards a tiny home build or purchase. You can draw on that line of credit for a certain draw period, then repay the amount you borrowed along with interest. A different home equity option is a “co-investing” model like that offered by Unison. With Unison, a homeowner can get paid up to $500,000 or 17.5 percent of the home’s value as a one-time payment to be used at the consumer’s discretion, such as building a small or tiny home as an Accessory Dwelling Unit (ADU) on their property. Then, when the homeowner decides to sell or buy Unison out, Unison gets a share in the appreciation of the home. Both parties benefit if the home increases in value and both share in the loss if the home decreases in value. Unison strategist Amin Mirzadegan says that Unison’s model is different than a home equity loan or line of credit in that homeowners don’t garner any added debt, monthly payments, or interest. “Additionally,” Mirzadegan explains, “Unison customers who increase the value of their home by building an ADU also benefit from the Remodeling Adjustment feature, which allocates 100 percent of the value attributable to a home improvement project to the owner, so Unison doesn’t share in any value gained from the project itself.While an ADU is not considered an independent piece of real estate on its own land or personal property like a mobile tiny home, it’s becoming an increasingly popular option for multi-generational or caregiver households. Thinking outside the box Of course, it would be ideal to pay for your tiny house out of pocket. Or to procure the money you need without dealing with the complicated technicalities of loans from financial institutions. Consider these additional ideas as you make your financing decision. Regardless of the option you choose, be clear on the nitty-gritty of all terms and conditions. Borrow from friends or family. Come up with an agreement that benefits you both, such as an interest payment that compensates them well, but is less than what you’d pay a bank. Save aggressively. Forego as many non-essentials as you possibly can. Live like no one else now, so you can live like no one else later. Build as you go. If you’re not in a time crunch, purchase materials for your tiny home in waves as you have the money, and not all at once. Consider manufacturer financing. Some manufacturers have their own financing options set-up so you don’t have to worry about working with a third party. Look into peer-to-peer lending. There are tiny home communities online that are invested in the tiny home movement. And some individuals will invest in a borrower’s tiny home. Try a chattel mortgage. Similar to a car loan, the lender owns your home until you finish paying off the loan. This is a good option if you park your tiny home on leased land or you move frequently. Don’t forget about using credit cards. Proceed with caution! But if your credit limit is high enough to cover your costs and you’ll be able to pay your bills off quickly, this can work.
Buying your first home is one of those milestones that you build up to for years. There are many questions to ask before making such a big commitment: Am I ready? How do I start the process? Do I have enough money saved? There are a lot of i's to dot and t's to cross. And, unfortunately, watching HGTV isn't enough to fully prepare you. Thanks to the assistance of over 10 real estate experts, we have created a house hunting checklist guide that will make your house hunt easier. Eventually you'll have the confidence to tackle the home buying process like a pro! Let's get started, choose one of the five house hunting tips to dive deeper into or start from the very beginning. Get financially fit Build a strong real estate team Get a full pre-approval Evaluate what type of home you want Determine your priorities and deal breakers 1. Get financially fit Not everyone knows how much money is enough for a decent down payment. There are misconceptions about the importance of credit scores as well as income requirements that can affect your loan approval as well. Consistently save for your home Regardless of how soon you plan to purchase a house, it is beneficial to put aside a certain percent of your income to ensure that saving money becomes a consistent habit. Saving at least 20 percent of your income is a good place to start. Depending on the housing market and your income, you could potentially be ready to purchase a home in the next 12 to 16 months. If a 20 percent savings goal is unrealistic in your current situation, you can put aside a smaller amount for a longer period of time. When saving money to buy a house, it is also important to factor in closing costs in addition to the down payment. This is going to call for more money out of pocket—further planning and budgeting is essential. Closing costs usually account for about two to five percent of the purchase amount on the house you are closing on. Work on your credit score Your credit score plays a significant role in the loan process. Although credit score requirements vary based on the type of loan and loan agency, anything below a 620 is most often considered poor. Having a credit score above 620 is going to increase your loan approval odds. Be aware of your credit score and do everything you can to increase it in order to get the best rates possible when house hunting. Senior Loan Officer Kim Hankins advises prospective homebuyers on specific