CHOOSING A COMMUNITY ❖ BUYING FORECLOSURES ❖ HOW MUCH CAN YOU AFFORD?
A N A N N U A L P U B L I C AT I O N O F The Bulletin | 2012 EDITION
THE
OUTLOOK
BEST TIME TO BUY
EXPERTS AGREE THE HOUSING MARKET IS RECOVERING IN 2012
THE NEW FACE OF RENTERS | TIPS FOR FIRST-TIME HOME BUYERS
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selling your home
C O N TAC T U S Phone: 860.887.9211 Fax: 860.887.1949 EDITORIAL news@norwichbulletin.com CLASSIFIEDS classifieds@norwichbulletin.com CUSTOMER SERVICE customerservice@norwichbulletin.com ONLINE www.norwichbulletin.com The Bulletin’s REAL ESTATE OUTLOOK is created by GateHouse Media, Inc., The Bulletin’s parent company, and is distributed with various GateHouse papers across the country. Reproduction in whole or in part without prior written permission is strictly prohibited. Opinions expressed in the publication are those of the authors and do not necessarily represent those of the management of the publication. Cover photo by morguefile.com
What buyers are looking for By Mark Nash HomeFinder.com
any home buyers think that the neighborhood in which they will live should be just as important a choice as their future abode. While the proximity of public transportation or the quality of local schools may not be important to you, those criteria could be a dealmaker to a prospective buyer when you want to sell your home. Evaluate whether your neighborhood meets some common-sense, quality-of-life standards that many people expect when they buy a home. • Drive through the neighborhood at different times of the day or evening. During early morning hours, you’ll be able to observe how efficiently residents get to work and students get to school. During the daytime, you’ll also see how properties, including alleys, are maintained. An evening or night visit will allow you to discover rushhour traffic density and traffic noise, street parking availability and how
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well streets are lit to ensure safety. • Walk or ride your bicycle through the neighborhood to get a closer look at public places such as schools, playgrounds and parks. • Talk to local shop and business owners. They may offer a different perspective about the area than homeowners and could give you some insight into plans for commercial development.
• Check your neighborhood for opening and closing times of coffee shops, restaurants and essential amenity providers, such as supermarkets and drugstores. How close to each other are service providers located? Is parking convenient? • Visit the nearest hospital to ensure their quality and proximity in case of an emergency. • Assess the convenience and availability of public transportation. With today’s high fuel costs, hopping a train or bus to work may be a better option for your prospective buyer. Pick up bus and train schedules and locate taxi stands. • Surf the Web for community-related sites and message boards where local residents may sound off on local projects, ordinances, proposed property- or sales-tax increases and redevelopment plans. • Check with the local police about crime statistics and neighborhood watch groups. Most states post online the names and addresses of convicted sex offenders.
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OUTLOOK
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when to buy
THE TIME TO BUY
BY SHELLEY O’HARA HOMEFINDER.COM
Buyer’s or seller’s market? The type of market also affects pricing and availability of homes for sale. In a seller’s market, the demand for homes is high. Homes sell quickly and usually at the asking price or higher. Sellers have the advantage in negotiating. In a buyer’s market, the market is slow: Houses may sit unsold, you may find more choices and you have the bargaining edge. Your real estate agent can tell you more about the current market. If you are buying a home for the first time and are able to buy during a buyer’s market, you are in luck. If you are buying and selling, you break even. Yes, you might get a great house for a great price, but you also sell your home in that same market.
Knowing the best time to buy a home Timing is everything ow that you are prepared financially, you might consider what the best time is to buy a home. Ideally, the best time is when interest rates are low, when it’s a buyer’s market, and when the move fits your current situation, such as before the start of school, so your children’s year isn’t interrupted. Unlike other goods and services that enable you to pinpoint a key buying time — buying cars at the end of the tax year, for instance, or buying linens in January — there really isn’t a perfect time of year, although there are factors that do affect the timing. Interest rates, for instance, will affect your monthly payment. When rates are low, you’ll pay less. Economic factors such as inflation, cost of living and market conditions affect interest rates. In the past few years, rates have been at all-time lows. Note that if you have a high-interest mortgage, you may be able to refinance to a lower rate. Likewise, if you have an adjustable-rate mortgage, you may convert to a fixed-rate mortgage.
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Your current situation also affects timing. You might not be able to pick a buying time if you are transferred to a new job, for instance. Seasons sometimes affect the market. For instance, you see a lot of houses on the market in the spring, when flowers are blooming and the weather is nice. Conversely, you may not find a lot of houses on sale during the holidays, because people don’t usually want to move during that time. As another possibility, you may have to sell your home first as a contingency on buying a new home.
