Your Personalized Home Purchase Plan for 2024: For First Time And Experienced Home Buyers

Your Personalized Home Purchase Plan for 2024: For First Time And Experienced Home Buyers The home purchasing process is a daunting undertaking for most buyers. It can difficult to know where to start! Like my friend Ethan says, "Failing to plan is planning to fail...". You need a plan! The real estate market is complicated and prices are always adjusting to economic conditions. Additionally, there are new rules regarding Realtor compensation that will have an effect on affordability and budget planning.  In this blog, I'm attempting to break the process down with a time honored set of questions that will help focus your thoughts and provide information at the same time: Why? What? Where? Who? When? & How? Grab a pen and paper or your favorite note taking device and prepare your customized plan!  Why are you buying a house?  This is possibly the most important question to ask when pursuing the goal of home ownership. You may have more than one reason. Only you can answer this question!  Why are you interested in buying a home?  What kind of house do you want to buy? What kind of home are your imagining yourself living in?  Type of home  Criteria Price Range Where do you want to live? - Consider the important questions - Affordability? Lifestyle? Urban, Suburban or Rural? Walkable or no? Peace and quiet or bustling city scape? Consider access - the proximity to transportation routes, work, family, and recreation.  Location(s) Who can help you buy a house? - Your Realtor and Lender will be your trusted fiduciaries along the way. It's ideal if they have a professional working relatoinship already, since they will be working in lockstep from the start of your journey to closing. Accesibility to these personel, and their responsiveness is important. The real estate business moves very quickly and is oftentimes centered around the weekends.   Realtor/Buyers Agent  Lender When do you want to move in? - The best time to buy a house is when it's best for you. That said, there are seasonal trends that can make the process more or less stressful. Consult with your agent about the local market and add this into your considerations regarding your timeline.  What is your timeline to purchase & move?  How do you find a Realtor & Lender? - How do you find a realtor & lender? Ask your friends & family for referrals! You might also meet agents and lenders at open houses. After you have your personell in place, the journey really begins.  Lender/Loan Application - Discuss with the lender what paperwork you need to submit in your loan application. Explore loan products with them as well.  Down Payment Assistance Programs (DPA, VA, etc.) Explore you local housing organizations to research what programs might be available to help you.  Realtor/Buyers Agent - Some sort of buyers representation contract is now required to foster a rlationship with a realtor. Once you've found someone you like, discuss what options & pay rate are best for you.  Home Tours/Showings & Open Houses Purchase contract Home purchase timeline  Let's go a little deeper into these questions with some definitions and explanations... What? Popular Types of Homes -  Single Family Residence (SFR), Multi Family (Duplex, TriPlex, FourPlex) Condo, Attached/Townhome, Planned Community, Floating Home, Manufactured Home, Tiny Home, Mobile Home, and many more. Are you interesetd in new construction or strictly resale homes?  Criteria -  Number of Bed/Bath Sq Ft Lot Size Garage Shop Proximity to schools, public transit, shopping districts Walkability HOA Y/N  - HOA covers different expense,  depending on the HOA Financing Type  Annual Property Taxes    Price Range & Financing Your price range will be determined by a number of factors and whether or not you’re seeking mortgage financing.  Loan Approval - based on income, debt, debt to income ratio, credit rating & history, other special eligibility i.e. veteran status, 1st time buyer status, etc.  Savings and Reserve funds for Down Payment & Closing Costs will be considered.  Financing Type: Listing agents will outline what kind of financing is acceptable for the purchase - i.e. Cash, Conventional, FHA, USDA, VA etc.  HOA Y/N - If Yes, what is the most you would pay for HOA? What would you expect from an HOA?  Where? Location  What do you want to do at your home? Work from home? House Hacking? Garden? Do you have a boat or an RV to park? Write down what you expect to do on the property. Zoning Rules & Property Taxes vary - Always do due diligence on these subjects. Remember that rural locations may not be on public water/sewer systems. Location & the type of home you seek might have an effect on the type of mortgage you need.  Who? Realtor/Buyers Agent  The Buyers Agent is your Fiduciary . They advocate for you and your best interests above their own.  Gone are the days of a casual, handshake agreement with a buyers agent. There are four ways to engage in a buyers representation employment agreement and foster a relationship with a buyers agent as your fiduciary.  A buyer representation agreement outlines the scope of the agents services, timeline, price point, location and agent compensation amount, guaranteed by the buyer, to be paid to the agent should you close on a home. It is an employment contract that can be updated or cancelled, in writing, at any time, for any reason by either party. There are four commonly used agreements  Benefits of working with a Buyers Agent: Local Expertise Knows what to look for when touring homes o- wear on the roof, potential mold, faulty infrastructure, aging or systems, utilities, etc.  