ways to protect and improve their credit score: Treat your credit score like your adult GPA, and be organized and conservative with your finances — that’s all a lender could ever dream. First-time homebuyers often overlook the importance of a strong credit score. An 800 credit score is more valuable than $100,000 in the bank. search How to strengthen your credit score: Open credit ASAP — just two cards Don’t charge more than 30 percent of the high limit Pay monthly to 10 percent of the high limit and do that again and again Avoid late payments Determine how much home you can realistically afford Utilize financial calculators and consult with lenders about your financial situation to determine a reasonable loan amount and price cap. John Bodrozic, Co-Founder of HomeZada, recommends doing thorough research of the costs associated with homeownership: Use mortgage calculators to estimate your monthly payments and estimate the annual household expenses such as utilities, property taxes, and preventative and normal repair costs. Once you have these numbers, then you will know what price range of a home your finances will support. This method makes sure you are looking for house that is within your budget, versus getting emotionally attached to homes you really love but financially you cannot afford them. It also helps you be a more competitive and ready buyer because once you have the financial aspects down, you are ready to move quickly when you find a home that works for you. Other competing buyers for the same home may not have their financial house in order so you can move quicker with your offer. 2. Build a strong real estate team Shop around before committing to a lender Doing research, talking to loan companies, and getting quotes is going to be the best way to discover what lender and loan type is best for you. You can consult our list of top-rated lenders to learn more about specific lenders and what they offer. There are also several loan types, so it is important to find the one that best fits your individual situation. Determining factors on loan choice include loan length, payment choices, credit score, and interest rates. Keep in mind that not all lenders offer all loan types. Kendra Barnes, Founder of The Key Resource, offers her best house hunting tip for lender shopping: How to comparison shop for a home loan: search How to comparison shop for a home loan: Shop around. Most buyers go with the first lender they call because they aren’t aware that they can shop around! Just because a bank gives you a pre-approval letter does not mean you have to stick with them! Ask about incentives. Ask the lender if they have any incentives such as lender credit at closing or fee waivers. Make them compete for your business. As you’re shopping around, be sure to tell each lender you call what the other lender is offering. Ask them if they are able to match or beat that lenders’ terms. Find a realtor who is a good fit House hunting is demanding enough. Consider using an expert real estate agent to guide your decision making every step of the way. They can take the pressure off of you by helping you find houses that are in your price range and meet your expectations. They also have extensive experience in the process as a whole, so they are invaluable resources for questions and advice. But every realtor is not a good fit for every buyer, there are practical considerations to keep in mind when choosing a real estate agent. Shawn Breyer, Owner of Breyer Home Buyers, describes what buyers can do to maximize efficiency and success within the realtor-client relationship in a fast paced market: You should be find properties online and then do a drive-by as soon as possible before reaching out to your realtor. When you do this, you will quickly weed out homes that don't match your criteria. Imagine that you're trying to find a home in a well-maintained neighborhood and a couple of the neighbors have cars parked in the yard that they are working on. These are things that Google Maps or the listing may not show. You will weed out properties much quicker with this approach while respecting your realtor's time by not making them meet you at houses that you instantly realize you don't want to buy when you pull up. In a competitive market, speed is king. Find a highly recommended property inspector Alex Romanov, iwillbuyhouse.com Co-Founder, emphasizes the importance of an oft-overlooked aspect of house hunting: Prior to house hunting, every buyer should find a highly recommended property inspector. A careful property inspection done by an expert can save you tens of thousands of dollars of costly repairs. Therefore, the top inspectors are highly sought after and are often booked for weeks in advance, so it helps to get one on your team as soon as possible. 