20 Percent Down For Home Purchase The New Standard, Again?

The housing market may be getting a little tighter in a couple of months. The bureaucrats working on enacting some of the provisions of the Dodd-Frank reforms have interpreted the loosely written laws to require homes that qualify for the best interest rates to have a minimum of a 20 percent down payment.

That sound you just heard is agents across the country gulping in panic.

The homes that have a 20 percent down payment will get the best interest rates, those buyers that do not have 20 percent to put down will be held to a much higher standard for approval and face higher interest rates.

The fact that the real estate industry is still muddling along with historically low interest rates, high inventories, and significantly lower prices is bad enough news for the millions of agents out there. Now adding the prospective of tougher loan approvals and the reduction of potential buyers the real estate industry has another hurdle to cross.

Some Dodd-Frank reforms are already in place, but Congress left details of others to regulators. The down payment rule is currently in a “public comment” period that’s been extended to Aug. 1.

The proposal would split home loans into two categories. One would be loans to buyers who put 20 percent down, and lenders would face few regulatory hurdles bundling those loans to sell as investment securities. It was the volume of subprime loans in such securities that helped precipitate the financial crisis.

The other loan category would allow smaller down payments but would require lenders to maintain at least 5 percent of the total value of their loans so they shoulder part of the risk. The intent is to ensure lenders thoroughly vet borrowers.

Isakson and others believe the second category would be subject to higher interest rates and could shut lower-income buyers out of the market.

“Loan rates would go up 3 percent because of the scarcity of the loans,” said Isakson, who ran a real estate company in metro Atlanta before his days in Washington. “With the housing market in the shape it is, it’s just ridiculous.”

Tom Royce, therealestatebloggers.com “Read Full Story”

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More home buyers are walking away from signed contracts

Realty brokers say a recent uptick in contract cancellations is surprising and worrisome. Financing issues are among the causes, and economic worries and low-ball appraisals are also busting up deals.

Are home buyers walking away in droves from the contracts they’ve signed? Or are they essentially fouling out of the game, unable to close deals because of financing and credit issues?

Whatever the answer, this much appears to be certain: Exceptionally large numbers of signed real estate contracts fell apart last month, failing to close escrow. According to the National Assn. of Realtors, 1 in 6 realty agents polled in June reported having signed contracts canceled before closing, up from just 1 in 25 the month before.

Lawrence Yun, chief economist of the realty association, says the sudden increase is surprising and worrisome, and there are no hard statistics available on the causes. The most likely suspects, Yun says, are low-ball appraisals and tough mortgage underwriting rules that knock buyers out of contracts through mortgage contingency clauses.

But a series of interviews with realty brokers around the country suggests that there may be other, subtler forces at work that are busting up real estate deals.

Buyer confidence about the direction of the national economy has been badly rattled in the last six to eight weeks by the gridlock in Congress over raising the national debt ceiling and cutting the deficit. That is making buyers less willing to take a risk on a major purchase, brokers say. It’s also making them pickier and more demanding when defects are found in home inspections and frequently is leading to contract cancellations for relatively minor reasons.

Jessika Mayer, manager of professional development at Coldwell Banker Plaza Real Estate in Wichita, Kan., says she is seeing more well-qualified buyers — who would have proceeded to closing in past months — suddenly “feeling very worried and uncertain because they don’t know” if the country is headed for an economic disaster that would make their new purchase difficult to sustain.

Chad Ochsner, broker-owner of Re/Max Alliance, a 20-office firm in Denver, says his agents are also “seeing buyers feeling remorse” and unusual trepidation because of national economic uncertainties. As a result, he says, “they’re terminating contracts that in the past would have gone to closing.”

Inspections almost always turn up problems of one type or another, Mayer says, “but lately buyers seem to be holding out for perfection.”

Maybe the inspection report estimates the remaining useful life of an air-conditioning system in a resale house to be two to three years. Or maybe a floor covering is worn and should eventually be replaced.

Whereas previously buyers who truly wanted a house might let those issues pass, now they want the contract price reduced in compensation or they want the repair or replacement made before closing. Some sellers are willing to negotiate, but others believe that the contract price on the house is as low as they can go. If the parties can’t bridge the gap, the deal disintegrates.

