One critical step in the home search process is determining how much to spend on housing. The amount that you ultimately spend on housing is personal, and will of course be limited depending on fund available (either through income or loans). But, it is important to consider how much you want to spend carefully, and to take into account both up front costs and ongoing costs.
Up Front Costs:
Down payment
Upgrades or repairs before moving in, or immininently,
Additional furniture
Moving costs
Closing costs
Ongoing Costs:
Monthly mortgage payments,
Insurance,
Maintainance,
Taxes, etc.
There are many online calculators that use inputs like how much you have for a downpayment, income and total debts and it will tell you the maximum amount that a bank might give you as a loan. Sure, using the maximum will buy you a nicer or bigger house, or in a better area, but do you want to spend the maximum possible on housing?
How Much Will the Bank Loan You?
On the other hand, banks will generally want to make sure that you will not have trouble repaying the loan. Usually, they want the amount you spend on housing costs, including mortgage, taxes and insurance to be less than 36% of your total gross income. Also, housing costs plus other monthly debts should be less than 42% of your gross income.
Investors Rule of Thumb
One general rule of thumb used by some investors, and that is advocated on the investing blog “Get Rich Slowly” is to spend less than 25% of your monthly take home pay on housing. This way, you will not feel “pinched,” and will have plenty of money for the remainder of your needs, wants and hopefully, other investments and savings.
Your buyer’s agent can also help you develop a realistic picture of your housing budget. Then, once the home search begins, can help you get an idea for how much different home repairs needed on the particular home you are interested in, closing costs, etc.
The important thing is to make sure you leave yourself plenty of room for other costs and expenses in your life, helping you live comfortably and with peace of mind.
In our last blog we talked about the importance of considering school district when choosing your next home. Not only does it impact where your kids might go to school, but it can also add value to your home.
How much flexibility do you have in your home search?
For many, a reasonable commute to work is the first limiting factor that determines where you will live. If you have greater flexibility, you may want to start with finding a school district within a certain radius that is a reasonable commute, and narrow your search from there. If you have a more defined area that you would like to live, you can still evaluate the specific schools in that area.
When you are conducting a home search, the school district and nearest school information is available in the MLS. You can then look up data about that specific school.
Where can you get good information about Colorado School Districts and Colorado Schools?
Here is an overview of available resources:
Colorado Department of Education:
http://www.cde.state.co.us/index_home.htm
This website has tons of information about Colorado schools. You can find out detailed information about specific schools performance by reading their School Accountablitity Reports. The system allows you to search for specific schools. Or,if you are looking for information about Charter Programs and special programs offered, this is the place to go.
Education News Colorado
http://www.ednewscolorado.org
This website offers news about Colorado education. They provide up to date info on how schools in Colorado performed on standardized testing, etc, and how they compare to other Colorado schools.
Great Schools
http://www.greatschools.org
This website allows you to search all different types of schools in any area and compare. For example, if you are trying to decide whether you want to move to Lakewood or Denver, you could compare the school districts in those areas. Or, if you wanted to compare specific schools in a particular neighborhood, you can do that as well.
In our next blog, we’ll take a look at top performing school districts in Colorado.
As a home buyer, you want to know that you are making a good investment. Part of making a good investment means knowing the value of a home, in the current conditions. This way, you will know when to walk away from a bad deal. Or, recognize the deal of a lifetime if it shows up.
But how do you determine the value of a home? Is it the listed price or asking price of the home? Can online estimates be used? What factors contribute? What is the best way to get an accurate value?
Zestimate does not account for location, upgrades or market conditions when determing a home value estimate.
Large real estate portal sites like Zillow have features that offer an estimated value of the home. However, these values are only estimates and do not account for some of the biggest factors of home value- like location, upgrades, and market conditions. This means that the values are not accurate, and Zillow warns that it is meant as an estimate, and that determining the actual value requires the help of a professional. Certainly, homes that have recently been remodeled with a new kitchen or other features will be worth more than others, and factors like this cannot be ignored.
Without knowing the actual value of the home, negotiations could prove disastrous. Every home owner wants to get a good deal for their money and make a solid investment. But, how can you get a good price without knowing the actual value?