3. Get a full pre-approval Prepare paperwork and complete a loan application Senior Loan Officer Amy Tierce describes why it's smart for prospective buyers to work with a lender from the very beginning: Speak with a competent mortgage lender if the borrower is not looking to purchase for as long as a year out. Why? Because there are many items that can impact qualification, starting with credit. If there is a error on the credit, getting it corrected can take weeks, which is often too late if you have an accepted offer on a home. Self employed (Schedule C) buyers need to look at year over year income and may want to change the way they file to maximize income. Multiple asset accounts or complicated down payment strategies may also need to be addressed. For example, if a borrower is getting a gift, or has money in a trust or other financial vehicle, some adjustments may need to be addressed prior to buying. Imrad Poladi, Vice President of NextHome, describes what the ideal pre-approval process looks like: It's been said before, but having a complete pre-approval process with a reputable lender is critical in the early stages of a home search. Buyers should aim to have as deep of an approval as possible. Do your best to get what is known as underwriting approval, which basically means that the buyer has been vetted to buy a home up to a certain purchase price and all that is left to do is find the right home. The lender sees no current red flags on providing the buyer a home loan. Talk to your lender about buying down your rate Poladi also suggests buyers look into buying down the interest rate on their loan: Depending on the type of loan, every $1,000 negotiated down only saves the buyer a few dollars per month. But if the buyer buys down the rate, the savings could be far more significant on a monthly basis. I suggest that a buyer talk to an agent and/or lender for further clarification on how this would work. 4. Evaluate what type of home you want Before deciding what you want and need in your new house, it's a good idea to compare the pros and cons of buying a move-in-ready home versus a fixer upper. Compare the benefits of a turn-key home or fixer upper John Bodrozic, Co-Founder of HomeZada, explains how buyers can compare the implications of the choice between a turn-key home or a fixer upper: search How to choose the right kind of home: Turn-key — A ready to move-in house commands a premium purchase price. So as an example, with a $400,000 house with a 20 percent down payment of $80,000, your mortgage would be $320,000. At current market rates, with a 30-year fixed-rate loan of 4.5 percent, the buyer’s monthly mortgage payment would be $1,620 and you would pay approximately $263,000 in total interest over the 30-year loan. Fixer-upper — Let’s assume the same size home might sell for $325,000. A 20 percent down payment would be $65,000, which would be upfront cash savings of $15,000. The mortgage would be $260,000, which at the same 4.5 percent interest rate would be a $1,317 monthly payment, which is a savings of $303 every month. The total interest on this loan would be $214,000, which is an overall $49,000 savings from the other scenario. The ability to pay for those renovations could come from the savings in down payment along with the savings over time of having a lower monthly mortgage payment Realtor Tania Isacoff Friedland of Warburg Realty weighs in on the question of how much capital and time is realistic to invest in a property: Some first-time buyers think they'll like the excitement of a renovation, but it's important to take into consideration the realistic cost and time involved to complete the work. In addition, renovating to your taste level or specifications is not always what someone else will want, so I caution first-time buyers doing a renovation not to "over-renovate" and to keep things simple. When it comes time to re-sell, no one wants to overpay for someone else's renovation. Many first-time buyers don't have the time or energy to endure a renovation and will pay up for modern conveniences in a new development. Don't be misled, as there's still work to be done in new construction aside from decorating. For example, you will most likely have to outfit the closets and wire for audio-visual technology. Determine what home and yard maintenance you can handle Realtor, Broker, and GRI Frances Dawson reminds first-time home buyers to consider yard maintenance: One common pitfall for first time homebuyers is not considering the maintenance of properties compared to the time they want to spend. A condo or townhome has a monthly fee for maintenance, but frees the homeowner's time for other pursuits. A property with a big yard or acreage, while appealing, can quickly become an overwhelming drudge or an expensive chore to hire out. 5. Determine your priorities and deal breakers Dream up what you want (and what you don’t)! Knowing what you want may sound like the easiest task of them all, but this can be difficult to decide, especially if you are buying a house with someone else. If that is the case, our best house hunting tip would be do find middle ground on both your wishlists. Here are a few questions that you can asks yourself to nail down your must-have for you potential home. Do you want a quaint, petite house? A large, sprawling one? How many bedrooms are you looking for? Where do you want the house to be located? Do you want a big yard? Do you want to live in a populated neighborhood or a secluded area? And underlying all of these important questions: do your wants match your price range? If you know what you want ahead of time, the process of buying a house is going to be less grueling. If you are buying the house with someone, make sure you communicate with each other your deal breakers. Decide together what you can and can't live without to create a vision of your future home. Realtor Tracey Hampson recommends the whole family participate in this part of the house hunting process: I always recommend doing a want list and a need