6 Reasons why buying your dream home is less expensive than you think

How much does it cost to buy your dream house? A lot less than you may think.

Whether we’re dreaming of purchasing our first home or selling and moving up to our dream home, studies show that most people would love to get the keys to a new home. However, many people are scared away from even looking into buying because they fear that it will be too expensive.

I’m not minimizing that it can be intimidating to sign on the dotted line when a lot of zeros are involved. However, I think that you’ll find that buying your dream house is a lot less costly than you anticipate – especially when we factor in the time value of money and the opportunity cost of not buying your dream home now.

Here are six good reasons to back up that assertion:

1. People grossly overestimate the down payment needed to buy.
Of course, for most people, the biggest impediment to buying their dream home is coming up with the down payment needed. However, there’s a clear discrepancy between what most people think they need to put down for a home purchase, and what is actually required.

Perhaps that perception stems from the fact that in decades past, buying a home meant coming up with at least 20% of the purchase price. But these days, most buyers don't stick to those rules, committing only the minimum that their particular loan requires in most cases. In fact, the average down payment on a single-family home purchase is now only 14.8% - and that number is skewed higher by all-cash buyers.

Speaking of loans, many of our home buyer clients are benefiting from mortgage loans that allow them to put less than 20% down, often 10% or even 5%. Likewise, a significant portion of home buyers – particularly first-time buyers or those with marginal credit – may be able to put even less down with FHA loans.

Of course, I’m not a lender, so consult your mortgage broker or ask us for a referral if you’d like more information.

2. Down payment assistance may help lower the cost of buying.

Gone are the pre-real estate crash days when 100% financing was so easily available, and down payment assistance thrived and often made up the difference. But most people don’t realize that there are still great programs, grants, and funds available to assist qualified applicants with their down payment. In fact, there are about 78 million single-family homes and condominiums in the U.S., and 87% of them (68 million homes) could potentially qualify for some sort of down payment assistance program, grant, or other down payment help.

Reportedly, there are more than 2,400 grants, funds, and assistance programs across the country, and 85% of them have funds available for homebuyers at any given time.

Sure, they usually aim to help first-time buyers, lower-income buyers, or folks purchasing modest homes – not exactly your dream mansion. But about 14% of down payment assistance programs are earmarked for individuals that play important roles in our communities, like educators, public servants, healthcare workers, and military veterans.

Down payment assistance programs aren’t just for first-time homebuyers, as 37% of these programs do not require a borrower to be a first-time buyer.

Why not at least ask your mortgage broker about down payment assistance programs since less than 10% of home buyers even apply for a down payment assistance program?

3. Buying is cheaper than the alternative of renting.
Rental demand is hotter than ever in the greater Sacramento area, with little new construction going up for affordable rental units. With a shortage of rental units as well as record-low housing inventory for sale, we’ve seen extreme upward pressure on rental prices. Therefore, waiting to buy your dream house may cost you more if you DON’T purchase now but wait. That logic is sound whether you want to keep renting a house or if you already own a home and are thinking of waiting to sell down the road.

In fact, when we track the monthly allocation of income toward mortgage vs. rent across the country, renting is now twice as expensive as owning a home. (That also means that it’s about half as expensive to be a homeowner than it is to rent.)

And if you think that renting is expensive now in California, economists expect it to keep skyrocketing – particularly in Sacramento, where at least half of all renters pay more than 30% of their income toward rent.

4. Stability saves you money
Some pennywise financial bloggers will tell you to spend within your means when it comes to buying a new house, but what they forge to factor in is the future cost of stability. Consider that every time you move, you have to put your house on the market and sell (paying about 6% to us pesky Realtors), as thousands in other affiliated closing costs; then pay for a moving truck, new furniture, fixing up the new place, etc. By buying the house you truly love and want to be in for the long haul (aka your dream home), you'll avoid paying those selling and moving costs two or three times over the next decades.

5. You’ll probably pay a lot less for taxes.
Owning a home is still one of the best tax breaks you´ll ever find. The government doesn't want to be in the business of housing 300 million+ Americans, so it long ago decided to offer huge tax advantages to promote home ownership and investment. In fact, you can deduct the interest on up to $1.1 million in mortgage indebtedness on your primary home; write-off a lot of repairs and upgrades you make; and sell your primary home for tax free profits up to $250,000 for singles (or $500,000 for married couples) if you’ve lived in the home two of a five years.

Consult your CPA or tax professional for specifics, but he or she will most certainly reinforce that buying your dream home now is a great financial move!

6. Buying now can help fund your savings, net worth, and retirement.
It may feel like purchasing your dream house now is expensive, but two years, five years, and twenty years down the road, you’ll be ecstatic that you made the move. Part of the reason for that future optimism is that statistically, owning a home is the best path to wealth in America.