The surging numbers of pending short sales clogging local markets are another cause of contract cancellations, brokers say. Buyers negotiating with banks often wait months to get answers from the bank on their offer, triggering repeated time extensions on the contract terms. Eventually buyers lose patience, throw up their hands and say, “Forget it.”

Charlie Bengel Jr., chief executive of Re/Max Allegiance in Fairfax, Va., says that offices in Richmond, Va., and Annapolis, Md., report “a significant increase” in short-sale related cancellations, primarily because of buyer frustration with the “lengthy short-sale process” and “banks not approving short sales.”

Finally, appraisal problems in many parts of the country continue to bedevil real estate transactions, especially when inexperienced appraisers working for low fees overuse distressed property sales as comparables for non-distressed listings.

For example, Rod Smith, director of general brokerage at Coldwell Banker Chicora in Myrtle Beach, S.C., said a recent signed contract on a condominium fell apart when an appraiser valued the condo far below the agreed-upon sale price. That price, Smith says, was well in line with recent sales of similar units.

A subsequent review of the appraisal report turned up numerous errors, but the buyers pulled out of the contract anyway.

Kenneth R. Harney, latimes.com “Read Full Story”

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House Keys

Buying, selling, insuring your property

Ask a real estate pro: Who gets any money left over after a foreclosure?

Board-certified real estate attorney Gary M. Singer answers housing questions in this space each Friday. To ask him a question about short sales, mortgages, refinancing, homeowner’s associations or any other residential real estate topic, click here.

Q: My friend is facing foreclosure, but she has a good amount of equity in her home. If she does get foreclosed on, and there is money left over, does she get it? – Dean

A: Yes. Any money left over from the amount that the property sells for at the foreclosure auction after paying back the bank would go to the homeowner. But that’s after all costs and fees for the foreclosure and all subordinate lien holders have been paid. To get the money, the homeowner must make a claim with the clerk of court. If your friend is able, she would be much better off just selling the house now and getting more money from the sale.

Q: A buyer recently put my house under contract. It was to be a cash sale. The problem: The buyer defaulted on his deposit when the check bounced. We took the property off the market because of the deal, so can I go after the buyer for the deposit and/or damages? — Joe

A: Probably. In contract matters, it’s the terms of the contract that prevail. Most, if not all, of the standard form real estate sales contracts will call for the seller being able to recover money in a situation such as the one that you describe. Typically, these damages are set forth in the contract as “liquidated damages.” This means that the amount you can recover will be set forth in advance, such as the amount of the deposit, and will not be affected by the actual harm you suffered. This type is popular because it is often difficult to determine what the actual harm was. And by having a liquidated damages provision in the contract, this dispute and any associated lawsuit are avoided. In some contracts, you may be entitled to be compensated for the actual harm that you suffered because of the other person’s bad actions. This is referred to as “actual damages.” Also, if you as the seller don’t live up to your agreements, the buyer may be entitled to something. Their remedies may be the payment of money from the seller or even “specific performance,” which is when the court forces the seller to go forward with the sale. So it is important to read your contract carefully and make sure you understand it before you sign it.

Q: My landlord locked me out when I did not pay my rent. Can he do this? – Anonymous

A: No. This is called a “self-help” eviction and it is a major league no-no. In order for your landlord to evict you from your rented home, he must follow specific statutory guidelines. First, the landlord must give you notice of what you did wrong, such as not paying the rent, with a time frame allowing you to fix the problem. If you do not fix the problem, the notice will end your lease agreement and ability to stay in the property. But the landlord will need to file a lawsuit against you in order to retake legal possession of the house.

Q: How long do you have to be behind before your house goes into foreclosure? — Anonymous

A: Technically, you have to be only one day behind. According to the common law, if you are behind on payments for your mortgage loan, your lender can foreclose. However, most mortgages have specific time frames and guidelines of what must be done before your lender can file the foreclosure lawsuit against you. In the typical Fannie Mae/Freddie Mac mortgage loan, your lender will need to provide you with a notice giving you 30 days to catch up on your payments before it can start the lawsuit, and this letter can be sent only after the typical 15-day grace period to receive your payment has run. So under the typical big lender mortgage loan, you have at least 45 days. Usually it takes about four months before the average foreclosure lawsuit is filed. It is good to watch out for that “30 day letter,” as this is a good indication that the lender is moving your property along toward foreclosure.