list with the whole family. It helps so much! I wish my previous buyers had listened to me and done this. We had been looking for homes for about six months and they finally decided on a gorgeous home, but when they told their children they burst into tears because they did not want a swimming pool! I know, what kid doesn't want a swimming pool? So including the whole family is always a good idea! Aside from the essentials (i.e., number of bedrooms, bathrooms, square footage), some home features to consider when you're making your wish list are ceiling height, closet space, versatility of the space, proximity to schools or work, gated communities, outdoor space, as well as additional storage in the building. Study cities and neighborhoods in-depth Suburban Jungle Founder and CEO Alison Bernstein shares three recommendations for town and neighborhood hunting: search How to find the right location for your home: Don’t prioritize the house over the town in which it resides. The goal is to find a place where the culture and values of the town match yours. You can always trade up or down for a new home, add a third bathroom, or renovate a basement. Don’t excessively limit your search area by your commute. Just 10 more minutes on the train or bus could perhaps score you a lot more for your money. Don’t over romanticize walkability. Often, buyers coming from more urban centers feel they need a house as close to the shops and restaurants as possible. The reality is that schooling, sporting events, and other activities often take place out of the town center, limiting the importance of this feature. From a purely non-subjective standpoint, House Heroes Co-Founder Earl White recommends looking into neighborhoods that are most likely to hold value over time: Nobody wants to buy property in the process of depreciating. Sales comparison prices and online estimates look back in time, not forward. The clearest sign that a neighborhood will continue to hold its value is average days on the market. The days on market part of a listing tells you how long properties take to sell - it is an objective measure of neighborhood demand. If properties are sitting around for long periods of time at a certain list price, market values will fall below that price. When houses are "flying off the shelf," it's a good sign values will be stable or even appreciate. Similarly, regardless of sales comps, if houses are sitting on the market and not moving, it's a sign prices are on the way down from those list prices. Take a deep breath Are you feeling overwhelmed? Second-guessing your pursuit of buying a home? Focus on the benefits of homeownership It's a big deal to buy a home and there's a lot to consider and prepare. If you follow these steps and are in a financial position to purchase, you can do this! Real Living Reserve Realtors Associate Broker Christine Allocca brings attention to the fact that paying a mortgage has significant benefits over paying rent: Remember that comparing a rent payment to a mortgage payment is not apples to apples. New home buyers can deduct mortgage interest on up to $375,000 of debt for individuals and up to $750,000 for married couples. Additionally, rents always go up in the long term while mortgages don't. Steve DiMarco, President of Key Mortgage Services, reminds first-time buyers of the long-term benefits and achievability of homeownership: While it's a seemingly large investment at the time of purchase, this is an investment in your future and your overall wealth. The investment goes beyond the physical home. You're not just purchasing a piece of real estate, you are building wealth. Homeownership is the first very important step toward that wealth creation. I tell first-time buyers that they are overlooking how achievable homeownership is. There are so many programs for first-time buyers - programs that require as little as three percent down. That's a few months of savings right there to get you into your home. Don't forget to get your handy home buying process checklist below.
There is no shortage of entertaining home buying, home improvement, and property investment series on TV. If you imagine your typical show, it may follow a familiar format: The would-be homebuyers are chauffeured around by a realtor, visiting various listings, walking inside, arguing, and visualizing the ideal scenario. In some cases, the home in question would make a great fixer-upper, flip project, or income property. The buyers discuss nuts-and-bolts costs, estimated renovation project time frame, and sometimes negotiate with the seller. The realtor spends about 15 seconds saying something like, "Let's just double-check with the bank," and then, an hour and some time-lapsed renovations later, the happy couple has a home! Easy peasy, right? Expectations vs. Reality Anyone who's actually traversed the complex and often lengthy home-buying process understands that these shows tend to oversimplify just how much goes into buying a home. To be fair, HGTV's priority is not to highlight the boring loan approval and offer acceptance waiting games that accompany the home-buying process (nobody wants to watch that!). Nevertheless, this and other aspects are vitally important to be aware of. House flipping and other home renovations — as popularly portrayed in Fixer Upper and Good Bones — are common considerations among first-time homebuyers and veteran homeowners alike. According to a Houzz survey of over 130,000 homeowners, over 50 percent of them had completed renovations or planned to in both 2017 and 2018. In an Open Listings survey, over 500 homeowners were asked what they would most likely do if they had $10,000 to allocate towards housing. 