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Spring House Hunting Tips For Champaign IL

by Rose Price

Forget the groundhog, you can tell it’s almost spring by all the “For Sale” signs in the yards.  

It’s shaping up to be a competitive home buying season, inventory is low and demand is high!  So, if you snooze, you lose!  Literally.  

Lack of preparation is the number one reason people lose their dream home, so here are some tips to keep you ahead of the competition.  

Close your laptop!  Get out of the house and look the old fashioned way

Using Real Estate sites to search for your home is the norm.  90% of people search for listings online during their home-buying process.

Starting your search online is a good idea, but don’t get so caught up that you forget there is a world outside too.  Inventory, in most markets is expected to be tight, so you want to get out and look as soon as possible.  Remember when demand outpaces the inventory of homes, buyers need to be ready to move quickly.  So get pre-approved, know what you are looking for and when you find it, pounce!  

Another thing to remember is that photos online are taken to make the home look it’s absolute best, so it may not accurately represent what you see when you pull up, rather just what the Seller wants you to see.  So, use the internet as a tool, not your whole strategy.  

Some sites let you select certain neighborhoods and then receive alerts when new homes become available, this is the perfect use of the internet, you become alerted and then can go see the home for yourself.

Educate Yourself .  Know the Market Values and Market Trends

Rely on your Realtor for this.  The best source of information is a well connected Real Estate Agent.  They’re the expert and have a wealth of information to share with you.  Ask questions and be sure you really understand the bigger picture.  You can also check out sites like Curbed.com for trends in particular areas and to see where new inventory is popping up.  

Everything isn’t always exactly as it appears.  There could be “micro trends” which are little trends unique to a certain area in your region that could affect prices.  Things like, maybe new homes are selling at a premium to older ones or the demand for condos outpaces the demand for single family homes.  These things will affect your price.  Be aware, too, that there could be micro-trends in your region that 

BUY NOW.  Snag A Low Mortgage Rate—Now

Mortgage rates are going up.  So, now is definitely the time to buy.  Take advantage of the low interest while you can.  

Mortgage rates are still historically low, so buyers are getting a lot more bang for their buck and at payment levels that will be affordable for decades.  Mortgage rates are so low right now that monthly payments are lower than rent in a lot of markets.  

It’s predicted that these low interest rates will stay through the spring.  Home Buyers received another gift recently, when The Federal Housing Authority, which backs loans for borrowers who make low down payments, lowered the annual insurance premium required from 1.35% to just .85%.  It’s estimated that this will save more than 2 million FHA homeowners about $900 a year.  

What this means: It’s a prime time to jump on a home loan. Mortgage rates can be unpredictable—and a decision by the Fed to raise interest rates mid-year, as many economists predict, could cause them to spike.

Build A Home Buying Dream Team…Then Make A Bid

To be a serious contender in the Home Buying game, you need to be organized and ready, especially if a bidding war begins.

You will need a savvy real estate agent obviously, but you’ll also want your lender, inspector and attorney to be ready so you can move fast.  

Complete your mortgage application and get your loan amount determined in advance.  Things move faster today and if you are not 100% pre-approved, you probably won’t get the house.  Some people, the most successful buyers are even going one step further and getting fully approved before purchasing.  Not all lenders offer this, but some do, and if they do, it’s a way to ensure you are the top contender.  And the better known your lender is locally, the more likely you’ll win the confidence of the seller.  Lenders from the Internet can seem sketchy in the eyes of Sellers and their agents.  It’s always best to use someone who is known locally.  

Don't Be Afraid To Sweeten The Deal

So, what if you are stuck in a bidding war with an equally qualified buyer?  How do you win?  

One way is to include an escalation clause, which is an amount that you are willing to pay above a competing bid.  

For example, if you included an escalation clause of $3,000 to your bid of $200,000 and the second offer came in at $205,000, then your bid would get bumped to $208,000. 

You can also consider removing contingency clauses.  Contingencies are terms of a contract that must be met or the buyer or seller can walk away from the deal; home inspection, appraisal and financing contingencies are among the most common.  All of these presents a certain level of risk, so consult with your Realtor and team before removing any.  These can often be removed just by doing due diligence.  For instance, you can remove the financing clause if you get fully approved.  Also, be sure to conduct a pre-inspection prior to making your offer, this way, you won’t have to include an inspection contingency.  

There are also smaller but nice gifts you can use to entice a Seller.  Find out what date the Seller prefers to close, then use that date in your contract.  You can also offer to close as quickly as possible, and offer to accept rent payments from the Seller until their planned move date. Adding these little perks can mean a lot more than you think.  There have been times my seller ultimately went with a lower bid, simply because it had NO CONTINGENCIES. Many Sellers prefer NO RISK as opposed to a few extra bucks.  

Most of this has to do with preparation and knowledge.  Don’t get caught off guard and lose your dream home because you weren’t properly prepared.  This starts with your Realtor.  Find a trusted expert and then work hard with them!

