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BUYING a Home

The essential information you need to know to be a better buyer.

Spring/Summer 2016

“

Finding a home is NOT a selection process... it is an elimination process.

”

TABLE OF CONTENTS 1 2 3 5 7 8 9 10 11 12 13 14 15 16

WHY BUY A HOME NOW? A GOOD INVESTMENT HOME-BUYING MYTHS WHY YOU NEED AN AGENT WHEN BUYING A HOME GET FINANCING FIRST CONSIDER ALL COSTS A HISTORIC TIME TO BUY A LOOK AT HOME PRICES UNDERSTANDING HOW MUCH HOME YOU CAN AFFORD THE COST OF RENTING VS. BUYING THE WEALTH GAP BETWEEN HOMEOWNERS AND RENTERS 6 REASONS TO HIRE A REAL ESTATE PROFESSIONAL BUYER TOOLS YOU NEED A FAMILY OF SERVICES

WHY BUY A HOME NOW?

PRICES WILL CONTINUE TO RISE

BUY OR RENT, YOU ARE PAYING A MORTGAGE

MORTGAGE INTEREST RATES ARE EXPECTED TO INCREASE

RENTS ARE SKY-HIGH

CoreLogic’s Home Price Index Forecast projects that home prices will increase by 5.4% from December 2015 to December 2016.

Even a small increase in interest rates can put a dent in your buying power. Experts at reporting agencies Freddie Mac, MBA, and NAR are all predicting that interest rates will increase by three-quarters of a percentage point by the end of 2016.

Homeowners and renters both pay a mortgage payment each month, however the one renters pay isn’t theirs. Buy a home to build your own wealth instead of your landlord’s!

More than 85% of U.S. markets have rents that exceed 30% of the income of renting households. “Rents are accelerating at a more rapid pace than home prices, which are moderating,” says realtor.com®’s chief economist Jonathan Smoke, making it more affordable to buy a home in more than three-quarters of the U.S. than it is to rent. ©2016 Semonin Realtors®. All rights reserved.

A GOOD INVESTMENT After years of living through abnormal trends and working off the devastating effects of the housing bust, signs of normalcy are coming to light. Foreclosure rates are down, new construction is returning to more traditional levels, and rates of price increases reflect a more balanced market. The economy is improving and job numbers are headed in the right direction. But the big question is: Have people regained their confidence in real estate as a worthy investment? According to a survey by Princeton Research Associates, the answer is yes!

27%

For money you wouldn’t need

23%

for more than 10 years,

which of the following do you think would be the

17% 14%

best way to invest?

Real estate

Cash Investments

Stock Market

Gold/ Precious Metals

Bonds

None of these

Don’t know

There are many financial benefits to owning a home. There are substantial tax benefits, it adds to your net worth, and having to pay a mortgage payment helps people make a habit of saving money—just to name a few.

HOME-BUYING MYTHS MYTHS ABOUT MORTGAGES

MYTH REALITY

I had some debt when I was young and I ruined my credit. I’ll never get a mortgage. You don’t know what your credit history shows until you look. And if you do have blemishes from the past - even a bankruptcy - many lenders will overlook problems if the past two years show good credit practice on your part.

MYTH

I heard you need to put 25% down to buy a house. But my friend says that you can get a mortgage with no down payment at all!

REALITY

Both scenarios are uncommon. Although there are a variety of financing programs available, most require you to put at least 3-10% down, but rarely would you need 25%.

MYTHS ABOUT AGENTS

MYTH

If I have several agents looking for homes on my behalf, I’ll find a house more quickly.

REALITY

Like most relationships, this one thrives on communication, loyalty and trust. By working exclusively with one agent, you will improve both the process and the results.

MYTH

If I want an agent to represent me as a buyer, I’ll have to pay them myself.

REALITY

Buyer representation means that the sales associate you select works with your best interests in mind. In most cases, however, they receive a portion of the commission paid by the seller.