Paul Owers, sun-sentinel.com “Read Full Story”

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Allure of Waterfront Homes Dims

JACQUELINE LEWISY, a saleswoman with Signature Premier Properties in Northport,  steered her 19-foot Sea Ray through Northport Harbor toward Duck Island, an hourglass-shaped peninsula linked by a private road to the isthmus here. The view from the water was part of her tour of Duck Island Way, a secluded 21.7-acre estate with private beaches, lush woods, and an 11-bedroom 1929 shingled Swedish manor house. The property also has a three-bedroom guest cottage; a barn with a one-bedroom loft; a baseball field; and a pond. “How can you not fall in love with this?” Ms. Lewisy asked.

To the west, Lloyd Harbor and Huntington Bay were peppered with sailboats, yacht clubs and marinas. Long Island Sound was visible to the north and east. Waterfront property has long been prime real estate, from Kings Point estates with views of Manhattan, to Centre Island spreads with tranquil views of Oyster Bay Harbor. On the Great South Bay, $400,000 bungalows are coveted in Lindenhurst, and grander residences sell for more than $2 million on Carlls River in Babylon Village. In the Hamptons, south of Route 27, oceanfront mansions command stratospheric prices.

“The more expensive the area, the bigger the premium” for waterfront, starting at 10 percent, said Dorothy Herman, the president and chief executive of Prudential Douglas Elliman.

But across the price spectrum available to waterfront enthusiasts in all the Island’s many different waterfront locations, these days such properties are taking longer to find buyers. North Shore real estate, generally far more expensive than that on the South Shore, tends to linger for that reason alone. The South Shore has different issues: buyers with more limited incomes, who are more susceptible to concerns about the costs of flood insurance and maintenance.

Jim Crary’s family has a history on the North Shore. They have owned the Duck Island estate for four generations. He described it as “a place out of time,” with the feeling of “being on the prow of a big ship.” Yet despite its setting and views, it didn’t generate much interest until  recently, when, after four months, Ms. Lewisy dropped the asking price to $8 million from $12 million.

“It is a tough market for waterfront property,” Ms. Lewisy said. But the dip in prices over all makes it “an opportunity for someone who does have the money to get their dream.”

In Nassau during the first six months of the year, 102 waterfront homes sold or went into contract, with an average price of $1,010,595. For the 11 of them on the North Shore, sale prices averaged $2,582,500, said Gary Baumann, the manager of  Prudential Douglas Elliman’s Ronkonkoma office, using Multiple Listing Service of Long Island data.  Of the 91 homes that sold on the South Shore, excluding the Hamptons, the average price was $721,878. (In the second quarter of this year, the average sales price of all homes on the Island was $436,143.)

The highest-priced waterfront sale in Nassau was  $6.8 million, for a Sands Point home first listed two years ago at $15 million.  In Suffolk, the priciest waterfront sale, $7.78 million, was in Lloyd Harbor, down from its initial 2007 listing at $14.9 million. There are 529 waterfront homes on the market in Nassau County, with 114  listed under $500,000 and 57 over $3 million. In Suffolk, the 549 waterfront listings include 150 under $500,000 and 165 at $1 million to $3 million.

Deborah Hauser, an associate broker at Daniel Gale Sotheby’s office of Cold Spring Harbor on the North Shore, said that homes with deepwater docks, which are difficult to get permits for, carry a $1 million premium, and that with inventory scant, they sell “right away.”

But Carolina Boucos of Daniel Gale’s office in Glen Head, which is not as far east as Cold Spring Harbor, finds some buyers shying away. At her $1.699 million waterfront listing in Glen Cove, shoppers have been “afraid of a northeaster coming,” and have also expressed concern about wear and tear from saltwater, and pricey flood and homeowner insurance.