73 percent said they would use it toward current home renovations while only 27 percent said they would put it towards a down payment on their next home. Whether you’re looking for a move-in ready home, a place requiring some renovations, or a true fixer-upper, here are 10 important details about home buying that TV doesn’t always show. 1. Buying a home (usually) takes time Lots of us are suckers for before and after pictures without regard to the time it took in between, whether it’s a dramatic fitness transformation or a home makeover that’s turned grungy into gorgeous. On average, the home buying process takes about four and a half months from shopping to closing but can range anywhere from 30 days to the greater part of a year. Debra Carpenter of Sandpoint, Idaho’s Nathan Oulman Realty has noticed that many first-time buyers are unaware of the time it can take to make offers and finalize an accepted offer. “Reality shows don’t portray how long it takes to close on a house once you’ve made the decision to buy,” Carpenter explains, but she admits that while the process definitely takes longer than it appears on TV, “the feeling of being in your new home is completely worth it.” When faced with TV-inspired unrealistic expectations from clients, top agent Lisa Larson of Warburg Realty in Manhattan wisely poses the question, “Would you take relationship advice from The Bachelor?” Chew on that food for thought! Larson continues, “If you watch reality shows, be aware that they are scripted and edited versions of reality. The irony, of course, is that the popular and entertaining shows on HGTV set up unrealistic expectations when it comes to renovation, its expense budgets, time constraints, and obstacles — as well as real estate in general.” Quickly flipping a home and expecting a huge return profit is not feasible in every market, especially for the inexperienced. Larson cautions agents against promising multiple offers over the asking price of a home and finding a deal good enough to flip soon after. This process requires patience — sometimes years of searching for an opportunity where all stars align. 2. Your credit score is a crucial factor Two words never really mentioned on House Hunters are "credit" and "score." Your credit score is among the most influential determinants in the home-buying process, especially if you need to take out a home loan (and most first-time buyers do). Your credit score is measured by a number of factors, including your credit history, the number of lines of credit under your name, and how prompt you are in making your monthly payments. Banks and other lenders pay close attention to your credit score to help them quantify your trustworthiness in paying back a home loan on time. Generally, if your credit score is above 700, you are considered a low-risk borrower, and lenders have confidence they will get their money back. If your credit score is too low (below 600), you will be considered high-risk and likely won't even qualify for a home loan. Most lenders won't even make you an offer if your credit score is below 620. Even if your credit score is good enough to place you in the market as a buyer, the lower your credit score, the higher your mortgage interest rates and monthly payments are likely to be. Sometimes a greater down payment is also required. And, of course, higher rates and payments can in turn affect how much home you can afford. Take a look at these data projections (courtesy of myFICO.com) to see how your FICO score can influence your annual percentage rate (APR), monthly payment amount, and total interest paid — assuming you live in Colorado and are requesting a principal amount of $100,000: FICO Score APR Monthly Payment Total Interest Paid 760-850 4.469 % $505 $81,744 700-759 4.691 % $518 $86,515 680-699 4.867 % $529 $90,340 660-679 5.081 % $542 $95,042 640-659 5.51 % $568 $104,630 620-639 6.055 % $603 $117,113 As you can see, a bad credit score will not only lock you into a higher rate but also force you to pay more each month, resulting in an additional $35,369 in total interest paid! 3. Luxe features require a larger budget In the Open Listings survey mentioned previously, respondents were asked which amenity or feature they didn’t have in their current home that was a “must” in their next (or, presumably, a renovation requirement). Top responses included hardwood floors (18 percent) and quartz or granite countertops (15 percent). Additionally, Doug Smith, president of Miller & Smith, a Washington, D.C.