Coordinates showings - schedules and hosts private showings Knows how to write real estate contracts Access to experienced professionals; contractors who can give estimate on scope and price of repairs, and perform repairs if necessary Your Negotiator - Negotiates the terms of your Real Estate Sales Agreement.  Keep the transaction on schedule with other real estate professionals in the mix - Listing Agents, Title Company, Lender  Can be your emotional filter - Transactions can be stressful and having an agent to handle tough conversations can be a huge benefit.  Dual Agency explained - In Oregon, it’s legal for Real Estate Agents to represent both sides of a transaction. As a buyer, you will have the option to allow or disallow this kind of representation.    Lender Not all lenders are the same. Mortgage Brokers & Loan Officers or Home Loan Consultants at private lending companies or banks differ in that a mortgage broker has many banks they work with and can shop rates, etc. A Loan Officer or Home Loan Consultant is usually working for one institution or company and has a limited array of loan products and rates they can offer.  The lender will walk you through the entire process and be your consultant as you determine the best way to finance your specific home purchase.  Loan Application - online or in person Pre-Approval - Based on your initial application.  Appraisal - The lending institution will determine what the home is worth from their point of view.  Underwriting - Final approval of your loan for the specific home you wish to purchase, conducted within a short time before closing. Be aware that changes in your financial status (major purchases, new debt, etc.) can have an effect on whether or not the underwriter approves the final loan.  Transfer of funds from escrow and your liquid sources at closing When?  What is your timeline to purchase & move?  What is your prefered closing date?  Are you currently in a lease or rental agreement?  What are your motivations/reasons for purchasing a home and moving?  Know that an average real estate transaction can take 3 - 6 weeks to close and take possession.  Rent Back - When the current owner needs time to make their move, they may ask to rent back the home after closing for up to 60 days. Terms are negotiable.  How? Lender - Loan Application - Most lenders make an application available online o in person. You will need to gather financial records and submit them to a lender of your choice.  Realtor - Showings & Open Houses - Once you are pre-approved for a mortgage, have selected a real estate agent, and know your price range and criteria, it’s time to go and see some homes in person! “You never know until you go." Purchase contract/Home purchase timeline  Residential Sales Agreement - (RSA) A contract that outlines all of the details of the transaction. This contract is where your agent will enter the terms of your offer to the seller.  The Buyers Offer will include :  Names and contact info for the Buyer & Seller, and their agents Purchase Price Proposed Closing Date Mortgage Pre-Approval Letter &/or Proof Of Funds - The mortgage company will issue a letter stating that you are a qualified buyer. Proof of funds might be bank statements or a letter from another third party outlining the buyers access to cash to make the purchase.  Earnest Money Deposit - EM is usually a cash deposit due to be deposited in an Escrow account, typically held by the title company indicated by the seller, within 3 days of a mutually accepted offer. The amount is negotiable, but is frequently 1% of the purchase price.  Down Payment Amount - Work with your financial advisors and your lender to determine the down payment amount that’s best for you. The down payment has effects on the type of loan you are eligible for and the amount of interest you will pay over time.   Closing Date - 3 - 6 weeks is a typical time frame from offer to close, cash transactions might close sooner. Sometimes closing can take longer if both parties agree and it's necessary to complete the transaction . For instance, if you are selling a home in order to purchase another, you may have to wait for you sale to close in order access the funds you need to complete the purchase you're trying to make. There are many factors that can come into play that may effect the actual closng date.  Inspection Period - Length of the inspection period and whether or not the purchase is to be contingent upon information learned during inspections performed during this period. If the sale is contingent upon inspections, the buyer will have the number of business days indicated in the contract (usually 10 days) to determine whether or not they want to go forward with the purchase. If not, the transaction can be terminated and earnest money returned to the buyer.  Special Provisions & Addendums - Particular terms to be added to the contract will be included here. Your real estate agent will help you navigate these terms which could include everything from appliances or other personal property included or excluded in the sale, timeline adjustments, repairs, requests for closing credits, rent back terms, appraisal gap coverage, home warranty coverage, etc.  Negotiations - Negotiations regarding repairs or other terms are typically done before the inspection contingency period ends. However, negotiations can take place throughout the transaction. Negotiation points for buyers can include repairs, price reductions, seller concessions/credits for broker compensation, closing costs/lender fees, rent back, closing date, etc. Your agent should have a firm grasp of these concepts and discuss them with you so you can make informed decisions.  Title - The title company reviews the title to confirm it is a marketable title, finds any liens or encumbrances that may be associated with it, issues insurance policies, facilitates closings, and files and records paperwork. The title company will act as the escrow officer holding the EM deposit and the Deed until closing.  Additional Paperwork - Forms required by law and the listing agent, (i.e. sellers disclosures, the Oregon real Estate Agency Pamphlet, Buyer Agency Agreement, etc.) In conclusion - I hope this helps! As crazy as it sounds, this blog touches just the tip of the iceberg when it comes to planning to purchase a home. If you are considering a home purchase in Oregon or Washington, have questions or insights, please feel free to get in touch. I'd be glad t talk real estate with you!  Sam Densmore/Realtor/Inhabit Real Estate 08/21/2024 All Rights Reserved