In Atlantic Beach, Annett C. Ellis, a boutique broker, described a different kind of micromarket, seeing waterfront as “hot, hot, hot.” Whether oceanfront, or bayfront on Reynolds Channel, “they are selling and they are in demand and they are getting great prices,”  with “a lot of cash buyers.” She ascribed the boom to the village’s easy access to the city. “The Hamptons is too far,” Ms. Ellis said, “and they get tired of sitting in traffic.” From Atlantic Beach, “they can commute back and forth daily.” Prices start at $417,000, for a bungalow, and exceed $3 million, she said.

On the South Shore in western Suffolk, said Georgia Westcott, broker-owner of Westcott Group Realty, all waterfront is not created equal. For boaters, homes on deep, wide canals with protected slips can carry a premium of  $30,000 to $50,000 and be more desirable than bayfront property exposed to storms. A Jet Ski lift and room for kayaks and rowboats ups the ante.

Yet “on the South Shore, when you buy a waterfront home,” Ms. Westcott said, “you give up privacy,” because lots are smaller and closer together. “When you find an acre or a treed property it is very much a commodity,” she said, citing her $2.9 million listing for a four-bedroom home on 1.8 acres on Carlls River in Babylon. The place has a dock, a protected yacht slip and a sandy beach.

Also, in a place like Lindenhurst, a more middle-class area at greater risk of flooding than the North Shore, the $2,000 to $2,500 annual cost of flood insurance can be a deterrent.

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How Much Can You Afford?

If you’re like many first-time homebuyers, chances are you’ve been spending your weekends driving around visiting      open houses and new model homes. This is a great way to get a feel for what you want. The problem is that what you want isn’t always what you should get.

Before you start touring homes for sale, it’s important to start off with a budget so you know how much you can afford to spend. Knowing what mortgage payment you can handle will also help you narrow the field so you don’t waste precious time touring homes that are out of your reach.

Where to begin

The key factor in figuring how much home you can afford is your debt-to-income ratio. This is the figure lenders use to determine how much mortgage debt you can handle, and thus the maximum loan amount you will be offered. The ratio is based on how much personal debt you are carrying in relation to how much you earn, and it’s expressed as a percentage.

The ideal ratio

Mortgage lenders generally use a ratio of 36 percent as the guideline for how high your debt-to-income ratio should be. A ratio above 36 percent is seen as risky, and the lender will likely either deny the loan or charge a higher interest rate. Another good guideline is that no more than 28 percent of your gross monthly income goes to housing expenses.

Doing the math

First, figure out how much total debt you (and your spouse, if applicable) can carry with a 36 percent ratio. To do this, multiply your monthly gross income (your total income before taxes and other expenses such as health care) by .36. For example, if your gross income is $6,500:

$6,500 (Gross monthly income)
x .36 (Debt-to-income ratio)
= $2,340 (Total allowable monthly debt payments)

Next, add up all your family’s fixed monthly debt expenses, such as car payments, your minimum credit card payments, student loans and any other regular debt payments. (Include monthly child support, but not bills such as groceries or utilities.)

Minimum monthly credit card payments*: ____________
+ Monthly car loan payments: ____________
+ Other monthly debt payments: ____________
= Total monthly debt payments: ____________

*Your minimum credit card payment is not your total balance every month. It is your required minimum payment — usually between two and three percent of the outstanding balance.

To continue with the above example, let’s assume your total monthly debt payments come to $750. You would then subtract $750 from your total allowable monthly debt payments to calculate your maximum monthly mortgage payment:

$2,340 (Total allowable monthly debt payments)
$750 (Total monthly debt payments other than mortgage)
= $1,590 (Maximum mortgage payment)

In this example, the most you could afford for a home would be $1,590 per month. And keep in mind that this number includes private mortgage insurance, homeowner’s insurance and property taxes. To determine the price of home you can afford based on this amount, use a home affordability calculator.

Exceptions to the 36 percent rule

In regions with higher home prices, it may be hard to stay within the 36 percent guideline. There are lenders that allow a debt-to-income ratio as high as 45 percent. In addition, some mortgage programs, such as Federal Housing Authority mortgages and Veterans Administration mortgages, allow a ratio higher than 36 percent. But keep in mind that a higher ratio may increase your interest rate, so you may be better off in the long run with a less expensive home. It’s also important to try to pay down as much debt as possible before you begin looking for a mortgage, as that can help lower your debt-to-income ratio.