-based home builder and real estate developer, has seen "a seismic shift in buyer expectations” over the last few years. “Today’s consumers bypass anything mass produced in exchange for ‘artisan’ products, fixtures, and features,” Smith says. “Thanks to the HGTV phenomenon and saturation of home improvement shows, many buyers expect luxe features, such as hardwoods on every floor and granite or quartz countertops, to come standard at all price levels.” Of course, that’s simply not the case. The price tag of such specialized features is above standard levels, and the customization homeowners crave may not always be feasible for the average budget. That doesn’t mean homebuyers, flippers, and builders need to be millionaires to make their homes into something that suits some of their preferences. But be prepared to pay more for luxe renovations or to buy a move-in ready home with them. Smith explains that his company finds the balance in offering customization and providing simplified options through a selection process where homebuyers can capitalize on what is most important to them. 4. Your debt-to-income ratio matters What you might not realize while you're binge-watching Property Brothers is that homebuyers almost always go into debt when financing a home. However, if lenders predict that you're about to take on more debt than you can handle, they will not make you a loan offer. Right behind your credit score in order of importance is something called your "debt-to-income" ratio, or DTI. Simply put, your DTI measures your housing, monthly, and other debt expenses against how much you earn. This number shows creditors how well you can manage your debt payments and, unlike your credit score, you want to keep this number as low as possible. Usually, lenders won't even give you the time of day if your DTI is above 43 percent, meaning 43 percent of your income goes directly to managing your debt. The ideal DTI ratio is at or below 36 percent. Lenders pay particularly close attention to two types of DTI ratios: Front-End DTI: Also known as the housing ratio, the front-end DTI shows the percentage of your income that goes exclusively to housing expenses, such as mortgage payments, mortgage insurance, etc. Usually, your front-end DTI needs to be around 28 percent or lower in order to qualify for a mortgage. The higher your front-end DTI, the more likely you are to default on your mortgage. Back-End DTI: The back-end DTI measures what percentage of your income goes to paying off other debts, like credit card payments or car payments. In simple terms, you can only improve your DTI ratio in two ways: either increase your income or decrease your debt. Unfortunately, these methods tend to be easier said than done. While there's no magic bullet answer for increasing your income, some smart strategies can help you cut down debts and improve your personal finance management. 5. Managing renovations can get messy In Fixer Upper, Chip and Joanna Gaines never shy away from the physically messy aspects of flipping a home, whether it’s removing an abandoned refrigerator with rotting food or discovering a termite infestation in a crawl space. But if you’re not a contractor yourself, you need to be on top of your game managing the various parties renovating your home. John Bodrozic, co-founder of HomeZada, says that home improvement shows completely underestimate how you, the homeowner, need to manage your contractor on the remodel projects. HomeZada helps customers negotiate pricing, build budgets for projects, and track documents and photos to manage your contractor. Bodrozic explains, “You need to review a contractor’s quotes, make sure they are licensed and insured, check their references, and agree to a contract with payment terms that protect you.” Otherwise, you can end up paying more than you bargained for with unsatisfactory results at best — and damaged property at worst. Bodrozic also advises homeowners to take pictures during the remodel to document in case things go wrong “so you can hold your contractor accountable to finish the project to your satisfaction.” Keep in mind that before renovations or even a purchase, a proper inspection that goes more than skin deep is key to determining if a house is worthy of an offer. And, like hiring a contractor, that depends on someone else (in this case, the home inspector) doing a job right. Ben Mizes, founder and CEO of St. Louis-based Clever Real Estate explains that “the walkthrough process isn’t like as seen on TV. There’s much more meticulous inspection of the core systems of the property and looking for major red flags than it is talking about dream floor plans and designs.” A good home inspector won’t let emotions interfere with what should be a thorough and unbiased inventory of the condition of the home. 6. Mortgage rates change every day Occasionally, while you're watching your favorite home-buying program, you might wonder why either the homebuyers or the realtor is particularly anxious to close the deal on a certain day or at a certain time. While this urgency can be attributed to excitement at starting a new life (the homebuyers) or getting paid (the agent), it might also be due to the fact that they've happened upon a particularly good mortgage rate and want to strike a deal before that rate goes up. The fact of the matter is that mortgage rates operate very similar to stock prices: they fluctuate frequently, even several times a day. This is why it can be almost impossible to get a stable rate quote ahead of time. Take a look at this chart (courtesy of Zillow.com) to see just how much a mortgage rate can dip and spike in just one day: Mortgage rates change so often for a variety of reasons, many of which revolve around the current state of the economy and economic forecasts. Thankfully, mortgage rate aggregators like Zillow can clue you into the best mortgage rates at any given time, and many top mortgage companies will update their mortgage rate estimators according to market conditions. 