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Broader search capabilities More local listings Educational Resources Real estate news
buying foreclosures
Buying homes in foreclosure and other special circumstances BY MARK NASH | HOMEFINDER.COM
omeowners or developers sometimes find themselves financially overextended and need to liquidate their property quickly. Although some auction, foreclosure and short-sale homes are bargains, weeding through the inventory to find one that is acceptable to you and your mortgage lender can be daunting. These properties are known as “distressed,” meaning they might be in rough condition, stripped of their light and plumbing fixtures or missing appliances, including furnaces and hot-water heaters.
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FORECLOSED
S T SALE R O H S
Foreclosures are homes that have entered litigation initiated by the mortgage lender, who has the right under the mortgage agreement to redeem the property. When you sign a mortgage note, the property is used to collateralize the loan, and the lender has the right to foreclose the home if mortgage payments aren’t met. Homes that have been foreclosed are usually winterized to reduce the risk of damage to the property. The plumbing is drained, the hot water is turned off and the windows are boarded. In some instances, this “as is” condition can limit how much you can inspect the property. If you feel this is an option for you, tour several foreclosed homes to get a firsthand idea of what this type of investment is all about.
SHORT SALES Short sales are preforeclosure home sales. To control losses, sometimes a mortgage lender will accept a short sale rather than go through the foreclosure legal process. A short sale is when a mortgage lender agrees with the homeowner to accept less than the outstanding mortgage loan balance to satisfy a mortgage. The owner vacates the property at the time of signing the short-sale agreement. Typically, short-sale homes are in better condition than foreclosed properties because the parties have found a solution before a legal foreclosure proceeding begins. As with foreclosure and auction homes, the home is sold in “as is” condition. Sometimes the buyer will have the right to inspect the property, without the right to ask the lender to fix any defects. “As is” condition means that you will accept the property in its present condition — what you see now, and discover later, is what you get.
REAL ESTATE AUCTIONS Real estate auctions are also potential bargains. However, these aren’t for novice investors who shy from risk-taking. When buying an auctioned home, it’s common not to have the right to view, let alone inspect, the property, meaning it could be bought sight unseen. Some of these properties are burdened with title and deed problems, such as liens filled against the real estate company by unpaid creditors, such as contractors. If you choose to go this route, deal with reputable residential real estate auction companies. Read the terms and conditions on their websites. Internet-based auctions are commonly just a way for sellers and buyers to meet, with the website assuming no liability for transaction details. The most common auction procedure is for the buyer to bid on the home. If he’s successful, both parties draft a real estate contract according to state laws.
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FORECLOSURES
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Finding a good deal
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renting
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Tenant transformation The new face of renters
By the numbers
BY MOLLY LOGAN ANDERSON | GATEHOUSE NEWS SERVICE
In the past five years, there has been a marked difference in the percentage of our population that is choosing renting as opposed to homeownership.
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“When we look at some of the census data and compare it to five years ago, there are more renter households,” says Paul Bishop, vice president for research of the National Association of Realtors, who says 34 percent of households are renting today, compared with about 29 percent five years ago.
hat once was a position primarily filled by those just starting out in life, renting is not just for today’s youth anymore. Instead,
condos and homes are being rented more frequently compared with years past, and the demographics of who is renting just might surprise you.
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FOR RENT Renters on the decrease
What’s next for housing?
In contrast, research does support an escalation of renters in the middle-aged population, who might consider renting a viable option for myriad reasons.
When it comes to the breakdown of current renters, there seems to be an uptick in many facets of our population; however, that growth does not include the very young.
According to the NAR, the seemingly dormant housing market is beginning to show signs of life.
“There are proportionally more renters in the 30- to 64-year-old group,” says Bishop. “This is likely due to the events in the economy over the last several years.” Economic changes that have affected family incomes and resulted in home sales or losses are likely contributing to the growth of this sector of renters. In addition, Bishop sees an increase in those renters older than 65. “Part of this is certainly due to the increase in this sector of the population overall, but the characteristics of renters are changing,” says Bishop. “It’s a lifestyle choice, and we’re seeing many folks opting to downsize.” Instead of staying in the family home indefinitely, many seniors desire the freedom that downsizing provides, in terms of income and maintenance.
“Younger households are having a harder time getting started than before, so we’re not seeing as many being created,” says Bishop, who perceives a relatively smaller proportion of younger renters in his research. Instead of venturing out on their own after college, it seems many of today’s young folks are conservatively staying home and waiting until the time is financially right to start their own households.