First off, a study by the Federal Reserve found that median home equity in the U.S. for all homeowners is about $80,000. That means they have a “savings plan” of $80,000 on average (although home values can go up and down and are not liquid - or easy to access). Just as important, the average homeowner keeps $7,300 in liquid cash savings, compared to extremely low savings levels for renters that keep them living month-to-month.

Likewise, statistics show that the average homeowner’s net worth is 34 times that of a renter, and 77% of homeowners say owning real estate helped them achieve their long-term financial goals.

It’s no wonder that 94% of millionaires attribute real estate ownership as a significant part of how they obtained and held their wealth.

15 Ways we can get your purchase offer approved - even if it's not the highest price.

When I write purchase offers for my clients, I encourage them to come in with highly competitive, fair pricing that is a win-win for everyone if accepted. But I also share with them these 15 strategies that will help get their purchase offers accepted, even if they aren’t offering the highest price:

1. Reply to counteroffers ASAP.

Time is of the essence for most sellers so it’s important to strike while the iron is hot if you want your offer accepted.  Submit a great offer as soon as possible when you know you want the home, and we’ll respond to any counteroffers the same day if possible. That momentum will keep the deal alive and give you the best chance of getting into escrow.

2. Get preapproved for a conventional loan.

Go for a conventional loan first. While government-backed loans like FHA, VA, and down-payment assistance programs are still useful, they may be seen as a liability from the seller’s perspective. Extra conditions, regulations and procedures can slow down your loan, delay the closing – or possibly kill the deal altogether.

3. Keep your contingency periods short.

Most real estate purchase contracts have a standard 17-day contingency removal period, during which the buyer can conduct his or her inspection, review disclosures and reports, get an appraisal, and request repairs. To sweeten the pot for a seller and show them that you are ultra-efficient and motivated, we can offer a shorter contingency period. You can still perform the same due diligence; just turn it around faster.

4. Increase your down payment.

By putting down 20% or more down payment, your offer will be much more attractive to the seller. As a general rule, the bigger the down payment, the more invested and stable a homebuyer appears.            

5. Bump your earnest money deposit.

Alternatively, a great way to get your offer noticed is to increase your earnest money deposit well above the standard. Remember that if you find an issue when you do the home inspection and appraisal, you don’t have to move forward with the purchase. You’ll still be able to do that before you remove contingencies – and get your deposit back.

6. Leave a ‘Thank You’ note.

It’s a tiny touch, but so important. Think about it: a homeowner probably feels pride and strong emotions about the home, and by leaving a quick Thank You note when you view a property you really love, you’ll validated those feelings. Thank You notes are a great way to show the seller that their home will go to a great new owner.

7. Discover the seller’s priorities.

I can communicate through the seller’s agent to find out the most important factor in the sale, above and beyond price. Maybe they need a quick close so they can move out of town or want to get it sold before holidays? Perhaps, they’ve had deals fall through in the past or ask for too many repairs and just want to know that you’re truly interested? If we know their “hot button” it can go a long way to getting your offer accepted.

8. Offer a quick close.

Waiting around until the deal closes and their check clears is uncomfortable, so offer to close early. As long as we are organized with your loan and paperwork and no unexpected issues occur, most home purchases can be closed in 30 days or less.

9.  Make an all-cash offer.

Cash talks. Nothing gets a seller’s attention like an offer to buy their home without a mortgage loan involved. If that’s possible, it sure can streamline the process.

10. Submit a non-contingent offer.

If a seller sees that your offer is contingent on selling your home first, your chances of acceptance are greatly reduced. Talk to me about selling your home first, and then move on as a strong, perfectly positioned buyer. 

11. Write a personal letter to the seller.

A real estate transaction is paperwork heavy, with legalese and big numbers flying around. But you can humanize your offer and appeal to the seller’s emotions by writing a polite personal letter explaining who you are, why you love their house, and revealing some details about your family.

12. Submit a strong lender letter.

Other than the purchase, price, one of the first things a good Realtor will review with their sellers once an offer comes in is the terms of financing. By getting you preapproved ahead of time, you will be able to submit a rock-solid lender letter illustrating what a great loan candidate you are.

13. Get all the required paperwork in order from the get-go.

Showing bank statements, credit report and proof of funds is always welcomed by a seller (and their Realtor), displaying your strong financial position. Sharing these financial documents (of course with the sensitive data blacked out) will reinforce your offer.

14. Consider Adding an Escalation Clause.

This rarely used tactic shows sellers that you are very serious, and gives them incentive to consider you first no matter what kinds of bidding war ensues. I can write a clause into your offer that states you will “escalate” your offer above all others to a certain point, for example, increasing your offer by $500 over any others up to $250,000, eliminating the need for counteroffers.