7. Soft costs are involved Jonathan Faccone, managing member and founder of New Jersey-based Halo Homebuyers, says that whether it’s from the house-flipping show phenomenon or the first-time home buyer shows, everyone thinks they know what it entails to purchase and renovate the perfect home. However, a key element missing from the media portrayal is cost. Faccone explains that “the flipping shows never show you what the ‘soft costs’ are when purchasing a fixer-upper.” These soft costs include all the costs other than the actual construction-related expenses that will be incurred and include, but are not limited to, the following: Title insurance Attorney fees (in certain states) Home inspection Home insurance (impacted by vacancy and need for a builder’s risk policy) Closing costs Carrying costs When planning your home purchase with renovations in mind, plan for the expected soft costs as well as for the inevitable unexpected. Faccone suggests that the amount of money a typical buyer thinks a home needs for a renovation budget should be doubled. “I am always going over budget in my own projects because of the unknown fixes that I didn’t expect lurking behind the walls.” Alberto Marinas, CEO and co-founder of PadBlock, reminds buyers about the impact of the appraisal on the home sale. The price, the value of upgrades, and the reliability of current appliances may not be appraised to the agreed purchase price. Not to mention the cost of new furnishings for the home once the renovation is complete. “This can derail even the most cooperative seller,” he explains. “Unless the buyer has additional cash to cover the difference, the asking price will have to drop to the appraisal price. More often than not, in today’s market, the buyer has just enough cash for downpayment and closing fees — and not a penny more.” Finally, adequate insurance for a house requiring major renovations can be steep. Scott Johnson, founder of Marindependent Insurance Services in the Bay Area, California, explains that “consumers often fail to disclose to the agent their intentions [to flip] and often go mis-insured.” He describes two issues regarding property insurance during a house flip: If you are not planning on living in your new purchase in the first 30 or 60 days, then the home will be considered vacant and you are not eligible for typical home insurance. If your home undergoes significant construction, you should secure a builder’s risk policy protecting contractors and workers on your property. So how much does proper coverage cost under such circumstances? Johnson says it’s impossible to say without knowing all of the details of a situation, but a builder’s risk policy can easily cost $3,000 per year, while a regular home insurance policy might only cost $900. 8. There are different types of mortgages Wait, what? Whenever agents on TV tell clients something like, "Alright, now we just have to fill out some paperwork," they are most likely referring to the loan application. And somewhere on that application, the future homeowners will have to indicate which type of mortgage loan they are shopping for. The sheer number of mortgage loans is the many-headed monster of the home-buying process and includes FHA loans, VA loans, Jumbo loans, USDA loans, Conventional loans, and ARMs. Each type of loan has unique eligibility requirements, advantages, and disadvantages, but for the purposes of this article we’ll touch on two types: Fixed-Rate Mortgages: The main benefit of choosing a conventional or fixed-rate mortgage is you know exactly how much you'll be paying each month for the term of the loan. The one main drawback, however, is that fixed-rate mortgages tend to initially sport higher rates than do adjustable-rate mortgages. The most popular term lengths of fixed-rate mortgages are the 30-year and the 15-year. Each term length has strengths of its own. Mortgage Type Advantages Disadvantages 30-Year Fixed-Rate Monthly payments tend to be lower You will end up paying more interest over time, and at a higher interest rate 15-Year Fixed-Rate/strong> You pay less total interest over time, and at a lower interest rate Your monthly payments will be much higher Buyers who want lower monthly payments will often go with the 30-year fixed-rate mortgage, but a 15-year mortgage gets you on track to pay off your home loan in half the time, avoiding a bulk of the interest payment. Adjustable-Rate Mortgages (ARMs): Adjustable-rate mortgages are just as they sound: over the course of your loan, the rates and monthly amount you pay are subject to change. This can either be a good or a bad thing depending on your future plans (e.g., how long you plan on staying in the home, how comfortable you are with changing your rates, etc.). Just remember, while you might initially pay a lower interest rate than you would with a fixed-rate mortgage, that can easily change in as little as a year. Below is a list of some of the most common ARMs available: Mortgage Type Description Advantages Disadvantages 1-Year ARM Interest Rate Changes year-to-year Qualifies for a higher loan amount; good for flipping Considered risky, as payment can change significantly each year 10/1 ARM Rates fixed for first 10 years; fluctuates for next 20 Lower rates than 30-year fixed rate (at least for first 10 years) Bad for those wanting to stay in the same house for more than 10 years 2-Step Rates are fixed for first part of mortgage, and adjustable for the