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Buying Your First Home

Finding the right first home starts with a price range and a short list of desirable neighborhoods. But there are many other factors you’ll need to consider before investing in what may be your biggest asset.

Before You Start:
  • Grab your current household budget so you can consider your financial situation and your ability to make mortgage payments.
  • Ask family and friends if they can recommend experts, like a lawyer and an inspector, who can help with the home buying process.
  • Think about your lifestyle and how it might affect your choice of home and neighborhood.
  • Do a little research on current home prices in the neighborhoods you plan to target.
Buying Your First Home

Home ownership is the cornerstone of the American Dream. But before you start looking, there are a number of things you need to consider. First, you should determine what your needs are and whether owning your own home will meet those needs. Do you picture yourself mowing the lawn on Saturday, or leaving your urban condo for the beach? The best advice is to look at buying a home as a lifestyle investment, and only secondly as a financial investment.

Even if housing prices don’t continue to increase at the torrid pace seen in recent years in many areas, buying a home can be a good financial investment. Making mortgage payments forces you to save, and after 15 to 30 years you will own a substantial asset that can be converted into cash to help fund retirement or a child’s education. There are also tax benefits.

Like many other investments, however, real estate prices can fluctuate considerably. If you aren’t ready to settle down in one spot for a few years, you probably should defer buying a home until you are. If you are ready to take the plunge, you’ll need to determine how much you can spend and where you want to live.

How Much Mortgage Can You Afford?

Many mortgages today are being resold in the secondary markets. The Federal National Mortgage Association (Fannie Mae) is a government-sponsored organization that purchases mortgages from lenders and sells them to investors. Mortgages that conform to Fannie Mae’s standards may carry lower interest rates or smaller down payments. To qualify, the mortgage borrower needs to meet two ratio requirements that are industry standards.

The housing expense ratio compares basic monthly housing costs to the buyer’s gross (before taxes and other deductions) monthly income. Basic costs include monthly mortgage, insurance, and property taxes. Income includes any steady cash flow, including salary, self-employment income, pensions, child support, or alimony payments. For a conventional loan, your monthly housing cost should not exceed 28 percent of your monthly gross income.

The total obligations to income ratio is the percentage of all income required to service your total monthly payments. Monthly payments on student loans, installment loans, and credit card balances older than 10 months are added to basic housing costs and then divided by gross income. Your total monthly debt payments, including basic housing costs, should not exceed 36 percent.

Many home buyers choose to arrange financing before shopping for a home and most lenders will “pre-qualify” you for a certain amount. Prequalification helps you focus on homes you can afford. It also makes you a more attractive buyer and can help you negotiate a lower purchase price. Nothing is more disheartening for buyers or sellers than a deal that falls through due to a lack of financing.

In addition to qualifying for a mortgage, you will probably need a down payment. The 28 percent to 36 percent debt ratios assume a 10 percent down payment. In practice, down payment requirements vary from more than 20 percent to as low as 0 percent for some Veterans Administration (VA) loans. Down payments greater than 20 percent generally buy a better rate. Lowering the down payment increases leverage (the opportunity to make a profit using borrowed money) but also increases monthly payments.

How Much Home Can You Afford?

Bob and Janet’s combined income is $50,000 a year, or $4,166 a month. Their housing expense ratio of 28 percent yields a monthly maximum of $1,166 for mortgage, insurance, and taxes ($4,166 x 0.28 = $1,166).

Their total debt ceiling of 36 percent is $1,583 (4,166 x 0.36 = $1,500). Their monthly debt payments include a $200 car payment, credit card payments of $100, and student loan payments of $200. Subtracting this total of $500 from the $1,500 permitted leaves $1,000 in monthly housing payments.

Costs of Buying a Home

Many home buyers are surprised (shocked might be a better word) to find that a down payment is not the only cash requirement. A home inspection can cost $200 or more. Closing costs may include loan origination fees, up-front “points” (prepaid interest), application fees, appraisal fee, survey, title search and title insurance, first month’s homeowners insurance, recording fees and attorney’s fees. In many locales, transfer taxes are assessed. Finally, adjustments for heating oil or property taxes already paid by the sellers will be included in your final costs. All this will probably add up to be between 3 percent and 8 percent of your purchase price.