MYTHS ABOUT BUYING

MYTH REALITY MYTH REALITY

I should find a new home first before I sell the one I now own. If you find a buyer for your home first, you’ll have more negotiating power in both the sale of your current home and the purchase of a new one. I just made an offer on a house I love, but so did several other people. I’m worried that someone else will outbid me and get it. Different sellers are motivated by different things. In addition to price, a seller will look at the other terms of the offer - contingencies, closing date, required repairs. Many times a “clean” offer from a pre-approved buyer will be more attractive, even if the price is slightly lower.

WHY YOU NEED AN AGENT WHEN BUYING A HOME Many people wonder whether they should hire a real estate professional to help them in finding and purchasing their dream home or if they should first try to do it on their own. In today’s technological age, many think that all the information they need and the questions they need answered can be found online. However, the same way that information has become so much more accessible, the real estate industry has become so much more complex. Buying a home is not as simple as it seems and in today’s market, you need an experienced professional!

YOU NEED AN EXPERT A real estate transaction can be an incredibly complex journey loaded with unexpected bumps and turns. You need a true expert to guide you down the best path and through the dangerous pitfalls that may come up. A real estate professional knows the market and will work with you to understand your wants and needs and work in your best interest, saving you time, money, and definitely many, many headaches.

88%

YOU NEED A SKILLED NEGOTIATOR of buyers would use their agent again or recommend their agent to others

SOURCE: NATIONAL ASSOCIATION OF REALTORS

As a buyer in today’s market having a talented negotiator working for you could save you thousands, perhaps even tens of thousands of dollars. After you submit your initial offer there could possibly be multiple renegotiations after the home inspection or appraisal. You will want someone who can keep the deal together until it closes. 5

YOU NEED SOMEONE WORKING FOR YOU! A buyer’s agent works for the buyer, not the seller, and puts the buyer’s interests ahead of anyone else’s interests. A full-service real estate professional will spend time getting to know your wants and needs and providing property information, comparable sales analysis, and community and tax information. A buyer’s agent can obtain a copy of a home’s historical documents, schedule and attend home inspections for you, answer any of your questions or concerns about a report or contract, and more. The bottom line--a real estate professional can provide you with the knowledge and service you need to be confident and comfortable in your buying decisions.

AS A BUYER, USING A REALTOR COSTS YOU NOTHING One of the biggest misconceptions home buyers have is that they will have to pay their agent’s commission. In most cases, the seller has to pay the 3% commission to the agent for bringing them the buyer, as well as pay 3% commission to their own agent for listing and marketing the home. So as a buyer, using a Realtor® costs you nothing.* You have nothing to lose, and everything to gain!

*Select brokerages charge buyers additional fees for their services. Semonin Realtors®, a full service brokerage, charges buyers a $149 administration fee at closing.

GET FINANCING FIRST Once upon a time, buyers found their dream home and then went in search of a mortgage. Today things have changed. The market is more competitive, and buyers who arrange their financing first have a distinct advantage. This means finding a lender before you start looking for a home.

1 2 3

Talk to several reputable lenders.

Keep in mind that there are all kinds of mortgages available with different rates and different features. Meeting with multiple loan officers will help you navigate through all the options.

Get pre-approved for a mortgage.

Unlike pre-qualification, which is simply a quick estimate of your borrowing potential, pre-approval is a formal approval of a specific mortgage amount - typically the maximum you can borrow. And you’ll receive a Good Faith Estimate of your closing expenses. By initiating the mortgage process early, you’ll be in a better position for your search and purchase.

Shop with confidence.

Once you’re pre-approved, you’ll know exactly how much house you can afford, and you’ll have an edge over other buyers in multiple-offer or negotiating situations.

CONSIDER ALL COSTS When it comes to determining your budget for a new home, you must consider the costs that aren’t included in the list price. Besides your actual mortgage payment, you will need to consider how much you’ll need to pay in property taxes, utility bills, maintenance costs and more. So just because you get approved for a $250,000 mortgage loan, don’t assume that should be your budget and you should only be looking at $250,000 homes. Look at your current and future financial situation carefully and be sure you will be able to afford all the costs that a home requires now and for years to come.