If you're looking for more information or tips on the buying process in Champaign IL, call The Rose Price Team, experts in relocation and led by Rose Price, a trusted Real Estate Agent since 1989.     

 

 

 

THE DOWN PAYMENT: CHAMPAIGN IL

by Rose Price

With a booming economy and comfortably plump market in Champaign IL, there are many more first time homebuyers flooding the market. So I thought it fitting to start a few blogs for those less familiar with how buying a home works, I mean, lets face it, even if you’ve been buying homes for 20 years, the process doesn't get less confusing.  So, lets start at the beginning; naturally, the Down Payment.

Let’s discuss what a Down Payment IS and IS NOT.

Definition of Down Payment

For a home buyer, the Down Payment, from here on out referred to as the DP, IS the sale price minus the mortgage loan amount. It IS NOT the same as the buyer’s cash outlay (the two are often confused). They are different by the amount of settlement costs charged to the buyer. 

For example, if the price is $100,000, the settlement costs $5,000 and the buyer has cash of $30,000, the amount available for down payment is only $25,000. 

Thus why many home buyers pay a higher interest rate in exchange for a lender rebate that will cover some or all of the settlement costs.

The DP IS NOT the same as the owner’s equity, except on the day of the purchase. Owner equity is what the owner could potentially net from selling the property. Where as the down payment is a one-time measure as of the purchase date, owner equity changes month by month. It will rise above the down payment as the mortgage loan balance is paid down and as the market value of the house rises, due either to property improvements or to market changes. AND obviously the owner equity could also decline if house prices fall…remember 2008? 

Why are down payments necessary?  

Basically to protect the lender.  You risk losing your down payment if your home ends up in foreclosure, so it's a way to make sure you make your monthly payment obligations.  

Minimum down payments

Most mortgage lenders require a down payment of at least 3 percent. FHA loans (mortgages insured by the Federal Housing Administration) require a down payment of at least 3.5 percent. Depending on your credit history, the type of dwelling and your reason for buying, the minimum down payment could be 5 percent, 10 percent, 20 percent or more.  This is why it makes sense to shop around for a mortgage.  Use your Real Estate Agent as a resource.  They will be able to help you find a few different mortgage options.  

Mortgage Insurance

When you make a down payment of less than 20 percent, your only option is to also buy mortgage insurance. There are two main types:

Private Mortgage Insurance (often called PMI), is paid to an insurance company. You will pay what are called annual premiums, which you will most likely pay monthly and most insurers also offer the option of an "upfront premium", in which you make a big payment at the beginning of the loan.

FHA insurance is paid to the federal government. When you get an FHA-insured mortgage, you will pay an upfront premium AND monthly premium payments.

Additional Fees

In many cases, lenders charge fees for down payments of less than 20 percent. Those fees will be on top of mortgage insurance premiums. Usually, the smaller the down payment, the higher the fee.  These fees will be paid at closing, FYI.  Sometimes the lender will charge a higher interest rate instead of fees.  

Options For Down Payments:

Appraised Value VS Sale Price

A big questions I get, is whether in the case where the appraised value is higher than the sale price, the difference can be counted as part of the down payment? From the lender’s perspective, the answer is “no”.  The property value used in determining the down payment is the sale price or appraised value, whichever is lower. The one and only exception to this is when the seller provides a gift of equity to the buyer (usually a family member). In these cases, the lender acknowledges that the house is being priced below market and will accept the appraisal as the value. In most of these cases, Lenders will require two appraisals and then they will take the lower of the two. 

Land as the Down Payment

Another big question is if land purchased as part of a plan to construct a new home can be used as down payment? The answer is “yes” actually. However, the land is then valued based on how long it has been held. If the owner has held the land for a long time, the lender will appraise the completed house on the lot and the difference between the appraisal and the cost of construction will then be viewed as the down payment.

So, if a builder charges $160,000 for the house and the appraisal comes in at $200,000, the land is assumed to be worth $40,000. A loan of $160,000 in this case would have a down payment of 20%.

However, if the land was purchased recently, the lender will NOT value it for more than its purchase price. If the price was only $30,000, for example, the lender will value it at $30,000, and the down payment will only be 15.8%.

Down Payment and Mortgage Insurance

From the borrower’s perspective, a larger down payment means a lower mortgage insurance premium. For example, a home purchaser with a good credit score who puts 3% down on a conventional loan will pay a monthly mortgage insurance premium about twice as large as the premium on an otherwise identical loan with 5% down, and 4 times as large as the premium on an otherwise identical 15% loan with 20% down.

I know, still a bit confusing, but that’s why we’re here, this is what we do!  If you need help navigating the murky waters of first time home buying, give the Rose Price Team a Call, we'd be happy to help you get into your first Champaign IL home.  The best way to buy a home will always be to find a good Realtor you trust and then let them do all the hard work and remember don’t be afraid to ask questions if you need things clarified.  If your Agent doesn’t encourage you to ask questions…find another Agent.  

Not ready to talk to an agent yet?  Then check out some of the FREE Home Buyer Tools we offer.

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