“There is a pent-up demand in the market today,” advises Bishop, who says that younger households that have been slow to start total only 500,000 new households annually, whereas five years ago 1 million new households were started. “As the economy picks up, which we are starting to see already, there will be job opportunities and reasons for new purchases, relocations and more home building.” The modest positive changes seen in the employment market are an indicator that we’ll see correlating changes in the housing market over the next two to three years as well, Bishop says.
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Where the increase is
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renting
Renting vs. buying • NorwichBulletin.com
Pros and cons of buying and renting BY SHELLEY O’HARA | HOMEFINDER.COM
ne of the first questions new home buyers face is whether buying or renting is best. Some people will tell you that it’s clear cut: Your rent money is going down the drain, while you can pay close to the same for a house payment and actually make your money go toward something (equity or value in the home). While cost of renting vs. buying is a definite consideration, you should consider other factors as well. Let’s look at some instances where renting makes sense. First, you should consider whether you can afford the costs of homeownership. Your monthly loan payment is just one bill. You also have to pay for home insurance, mortgage insurance in some cases and taxes. All of these make up your monthly payment. You also need money for a down payment. If your rental home or apartment needs maintenance, you are probably not responsible. Instead, you call on your landlord for upkeep and repairs. Some rentals also include utilities. When you own a home, you are responsible for maintenance and repairs. Also, you pay for the phone, cable, power, gas, water and other utilities.
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Second, you should consider your situation. For example, renting might make sense if: • You are moving to a new city, and you are not sure what neighborhood or area of town you want to live in. You may rent to get a feel for the city, then purchase a home after you are more familiar with it. • If mortgage interest rates are high, you may not be able to afford a home, or the homes you qualify for may not be to your liking. In this case, you may consider waiting until the rates are more favorable. • You are in a transition — looking for a new job, getting married, or getting a divorce, for instance — and you don’t want to commit to a home. If you will only be living in the home for a short while, you won’t recoup the costs of buying and then selling that home. Financially, renting might be the better option. • In a down, or buyers market, there is a surplus of homes with very few buyers. In the past few years, the economic crisis has frozen the housing market, causing prices to drop around the country. Buying a home in a down market is an educated gamble. If you wait too long, the market will recover, and prices will go up. If you buy too soon, in the short term, you might have overpaid for your home.
Home ownership provides several advantages, including:
TAX BREAKS. When you own a home, you can take several deductions on your income tax. These deductions vary depending on your situation, but often you can write off all or part of the mortgage interest, real estate taxes paid, costs associated when you buy the home (such as interest points paid) and possibly other costs. If you work from your home, you can also write off a portion of other home costs such as utilities. It’s best to check with your accountant for a clear understanding of what you can and cannot deduct on your taxes, especially for home offices.
EQUITY. When you purchase a home, you usually accrue monetary value in the home. At the start, most of your payments go toward interest, but some go toward the actual principal (the home). The longer you live in the home, the more equity or value you accrue. While not true in all cases, many times home values increase. That means when you sell your home, you often make a profit from the equity you have built up. You can also borrow against the equity in your home with a home equity loan. You might, for instance, use your home equity loan to remodel your kitchen. PRIVACY. Depending on the home type, you may have more privacy in a home. You can’t pick your neighbors, but at least you don’t share a wall or ceiling and floor with them. Of course, this isn’t true if you rent a single-family home (where you may have a yard and/or fencing) or purchase a condo (where you might share walls, ceilings and floors).
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Figure your price range BY SHELLEY O’HARA | HOMEFINDER.COM
Use these tips to calculate how much you can afford for a home hen you are shopping for a home, it makes sense to know your price range. Often the first step a real estate agent will take is to prequalify you for a loan. This might be a ballpark figure or estimate based on typical loan setups, or you may formally apply for a loan and become preapproved. When you are preapproved, you need to submit various documents that specify your income and expenses. The lender then gives you a letter specifying the loan amount you qualify for based on your financial situation. Sellers prefer preapproved buyers because they know that the buyer will not have problems securing a loan for the home. Want to know how much you can afford? To start, you need to total all of your income. Next, separately total all of your debt obligations: car payment, credit card balance, and so on. You can then use this information to get a rough estimate or a formal preapproval.
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Getting a ballpark figure
Prequalified vs. preapproved
Roughly, you can afford two to 2 1/2 times your gross income (your income before any debts or taxes have been deducted). So if you earn $70,000 a year, you can afford a house in the $140,000 to $175,000 range.
You might go a step further to ensure you are looking at houses in a range you can afford. The simplest way to get an idea of your price range is to talk with a lender, provide him or her with income and debt information, and get an estimate of what you can afford. This is like the do-it-yourself method, only you talk to a lender, and he or she may ask questions and require additional information.