RATES MATTER It is important to also consider how your mortgage interest rates will affect the long-term cost of the home. Did you know that a rate increase of merely 1.5 percent decreases your buying power by nearly 20 percent for the same monthly payment? Below are some examples of your increased buying power with recent low interest rates (loan amounts rounded within one dollar). MONTHLY PAYMENT (P & I)

INTEREST RATE

LOAN AMOUNT

INCREASED BUYING POWER

$600

4.0% 5.5%

$125,700 $105,700

$20,000

$900

4.0% 5.5%

$188,500 $158,500

$30,000

$1200

4.0% 5.5%

$251,400 $211,300

$40,100

Monthly mortgage payment calculations are based on a 30 year fixed term. This communication is provided to your for informational purposes only and should not be relied upon by you. Semonin Realtors® is not a mortgage lender.

A HISTORIC TIME TO BUY In recent months, there has been a lot of buzz about rising interest rates. Experts say they are projected to steadily increase over the course of the next year. Rising rates always deter people from buying, and many are discouraged because they may longer no be able to get a rate less than 4%. We must keep in mind that while rates aren’t their all time lowest, they’re are still very far from historic highs. Just take a look at the last 30 years!

In the 1980s, rates averaged at 12.7%, and at 8.12% in the 1990s. So even if you may have missed the lowest mortgage rates ever offered, you can still get a much better rate than than 10, 20 and 30 years ago.

A LOOK AT HOME PRICES The Federal Housing Finance Agency (FHFA) releases quarterly reports on the Year-overYear changes in home prices. Nationally, year-over-year home prices are up 5.70% and they have increased 19.91% over the last 5 years. 1-Yr

5-Yr

KENTUCKY

3.87%

10.47%

INDIANA

3.84%

12.86%

USA

5.70%

19.91%

Home prices in each state appreciate at different rates as shown below. Looking at these percentage increases on a state level is important if you are planning on relocating to a different area of the country. The longer you wait to make the move, the more you might be paying!

SOURCE: FHFA 10

UNDERSTANDING HOW MUCH HOME YOU CAN AFFORD When buying a home, your lender will look at your income, assets, and down payment. They’ll also want to know about your liabilities and other financial obligations. This includes things like credit card debt, auto loans, student loans, child support, taxes and insurance—all which impact the size of the loan you can afford.

TOTAL DEBT ÷ TOTAL INCOME = DEBT-TO-INCOME RATIO All lenders look at your debt-to-income ratio to judge whether you’ll be able to make your monthly payments. Accepted debt-to-income ratios vary by lender and by loan program, so be sure to ask each lender you meet with what ratio they use. Once you know the ratio, you’ll be able to calculate your maximum monthly payment you can afford for your home’s mortgage, insurance, and property taxes. Online mortgage calculators can help you determine what priced home you can afford based on that information and current interest rates. If rates go down your buying power increases, but if rates go up your buying power will go down. Ask your lender what information they need to determine the payment you would qualify for, and always ask about all loan programs that may be available to you.

THE COST OF RENTING VS. BUYING Some renters are apprehensive to buy because they believe a mortgage payment will be higher than their rent. However, according to LendingTree rent prices are increasing every month and in many areas in the country, renters are paying a higher amount towards rent each month than they would if they had a monthly mortgage payment.

PERCENTAGE OF INCOME NEEDED TO AFFORD MEDIAN HOME...

If you are renting & think you can’t afford a home... THINK AGAIN! Buying costs significantly less than renting! As you can see above, the percentage of income needed to rent is nearly double than the percentage needed to buy! And rents are, in fact, rising while buying a home is becoming more affordable.

THE WEALTH GAP BETWEEN HOMEOWNERS AND RENTERS The National Association of Realtors’ (NAR) Chief Economist, Lawrence Yum projected that in 2016 the net worth of a typical homeowner will be 45 times greater than a typical renter.

$225,000 LD

HOMEOWNER

$195,400

$187,000

wealth

$220K $190K

$182K FOR RENT

RENTER wealth

$5,400

$5,000

2010

2013

Projected 2016 SOURCE: FEDERAL RESERVE & NAR

Think about how home values have increased over the past 30 years. The median price for a single-family home in the U.S. 30 years ago was $75,500. This year, it will be at least $220,000. So after 30-years—the typical length of a mortgage loan—a person’s wealth would include that $220,000, plus they are no longer facing a mortgage payment (or rent payment). A report from the Census Bureau shows the median asking rent in 1988 was $343, and at the beginning of 2015 it was $799. So if a person had rented over the past almost 30 years, they would have faced an increasily higher payment, but no increase in the housing component of their net worth.