Ongoing Costs

In addition to mortgage payments, there are other costs associated with home ownership. Utilities, heat, property taxes, repairs, insurance, services such as trash or snow removal, landscaping, assessments, and replacement of appliances are the major costs incurred. Make sure you understand how much you are willing and able to spend on such items.

Condominiums may not have the same costs as a house, but they do have association fees. Older homes are often less expensive to buy, but repairs may be greater than those in a newer home. When looking for a home, be sure to check the actual expenses of the previous owners, or expenses for a comparable home in the neighborhood.

Choosing a Neighborhood

Before you start looking at homes, look at neighborhoods. Schools and other services play a large part in making a neighborhood attractive. Even if you don’t have children, your future buyer may. Crime rates, taxes, transportation, and town services are other things to look at. Finally, learn the local zoning laws. A new pizza shop next door might alter your property’s future value. On the other hand, you may want to run a business out of your home.

Look for a neighborhood where prices are increasing. As the prices of the better homes increase, values of the lesser homes may rise as well. If you find a less expensive home in a good neighborhood, make sure you factor in the cost of repairs or upgrades that such a house may need.

Finding a Broker

If you are a first-time home buyer, you will probably want to work with a broker. Brokers know the market and can be a valuable source of information concerning the home buying process. Ask lots of questions, but remember that most brokers are working for the seller, and in the end, their primary obligation is to the seller and not to you. An alternative is a so-called buyer’s broker. This individual does work for you, and therefore is paid by you. Seller’s brokers are paid by the seller.

Make sure that the broker has access to the Multiple Listing Service (MLS). This service lists all the properties for sale by most major brokers across the country. Brokerage commissions average 5 percent to 7 percent and are split between the listing broker and the broker that eventually sells the home. Don’t be surprised if your broker is eager to sell you their own listing since they would then earn the entire commission.

Home Buying Costs

Down Payment 0% – 20% of purchase price
Home Inspection $200 – $500
Points $1,000 and up for 1% – 3%
Adjustments 3% – 8% of purchase price

Once you’ve determined a price range and location, you’re ready to look at individual homes. Remember that much of a home’s value is derived from the values of those surrounding it. Since the average residency in a house is seven years, consider the qualities that will be attractive to future buyers as well as those attractive to you.

Although it can be difficult, try to remember that you will probably want to sell this home someday. The more research you do today, the better your decision will look in the years to come.

  • Buying a home can mean building significant value through the years.
  • Think carefully about how much you can afford to spend and consider borrowing guidelines like those used by Fannie Mae.
  • Pre-qualifying with your lender is a good way to determine how much house you can afford.
  • You will need cash for a down payment and closing costs. Generally speaking, the higher the down payment, the lower the interest rate and monthly mortgage payment.
  • In addition to your mortgage payments, you will also need to consider the other costs of home ownership.
  • Schools, taxes, services, crime rates, transportation, and zoning are important considerations when selecting a neighborhood.
  • Brokers usually represent the seller, but they can be valuable sources of information for buyers as well. A broker that belongs to the Multiple Listing Service will be able to offer a wider variety of homes to choose from.
  • Remember to consider resale value when buying your home.

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Should I buy a home or keep renting?

Unfortunately, it is impossible to give an affirmative answer, either way, about buying or renting. Conventional wisdom assumes that property values always go up. In reality, home value is determined relative to many ‘x’ factors, which are susceptible to fluctuation. In addition, to turn a profit on a home those x-factors have to be consistently in the positive over the duration of your mortgage.

Some people erroneously associate renting with wasting money. Again, depending on your circumstances, renting may save you money over a lifetime. There are a few time-tested, predictive factors to weigh when deciding whether to buy or rent.

A few assumptions first…

Since we cannot predict the future, let’s assume a few things about the place we intend to live for the next thirty years. For renters, this is harder, but we cannot begin to do a cost-benefit analysis unless we level the playing field. Here, we must assume you continue to pay the same rent, or more, over thirty years. This figure is adjusted for assumed annual increases to your monthly rent payment.

Are homes still an investment?