15. Write up a “clean” offer.

We won’t cloud your offer with a bunch of unnecessary concessions and requests. Getting money credited back towards closing costs, asking the sellers to pick up fees and costs that are typically associated with the buyer, asking for appliances to be left and excessive repairs to be made can slow the deal. Keep it clean and simple for the sellers – giving them a compelling reason to choose you.

The 15 most common items reported by home inspectors (Part 2)

When you’re buying or selling a home, the home inspection is a critical step in the process that ensures there are no major health, safety, or functionality issues with the structure. Of course almost every house has a list of items the inspector finds that need addressing, but most of these are usually easy to address or fix without disrupting the sale.

In part one of this blog we covered a little background on why home inspections are so important, as well as the first five items that home inspectors most commonly report, and here are the remaining ten items you’re most likely to find flagged in a home inspection:

6. Pest infestations
One of the most common worrisome findings in home inspections is evidence of termites and other pest infestation and damage. In fact, making sure the house you are buying (or selling) is free from harmful critters, water hazards, and other wood-destroying pests of mass destruction is so crucial that most lenders mandate you have to sign off on your pest report before they’ll issue a mortgage.

Termites, dry rot, and the other hazards can cause irreparable damage, but the damage is often hidden below subfloors, structural beams, or inside the wood that makes up your home, making detection during a home inspection or pest inspection invaluable. Home inspectors can point out obvious problems they see, but a more detailed pest inspection is always recommended.

7. Foundation issues
Home inspectors will thoroughly inspect the foundation of the home, or, for homes with a crawl space, will actually get under the house and check everything out. They’re looking for serious structural problem like cracks in the foundation, evidence of faulty construction that is putting the stability of the house in jeopardy, as well as leaks, drainage problems, and standing water under the crawlspace. Far from cosmetic, the implications of finding foundation issues can put a yellow light on the whole transaction until they are further investigated and remedied.

8. Doors and windows
All doors and windows on the property need to open, close and lock properly, and shouldn’t show evidence of shifting, “catching” as they close, or locks that were damaged or kicked in. Even garage doors and automatic garage door openers need to work properly, and your home inspector will flag these doors if they do not, as it’s a safety issues, not jut inconvenient.

9. Missing Fascia
One of the most common problems home inspectors write up is missing fascia boards on exterior trim. It’s not uncommon for fascia boards, soffits, and other trim pieces to rot, fall off, or just be missing due to improper installation.

10. Improper fan ventilation
Home inspectors often find that the ventilation system does not work properly for a variety of reasons. It’s critical for a home to be adequately ventilated from bathrooms, the kitchen, attics or crawl spaces, and garages, as moisture buildup can cause mold or environmental issues. Improper ventilation can also boost the temperature of attics and crawl spaces, causing a fire hazard or just putting more wear and tear on the roof and other systems.

11. Electric cable entrances
All of those cables that need to enter your home from the outside for cable TV, internet and phone lines may not seem like a big deal, but any times you have electrical connections and exposed wiring (cabling), it needs to be monitored. Improper connections at the breaker panel, frayed, weathered or damaged cables, and cables not equipped to handle the electric load (like if you have 200 AMP service but the entrance cable is only rated 150 AMP) are all items the inspector will check for.

12. Roof
Any homeowner knows that this is a big one, because roofs are extremely expensive to fix or replace. Most importantly, a faulty roof can let in water, causing catastrophic damage. So home inspectors will do a cursory review of for shingles that are curled or brittle, broken or missing flashing, tiles that are cracked, etc. to make sure your roof is in good working order - and still waterproof. This includes inspecting the entire gutter system to make sure none are clogged, bent or missing.

13. Bad chimney flashing
For those houses that have chimneys, or even roof ventilation on wood stoves and other heating devices, home inspectors often find faulty flashing. Poorly installed, broken, or just aged flashing can allow water intrusion in the home. While home inspectors will look for these problems, it may be a good idea to order a separate chimney inspection where they will also look for missing mortar, cracked bricks and tiles, missing chimney caps, and the build up of dangerous creosote.

14. Grading issues
Yards, terrain and landscaping that slope towards the house – not away – invite water to collect and run into the structure, which is can cause critical damage to foundations, basements, plumbing and electric systems, and cause a host of environmental issues. It seems like such a fundamental thing, yet home inspectors still find yards that have grading problems all the time.

15. Water heaters problems
One of the most common problems that home inspectors write up in their reports have to do with water heaters. Water heaters need to be properly strapped and braced per current codes, have the correct size piping and adequate exterior ventilation. Inspectors also carefully look for missing or incorrect temperature pressure relief valves (TPVR), which are a major safety protocol in case the water heats too high and the pressure builds but can’t release, which can cause an explosion.