But that doesn’t really paint an accurate picture. Consider someone who earns $70,000, has paid off her car, and doesn’t owe any balance on her credit cards to someone who makes the same amount, but has a car lease of $300 a month, a large credit card debt and a student loan to pay off. You can see that one person is a bigger credit risk than the other. That’s where your expenses come in. Lenders like to look at the complete picture, and they use ratios of what you earn, what you can pay on a house and what you owe. The most common debt-to-income ratio is 28/36. This ration is based on monthly amounts. Like the ballpark estimate, you can figure your maximum monthly housing payment by totaling your monthly gross income and multiplying it by .28: Gross monthly income X .28 (lender frontend ratio) = Maximum monthly house payment The other figure in the debt-to-income ratio takes into account your expenses and is calculated like this: Gross monthly income X .36 (overall debt or backend ratio) = Maximum monthly debt – Your current monthly debts = Amount left for monthly house payment
Checking your credit score As part of the loan process, you will need to get a credit check. This lists all the debt you owe as well as credit available to you. If you have always paid your bills on time, you shouldn’t have much to worry about. If you are routinely late or owe huge amounts on your credit cards, you may have a problem. It’s best to know beforehand what your credit check will reveal. You can then clean up any problems — pay off credit debt or clear up any misunderstandings or mistakes on your report — before the lender looks at the credit check. You can get free credit checks from any of several credit check services such as Experian, TransUnion or Equifax. You can also use these sites to get information about how your credit rating affects your available credit.
Getting prequalified doesn’t require a lot of time or money. That’s the advantage. The disadvantage is that you are not formally approved. To get preapproved, you formally apply for a loan and provide documentation to the lender such as tax forms, monthly pay stubs, a credit check, and other certifiable information on your earnings and debt. The lender then provides you with a formal commitment for a specific date range (the next 60 days, for instance). You’ll find pluses and minuses for both methods. You don’t need to spend a lot of time or money with prequalifying. On the downside, it’s not guaranteed that you can actually get the loan. For preapproval, you have to provide all the documentation and perhaps pay a loan application fee, but you don’t have to worry about getting approved for a loan.
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financing
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working with a realtor
BY SHELLEY O’HARA | HOMEFINDER.COM
The benefits of using a real estate agent You’ve done your research, and you are ready to purchase a home. Should you take action on your own or use an agent? An agent can help you in many ways, including: An agent can help you determine how much you can afford when purchasing a home. They can recommend lenders and work with lenders on your behalf to prequalify you for a loan.
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Agents have access to the Multiple Listing Service that lists homes for sale. While you can also find houses on your own by attending open houses, reading your paper’s real estate section and searching online, your agent is the best point of access for all homes and can arrange showings for houses of interest.
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Your agent can help you narrow your search by going through a home with you and noting what you like and dislike. The agent is also a source of information about the home itself: how long it’s been on the market, the neighborhood and school system, the home’s best features and so on. Rather than being flooded with properties of all type, your agent can help you find a match for your specific needs and wants.
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Your agent will lead you through the process, ensuring all necessary steps are completed, such as securing a loan, getting an inspection, completing a title search, and so on.
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How to find an agent
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Look up Realtor sites on the Internet. Often, they include agent lists, and many agents include pages or their own site. Use these to review the agent’s background.
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Draw up a list of questions and interview your agent. Remember she is helping you with a big financial and life decision. Ask how many homes the agent has listed in the past six months. Ask how many homes the agent has sold. Get references, and call them to inquire about that buyer’s impressions of the home-buying process with that agent.
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If you know the specific area or neighborhood you want to live in, consider an agent that specializes or at least sells and lists a lot of homes in your neighborhoods of interest.
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Quiz your agent with questions you have or things you don’t understand about buying a home. For instance, you may have questions about mortgage insurance, which is required for many first-time home buyers. If they can’t explain concepts in easy-to-understand terms or put you in touch with someone who can, they may not be the best choice.
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Be sure it’s clear that the agent is representing you — that you are working with a buyer’s agent. Also, ask about the agent’s commission rate(s). If you are both buying and selling a home, and the agent is both finding you a new home and listing your home, she may give you a break on the commission. You may be asked to sign a buyer’s agreement contract which spells out the terms of your representation, such as exclusivity, meaning you won’t be working with other agents.
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Your agent can also answer questions about the current market, interest rates and other home-buying issues. She can also refer you to other specialists whom you will need, including a home inspector or a lender.
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Home-finding help
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