You live in an apartment that is $1000 a month. You can reasonably expect, based on your exhaustive research, that your rent will rise annually 3%. You are considering buying a home that is $180,000 dollars. Your mortgage is at 4.8% and the value of your home is expected to appreciate steadily at 2% a year. Your down payment is $36,000. That means the principal on your loan is $144,000 dollars. You can expect to pay 102,000 dollars in interest on that principal across the lifetime of 30-year mortgage. The grand total of your fixed-rate, thirty-year mortgage is $246,000.

Very easily, we can presume at least another 500k in related costs, fees and taxes for $180,000k home. Over a lifetime, owning a home at this price point, we can assume a few other things that add up:  

  • Property taxes vary widely. If you were so lucky as to have property taxes steady at 1.35%, over thirty years, tack on additional $85,000
  • Again, utilities can vary widely, but based on the national average, you should expect to pay about 2,200 a year in utility. This is an additional 48,600
  • Renovations put value into a home, but they are expensive. Supposing you decide they are worthwhile, let’s calculate another 37,000.
  • Likewise, maintenance costs, frozen pipes, a flooded basement, a gas leak, on average will be another 37,000
  • Steer clear of the flood plain, and assume homeowner’s insurance costs you 34,000, over a thirty-year mortgage

All told, you can reasonably expect to pay $720,000+ (rounded here) dollars for your mortgage and homeowner related loans and fees. This is an astounding number at first glance. Owning a home is making life and life costs money. (We might reasonably overlook these “cost of living” expenses; you get a clearer picture this way.)

Assuming the value of your home rises steadily at 2% annually, you should expect to make about $80,000 dollars on your mortgage, for a property worth roughly $325,000. Once you decide to sell, deduct this price from your net mortgage and homeowner related costs and you have spent $395,000.   

For a thirty-year renter, paying $1000 a month and adjusting that for 3% annual raise in rent over thirty years, they can expect to pay about $570,000.

The homeowner has saved money in this cost-benefit assessment—nearly $175,000 in thirty years. That’s new cars, college, and vacations.

Renters save money in the short-term

The renter actually saves in the first six years in this thirty-year scenario at these percentage points. After six years, the homeowner will always save more than the renter. This is because the homeowner, having gradually reduced the principal of the loan is paying less per year in interest payments.

In other words, the yearly cost of ‘rent’ for the homeowner gradually reduces as they pay off the principal on their loan, and pay less in interest. As their investment appreciates in value, it effectively pays for part itself over the thirty-year term. The renter receives neither of these benefits.

Quality of life a factor not to be underestimated

A residence of any shape or size is an investment in your lifestyle. If you are a gay or lesbian prospect buyer or renter, there may be requirements that take precedence over the simple numbers of a rudimentary cost-benefit analysis. Gayrealestate.com is connected to thousands of gay-friendly real estate leaders that can do the math. More importantly, they make it their priority to calculate in the all-important intangibles of a neighborhood.

If you are looking for your first apartment in an established gay neighborhood or buying a dream home with your partner, Gayrealestate.com knows the communities they sell in and are adept financial experts.

Three Common Pitfalls for LGBT Home Buyers to Avoid

Buying a home is huge step, and often represents the culmination of a lifelong dream. But while under the thrilling spell of the home buying experience many LGBT buyers fall victim to three of the biggest mistakes. Became familiar with these pitfalls to successfully avoid them.



One of the many companies directly owned by Warren Buffett, the most successful investor in American history, is a business that builds and sells homes across the United States. Addressing the shareholders of that company Buffett explained that when he is qualifying a home buyer he looks at two fundamental financial requirements. He wants “a meaningful down payment” and he expects that the monthly payments constitute “a sensible percentage of income.” That’s a simple and sound approach that LGBT buyers should follow when shopping for a home.

These days most banks require a rather conservative debt to income ratio of about 30 or 35 percent. That means that if a homeowner’s monthly income is $5,000 then their combined housing expenses – including such things as the mortgage, homeowner’s insurance, and property taxes – should not exceed about $1,650. LGBT loan applicants may find lenders who will still qualify them at higher ratios of debt, but it is not wise to accept burdensome loans with steep mortgage payments. In fact, most financial planners and mortgage experts recommend that LGBT buyers err on the side of greater caution and stick to housing expenses that don’t exceed 25 percent of their income. That gives them a manageable loan and a comfortably protective buffer against any unexpected calamity that might happen in today’s challenging economy.