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Introduction to House Hacking - Leverage your asset with creative rental solutions

Introduction to House Hacking - Leverage your asset with creative rental solutions HOUSE HACKING - If you're considering purchasing a home, especially for the first time, you are likely concerned with the monthly mortgage payment and how you're going to cover it. Considering that appreciation rates and home values skyrocketed during the pandemic, this concern is widely shared. You may have heard that many home owners have turned to house hacking as a means to offset their monthly payment. Simply put, House Hacking  is a real estate investment strategy aiming to offset the owner’s mortgage payment. Before we dive into the many options available to house hackers, Owner Occupied is a term to get familiar with. Owner Occupied is a term used in real estate investment circles to indicate that there is space available for rental income, but the owner is also in primary residence there.  In this blog we will cover a few of the most popular approaches to house hacking, and some pros and cons of those approaches. I've also provided some links to local resources related to downpayment assistance, house hacking and home purchasing.  Popular Types of House Hacking Rental Income To Consider:  1. Short Term Rental (STR) - Perhaps the most lucrative and popular with the house hacking movement, STRS are furnished rentals available for short term stays of as little as one day/night. They are frequently associated with AirBnB, or VRBO. An STR could be a unit in a duplex, triplex or fourplex, an extra bedroom in your home, an ADU (Additional Dwelling Unit), or a finished basement with it's own amenities - kitchenette, bathroom and separate entrance. These are the most work intensive types of rentals because stays turn over very frequently. Renting the unit will likely require daily cleaning & housekeeping, administration and marketing tasks on a daily basis. Also, STRs are heavily monitired by local governments and usually require permitting to operate. Do your due diligence on this point, because the local rules and fees to get permitted can vary widely. Income from STRs is not allowable when applying for a mortgage.  2. Mid-Term Rental (MTR) - Mid-Term Rental income can be maximized by offering a furnished rental with a minimum rental requirement of 30 days. MTRS frequently require no permitting. MTRs can be a good choice if a home owner would like to see more income than an LTR, but doesn't want the daily grind or permitting obstacles that an STR would require. MTRs can be promoted on sites like Furnished Finder, VRBO & AirBnB. Tenants might be folks between homes, or traveling professionals, i.e. traveling nurses, sales people, etc. The downside here is that the income isn't guaranteed, admin and marketing are never ending, and, like STRs, the income cannot be counted when applying for a mortgage.  3. Long Term Rental (LTR) - Long Term Rentals are the sensible shoes of rental offerings, typically an ADU with it's own address, duplex, triplex or fourplex. Rental rates are in line with local rentals with similiar attributes. The least profitable, but the most reliable source of rental income is an LTR. They guarantee rental income with a traditional rental agreement or lease contract for an agreed upon term. A huge upside for some home buyers concerned with qualifying for a mortgage is that the potential income can be counted, before the purchase, to qualify towards a mortgage. LTRs are usually unfurnished, and landlords are subject to all applicable local and federal housing laws. Again, do your due diligence as to what that entails on the local, county, state, and federal levels.  4. RV/Tiny Home Pad Rental - The popularity of the Tiny Home movement has led to the need for parking spaces with hookups beyond the traditional trailer or RV park. RV/TH Pad rentals can be daily, weekly, monthly or leased for longer periods. The nice thing about renting an RV/TH pad is that it's relatively low maintenance for the property owner once it's established, and the cash outlay to bring it to market is also relatively low. If you're unsure about how to go about making your RV pad rentable, there are low cost consultants available as resources. In Portland, there's a company called Tiny Hookups  that will consult with property owners as to what amenities would need to be installed to accomodate a Tiny Home or RV rental pad for legal rental. In a nutshell, an electrical outlet rated at 30 or 50 amps, a potable water supply (can be an outdoor water faucet connected to an RV hose), and an RV style sewer hookup will get the ball rolling. As with the previous types of rentals, your RV pad can be made available online through websites such as Tiny House Listings. Do your due diligence by perusing local classifieds and RV/TH living social media to find out what to charge for rent.  