6 REASONS TO HIRE A

REAL ESTATE PROFESSIONAL

PAPERWORK

EXPERIENCE

All of the contracts, disclosures, and other required paperwork can seem overwhelming. With regulations constantly changing in the real estate industry, it is good to have a Realtor there to help explain everything to you.

Realtors are licensed professionals who are educated and trained in the real estate field. Being experienced with the entire sales process, they can help guide you through your home buying journey.

PRICING

KNOWLEDGE Anyone can get on the Internet or flip on the news to get the latest real estate headlines, but a Realtor will effectively explain the current market conditions and decipher exactly what they mean to you.

Real estate professionals understand home values and everything that affects them. A Realtor will share this insight with you to help you make a smart and solid offer, whether it be well over, well below, or close to the property’s actual list price.

AWARENESS

NEGOTIATIONS

Many buyers begin their home search knowing exactly what the want to find, while many others have a vague idea. Being too specific or too broad can make for a very long search process. A Realtor can help you prioritze your wish list and make you aware of options you might not have considered. As well as point out features and flaws in a home that you may have overlooked.

Realtors represent their buyers during the entire transaction process. Being one of the biggest purchases a person will ever make, the buyer tends to be more emotionally involved. It is helpful to have a Realtor act as a “buffer” in negotiations.

BUYER TOOLS YOU NEED!

Search for homes on your desktop!

Download at app.semonin.com

SEMONIN.COM

MOBILE APP

Semonin.com contains more local inventory and up-to-date information about homes for sale than some national sites like Zillow.com. Search by location, price, and more using our powerful desktop search tool and browse thousands of homes, flip through photos, and save your favorites.

Shop for homes on the go with our free mobile app and access virtually every home in Kentuckiana. The Semonin app offers unique tools that allow you to calculate commute times, share listings with your friends, draw around areas you want to search in, and use your smart phone or tablet’s GPS to instantly find homes nearby.

Informative videos for buyers, sellers and homeowners!

SEMONIN.TV Semonin.tv offers a library of informative one-minute real estate videos for buyers, sellers, and current homeowners. Browse through dozens of clips for useful real estate information with topics spanning from home maintenance and improvement tips to home insurance and mortgages and more!

A FAMILY OF SERVICES Semonin Realtors® has a solid foundation and a commitment to exceptional service that you can count on. We strive to make the home buying journey as efficient and stress-free as possible by giving our customers every resource they need. Our affiliation with HomeServices of America and our Family of Services ensures you will have everything you need including realty, mortgage, home warranty, title, insurance, and relocation services. of America INC.

MORTGAGE

INSURANCE

HomeServices Lending is a wholly owned subsidiary of HomeServices of America Inc., a Berkshire Hathaway Affiliate. We are part of an ever expanding family of affiliate companies whose foundational strategy is to deliver an unrivaled customer experience throughout all aspects of the home transaction process.

HomeServices Kentuckiana Insurance offers new home buyers and existing home owners a complete selection of insurance options from home, car, life, and more.

WARRANTY

A great full service option for both buyers and sellers is our Home Warranty service which gives peace of mind to many homeowners in our marketplace. If you are selling a home with a Semonin agent then you can add a home warranty to your listing and make it more attractive to buyers. If you are buying a home without a home warranty, with a Semonin agent, we have a policy you can add that will give you that added security in knowing you’re protected.

TITLE

HomeServices Title is a wholly owned subsidiary of HomeServices of America, Inc. They understand the importance of the title and closing process and by providing title insurance, afford our customers a convenient source for protecting their investment.

RELOCATION

Moving into our area. Moving out of our area. Semonin belongs to the Leading Real Estate Companies of the World. Leading RE is part of the largest network of real estate brokers in the country. Semonin’s relocation team can help move you to or from anywhere in the world. We have specially trained agents to assist you when relocating.