Buying a House to Get a Slab of Granite

No matter what kind of property they are looking at, residential buyers have a tendency to purchase cosmetic curb appeal because it resonates with them on an emotional level. A buyer will fall in love with the apple tree in the back yard, the urban chic brickwork in a downtown loft, or the granite counter tops in a condo unit. Those are great assets and amenities, and if a home has them they can add to its allure. But LGBT home buyers should not confuse cosmetics or isolated features with underlying and sustainable overall value. Minor features can always be upgraded, and amenities can also be added to a home – but home buying decisions should consider everything being bought, not just one or two exciting perks.

Superficial reasons to buy may be compelling, but the smart buyer will look beyond giddy emotions to make more realistic, level-headed decisions. There is nothing wrong with buying the cute front door, in other words, as long as it opens into a home that meets the rest of a buyer’s carefully articulated criteria. The bottom line valuation of any property should also be based on fresh market data, a keen buyer-ordered inspection, and an objective professional appraisal. The goal is to ensure that the home is both cosmetically attractive and structurally and mechanically sound and free of defects.



Picking the Wrong Realtor

Perhaps the biggest pitfall is shopping for homes without first shopping for the best possible real estate agent. The majority of buyers wind up making the biggest financial decision of their lives – the purchase of a home – without giving much thought to how they shop for the Realtor who will guide them through the process. Most people enlist the services of an agent by calling the phone number posted on the “for sale” sale in front of a home that they find interesting. Whoever answers the call instantly becomes their Realtor. But most LGBT consumers would never hire a financial consultant, building contractor, attorney, or even a house sitter or professional home cleaning service by just responding to the first ad and phone number they see. They would instead first perform some basic due diligence, conduct a few interviews, and then try to make an informed selection.

For LGBT buyers the best course of action is to hire a LGBT or gay-friendly Realtor, because there are many significant issues that are of special, specific concern to LGBT home buyers. There are gay marriage legalities to consider, tax implications, rights of survivorship, and rules regarding how credit is evaluated for non-married partners applying for a mortgage. All LGBT buyers also share a common interest in understanding how supportive a particular community or neighborhood is, especially if they are relocating to a new area. Only another member of the LGBT community can adequately address those issues with a depth of personal experience, so generally speaking all LGBT buyers are better served by taking advantage of the help of a qualified LGBT or gay-friendly real estate agent and mortgage broker.

To find real estate professionals dedicated to active support of the LGBT community, visit http://www.gayrealestate.com, or call toll free 1-888-420-MOVE (6683).

Click here for list of gay realtors, lesbian realtors and gay friendly realtors nationwide.

If you have a real estate story that you’d like to share with us with the LGBT community, please contact us at manager@gayrealestate.com.

What is a Gay Real Estate Buyer’s Agent and why do I need one?

When shopping for a new home it’s important that trust the Agent you are working with. This is someone you’ll be sharing your confidential information with as you work together in the home buying process. How is this level of trust established? How can you be assured that they have your best interest in mind, that they will keep your information confidential?

The answer: you don’t, unless they represent you as your Buyer’s Agent.

A Buyer’s Agent at Gay Real Estate provides a very specific service to the buyers they work with. This level of service includes fiduciary duties such as Loyalty, Full Disclosure, Confidentiality, Reasonable Care and Diligence, and Accounting.

•             A Buyer’s Agent is legally bound to represent the Buyer’s (your)  interest exclusively.

•             A Buyer’s Agent assists the Buyer (you) in writing and negotiating offers in the your favor.

•             Buyer Representation gives you the same level of loyalty and service that the seller receives from the Listing Agent.

•             A Buyer’s Agent cannot disclose any confidential or financial information about you unless they have your written permission.

With potentially the largest investment of your lifetime ~ ensure you are represented by a buyers agent working exclusively with and for you.

All of the agents at GayRealEstate.com are ready to work with you as a buyers agent ~ at no cost to you!  Click Here to search our database of Gay Realtors, Lesbian Realtors and Gay Friendly real estate professionals ready to serve you today.