Labor & Property Management : Some house hackers employ property managers to manage their rentals. If you're interested in utilizing their services, they can save a home owner a lot of time and energy because not only do they manage the day to day administration and maintainence of the rentals, they also ensure that the home owner is in compliance with local, county, state and federal rental laws. Rates will vary, but a tyrpical property management company fee is usually around 10% of the income of the rental.  Summary Owner Occupied single-family homes, multi-family homes (duplex, triplex, fourplex, ADU) and properties with RV Pads are good candidates for house hacking utilizing STR (Short Term Rental), MTR (Mid Term Rental), LTR (Long Term Rental), & RV/Tiny Home Pad rental strategies. Current or potential income/rent rolls from rentals of owner occupied LTR properties may be considered  as additional income for the borrower when applying for a mortgage.  Financing an owner occupied rental property requires less money upfront than a stand alone investment property to be used as a rental, and opens the doors to more financing options such as FHA loans which feature better terms & interest rates than DSCR (Debt Service Coverage Ratio) or Hard Money loans for real estate investments. First time buyers of owner occupied rentals can benefit from downpayment assistance programs and government backed loan products such as the FHA loan, further offsetting costs. (See Portland community resources below) Utilizing a property management company can relieve some of the daily administration, maintenance and compliance burdens from the house hacker.  Check out these local community resources that offer access to information about down payment assistance programs, IDA (Individual Development Accounts), local agents, lenders and others who provide various house hacking & real estate related services. Some of these organizations offer home buyer counseling services to help people focus on their goals and provide options that best suit them.  Portland Housing Authority - https://portlandha.org/ Home Forward - https://www.homeforward.org/ Portland Housing Center - https://portlandhousingcenter.org/ Mult. Co - https://www.multco.us/dd/affordablesubsidized-housing-resources Tiny Hookups: https://www.tinyhookups.com/ Tiny House Listings: https://tinyhouselistings.com/ Rental Housing Alliance: Rental Housing Alliance Sam Densmore/Realtor/Inhabit Real Estate 08/14/24/All Rights Reserved 

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To Sell Or Rent - Will The 2 Out Of 5 Rule Apply To You?

To Sell Or Rent -  Will The 2 Out Of 5 Rule Apply To You?  As a Portland home owner, you are sure to have considered your options in the event that you might have to move someday. Would you choose to sell? Would it be more profitable to rent your home for awhile and let it appreciate in value?  There are more than a few things to think about here, so let's take a quick look and consider some finer points that might influence your decision.  Consult your CPA & consider whether the Two Out Of Five Rule will apply to you. If you rent for too long, you may lose your capital gains exemption (up to $250K for single, $500k for joint tax filing status) What is the two out of five rule?  "Primary Residence vs Investment PropertyThe home sale exclusion tax break is only applicable to the sale of a primary residence. In order to be legally considered a primary residence, as opposed to an investment property, is that the seller has lived in the property themselves for at least two out of the last five years.Do the 2 years need to be consecutive?The two years of on-site residency do not need to be consecutive. For example, a property owner might live in a house for a year, then move and rent it out for 3 years, then move back in for another year before selling; the property would still qualify as a primary residence.The seller does not need to be living in the property at the time of sale in order to claim the home sale exclusion. They just need to have lived there for a minimum of two out of the last 5 years."  From Two Out Of Five Rule  Access is paramount when listing a property for sale:  With tenants in place, access to the home for showings and open houses will be limited, usually requiring 24 hr notice for potential buyers to see the home.  The condition of your property will likely decline during the rental phase, and warrant $$$ for refresh prior to selling. Consider the cost of property management. Depending on your plans, you may consider hiring a property manager. Property managers handle the rental on the landlords behalf, for a fee. Generally, expect to pay around 10% of the rental income to a property manger. If you decide to DIY, remember to consider landlord tenant laws, time, energy and money it will consume to perform the property management duties.  Do your due diligence and find out whether you will be required to pay tenant relocation fees when/if you decide to sell. Different states, counties and municipalities have different rules surrounding tenant relocation fees. In Portland, depending on the situation, these fees can run upwards of $4500 plus deposits. When an owner of a rental home decides to sell, they must clear contingencies, prove the buyer is to be an owner-occupant (not investor), and then give 90 day notice to the tenant. Most buyers won't want to wait 90 days or adopt a tenant in a rent back. https://www.portland.gov/phb/rental-services/renter-relocation-assistance Sam Densmore/Realtor/Inhabit Real Estate  08/05/2024, All Rights Reserved 

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