Exclusive buyer’s agents accurately determine home value
That is one reason it is so important to work with an experienced buyers agent. A buyer’s agent knows the value differences in different cities, and different neighborhoods. They are able to factor in the added value that a good location brings to a home. They know how much different upgrades are worth and can analyze comparable home values with consideration for differences like hard wood floors, new kitchens, finished basements, etc. Just as important, they are up to date on the constantly changing market conditions that can make it possible to pay less than normal for a more valuable home.
The bottom line is that an experienced buyer’s agent can thoroughly examine the home or property you want to buy, compare it to recent home sales, consider location and market conditions to determine an accurate current value of the home. Armed with this information, you will enter negotiations with confidence that you are informed about your investment. That way, you can correctly know whether are paying a fair price for the home, getting a great deal, or learn that the home is not as valuable as the home seller’s would like you to think.
To discuss your home search with a buyer’s agent, fill in our find an agent form today!
Why Are You Buying A Home:
I beleive that there is a distinct difference in what the home buying experience and ownership will be like for a person looking to make an investment compared to the person just looking to own. In the past, real estate was a conventional and reasonably safe investment. Now, reading investment blogs and articles, many argue that it is often a better investment to rent and invest your money other ways. Of course, they don’t disagree that home ownership has many other values other than just the potential to make money when you sell. Also, many people still make money in real estate, and our buyer’s agents can help you with your investment properties and fix and flips.
What is the primary reason YOU are buying a home? Are you purchasing a home mainly as an investment? Or mainly as a place to call your own? Or, hoping to get a return on your investment on the place you call home?
Understanding and defining your motivations will help you achieve your goals.
Your buyers agent will be a great resource in helping you develop accurate expectations if you are looking more for a return on your investment. They can advise you on what types of properties to look for and what to expect in terms of renovations, how long to hold on to your home, etc.
On the other hand, if ownership in itself is the most important to you, your agent can help you define what you are looking for – both in terms of what the home already has and what the home will need.
For many of us, the goal of home ownership is a combination of the two desires- gaining all of the benefits from owning, and making improvements and caring for our property, buying low and waiting to sell high, so that ultimately we can earn a return when the time comes.
Stay informed and don’t rely on your emotions.
Buying a home is an emotional experience, and you want to LOVE the home you purchase. But, it’s also an enormous investment and making an emotional decision can be disastrous, or at the very least, a waste of money. Shopping is naturally an emotional experience, and working with a buyer’s agent can protect you from making a bad decision based on emotions.
From home stagers, to wise seller’s agents to fix and flip investors, there are many experts out there that are trying to shine the home you are looking in in the best light, and essentially creating an emotional experience for you.
If you are walking through a home alone (or, worse, with a seller’s agent), you could be distracted by the attractive things in a home and miss some of the less attractive or downsides of the house.
“You can’t buy a house because it has a red wall in the kitchen!!!!”
For example, and this will probably sound silly, but my husband and I were walking through a home a few years ago during our home search. It had this sort of tiny kitchen with a red wall that overlooked a gorgeous wooden deck in a barren backyard. What I saw was an adorable red highlight wall that I just loved and a beautiful patio where I would love to grill out and relax with my family.
The red wall distracted me from the tiny kitchen (After living in a small home in the Wash Park area where we were constantly bumping into each other while making dinner, one of the major things my husband and I wanted was a roomy kitchen.) The patio/deck distracted me from the complete and utter lack of privacy in the back yard.
Our agent kept us on track. I think he might have even laughed when he said something along the lines of “You can’t buy a house because it has a red wall in the kitchen!!!!” He reminded us that paint is one of the cheapest improvements we can make, and that we could paint our kitchen any color we want when we find the right home (as a matter of fact, I did paint our kitchen red and it looks awesome!).
While we were being blinded by all of the attractive things in the home, our agent kept the things that really mattered to us in mind. He pointed out that this home did not have many of them, and in fact, even had a few structural issues.
If it could happen to me, it could happen to you!
Not to make myself sound like a complete fool with money – I rarely make a financial decision emotionally and almost err to far in the other direction. I don’t buy anything, and I mean anything, on a whim. But that day, when I was house shopping, I started to fall in love with a charming house that wasn’t right for me. And if it can happen to me, it can happen to you.
Protect yourself. Stay on track. House shop with an expert that will keep you informed. Work with a buyer’s agent.