second Borrowers can choose when to pay fixed vs. adjustable Rates could adjust upward following fixed period 5/5 and 5/1 ARM Rates are stable for 5 years, then adjust every year or five years until loan is paid off Good for borrowers who can accept periodic changes Bad for short-term homeowners 5/25 ARM Rates stable for 5 years, then adjusted at year 6. Rate only changes once in 30 years Rate could adjust upward for a 25-year period 3/3 and 3/1 ARM Rates are stable for 3 years, adjust every year or three years until loan is paid off Good for borrowers wanting a new rate after 3 years Bad for long-term borrowers Keep in mind that if you’re considering buying a fixer-upper, ideally you should be ready with a cash offer with minimal contingencies so that you can land a great deal. “The better deal you can get,” explains Jonathan Faccone of Halo Homebuyers, “the more margin you can build in for unexpected costs, along with being able to put in your desired finishes and renovation requirements.” Faccone says the problem is that most home buyers don’t have enough cash to fund both the purchase and renovation. In that case, there are conventional and FHA 203(k) rehabilitation loans that can cover the difference, “but the amount of paperwork that you have to do and the red-tape of the process can put a damper on your first flip experience.” It’s clear that funding a flip is not for the faint of heart! 9. Knowledge and grit don't guarantee success Successfully renovating a home or even purchasing the perfect move-in ready home can’t be guaranteed on a certain timeline or with certain financial limits, even for the most persistent buyers. Grit, talent, or strong emotions alone won’t carry a sale or renovation to fruition. An evolving market and other factors outside your control are at play. John Bodrozic, co-Founder of HomeZada, laments that real estate TV shows “tend to focus on the lifestyle and emotional aspects of buying a home and fixing it up while glossing over financial details” such as negotiating strategies on how much to offer based on list price and other market comparisons. In addition to knowing how much of a down payment you can make and the loan amount you qualify for, “it is wise to get a comparative marketing analysis (CMA) to help you determine your approach” when it’s time to make an offer and negotiate. Remodeling costs, too, can vary dramatically based on your product and brand selections and the market conditions with local contractors. In regards to a complete remodel, even the most experienced flippers find that things unexpectedly go wrong throughout the process. Many of the experts we consulted for this piece shared their own not-made-for-TV stories. Ben Mizes, founder and CEO of Clever Real Estate, says, “I wish these shows would share that investing and flipping isn’t as glamorous as it sounds. When I first started investing in real estate, I did all my own work, and there was a lot more of hauling old cabinets and 2:00AM sewer clogs than there were brand new houses and excited buyers.” 10. A good lender is crucial Brad Pauly, owner of Pauly Presley Realty based in Austin, Texas, thinks HGTV makes buying real estate look easy. And, surprisingly, he says it can be — “as long as you have the right people working for you!” An agent with years of experience is important because “the seasoned agent has already experienced all the potential pitfalls of the home purchase.” Pauly explains that a good lender is crucial because once a buyer puts a property under contract, the lender is responsible for getting the buyer’s loan approved — and on time. So how do you choose a good mortgage lender? Obviously, some mortgage lenders are going to be better than others. The home loans industry can seem difficult to navigate, especially if you're a first-time homebuyer. So here are some guiding questions to keep in mind before you sign any paperwork: What do mortgage reviews say? Read real, verified customer reviews to determine if a lending company provides good customer service and follows contractual agreements. How transparent is the lender? One of the most important qualities of a trustworthy mortgage lender is how honest the company is about what you, as the borrower can expect throughout the process and what the company generally charges for lender fees. Which loan type are you seeking? The type of loan you seek for your purchase and/or remodel is important because not all lenders offer every loan product available. Is a fixed-rate or adjustable-rate mortgage best for your long-term plan? For a remodel, will you purchase with a 203(k) renovation loan, or finance with a conventional loan, then fund your renovation with a personal loan, credit card, or another method? Who can give you the lowest rate according to your credit score? As we discussed, interest rates vary, but get an interest rate estimate from multiple lenders to see how each lender’s rates compare to the national daily average. If you’re disappointed we've ruined the picture-perfect world of your HGTV binge-a-thon, take heart in knowing you can still embrace the entertainment value of these shows while also being armed with the knowledge of important details often left out of these portrayals. And when the time comes for you to play the lead in your own, real-life house-hunting drama, you’ll have realistic expectations to guide you and keep you grounded through the excitement!