VF Team Realtors® - THE COMPLETE GUIDE TO BUYING A HOME

THE COMPLETE GUIDE TO BUYING A HOME

VF Team Realtors®

Table Of Contents

How Real Estate Agents Help Home Buyers

Owning vs. Renting

Buyers' Needs and Desires

Real Estate Horror Stories to Learn from

Searching for the Right Home

Buying a House: Negotiation Dos and Don'ts 50

What to Know About Home Inspections

Shopping for a Home Loan

Programs for Home Buyers

10. The Closing Process

11. Organizing Your Move

About Us

CarmenLuz Vizcaino

“The most important things in life are the connections you make with others.” (Tom Ford) CarmenLuz has always enjoyed having a genuine conversation until a connection is made. In fact, she's been referred to as a 'connector' for people throughout her life, and she continues to use that strength to help others feel more confident in themselves and their choices. CarmenLuz is a native Southern California resident who grew up with five brothers, making her very independent from an early age. Her family’s history in real estate investment goes back to her Grandmother, who blazed a trail from Mexico to California in the 1920’s. She showed everyone in her family how to invest in real estate, which had a lasting impact. The family even owned a dairy farm in Chino, which was later sold to a developer. All the streets in that development are still named after CarmenLuz’s family, making her the easy choice as the 'Neighborhood Realtor' with whom locals can connect. Her Dad had a big influence on her, as well. He was an educator and a savvy real estate investor, which prompted her to absorb his knowledge of real estate and work hard to achieve her own education. She often helped him renovate investment properties in her spare time. CarmenLuz’s dad passed away when she was 20 years old, but he left her with a legacy of unconditional love and respect. Soon after, she got married and started a family. Since that time, she has raised four amazing children, and taken on multiple entrepreneurial jobs to support them and provide an example of persistence and a commitment to financial stability. It was when her youngest child was graduating from high school that she decided to get her real estate license and fulfill a calling she’d had since learning the ropes from her Grandmother and her Dad. She realized that her compassion and connection in serving others

would be a natural fit for the real estate world. That’s exactly why she’s known for the mantra, Suited to Serve™. Today, CarmenLuz and her partner, Nancy are suited to serve you from your first home to retirement by providing unparalleled commitment, connections, and confidence so your journey is seamless and stress-free. They specialize in finding homes and communities for active retirees’ that better suit their current needs. They’re also recognized for helping first-time homeowners begin their new life and build their wealth with confidence. Both women have expertise at problem-solving, pricing and negotiation strategies that help you sell fast and at full value. Their goal is to provide a stress-free experience by handling expectations with compassion, confidence, and commitment. Together, they are an accomplished and top-performing team with connections to an expansive network of reputable professionals. They’re most known, however, for becoming true partners throughout the journey and turning clients into friends and family. When CarmenLuz isn’t serving her clients, she enjoys traveling, hiking, exploring nature, and relaxing at the spa. Having spent her life connecting with others through their stories, she now uses these conversations to help others achieve the life and home of their dreams. As her role model Glennon Doyle Melton says, “Life is a conversation — make it a good one.”

Nancy Franklin

“You never know the impact and difference you can make in a person’s life…but having humility and treating others with respect can make all the difference.” This quote from Nancy Franklin sets the tone for exactly how she has lived her life in the journey from law enforcement to real estate. She credits her upbringing to loving and supportive parents, who gave her an incredible foundation for an exemplary life of service.

Nancy grew up near Annapolis, Maryland. She began working at just ten years old as a newspaper carrier. This first job taught her the value of hard work, quality customer service, and the importance of saving money. As she grew older, she felt a calling to serve her community in a more meaningful and impactful way, so she decided to enter law enforcement. She began her career on January 15, 1994, with the Baltimore County Police Department, and served for eleven years before making a lateral move to the Chino, California police department. She served numerous roles during this time, including Police Sergeant, Field Training Officer, Professional Standards Sergeant, Crisis Intervention Team Supervisor, and others. Witnessing firsthand the extent of the good and bad that humanity can do to each other shaped her into the person she is today. During her career, she also became the first in her family to graduate from college, and subsequently earned two Associates degrees, a Bachelor’s degree, and a Master’s degree. Almost three decades into her career, Nancy was considering retirement, but wanted to continue to serve her community and make a positive difference. When she heard her partner, CarmenLuz, speak about real estate, she became intrigued, and decided to get her license. Four years later, she retired from law enforcement and transitioned into real estate full time, with CarmenLuz as her partner. The date of her retirement was January 15, 2022, the same day that she had begun her law enforcement career 28 years before. That date has always had a special meaning for her, since it was also the date of her parent's wedding anniversary. She saw this as a positive sign in support of the transition into the next phase of her life. Together with CarmenLuz, they serve their clients from their first home to retirement by providing unparalleled commitment, connections, and confidence so their journey is seamless and stress-free. That’s also why they’re known for the mantra, Suited

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To Serve® .

Today, they specialize in finding homes and communities for active retirees’ that better suit their current needs. They’re also recognized for helping first-time homeowners begin their new life and build their wealth with confidence. Both women are skilled at problem-solving, pricing and negotiation strategies that help you sell fast and at full value. Their goal is to provide a stress-free experience by handling expectations with compassion, confidence, and commitment. Together, they are an accomplished and top-performing team with connections to an expansive network of reputable professionals. They’re most known, however, for becoming true partners throughout the journey and turning clients into friends and family. When Nancy isn’t helping clients, you can find her hiking, biking, or distance running. She and CarmenLuz love to travel and visit eclectic restaurants and social spots. She dreams of a future trip to Tuscany, and exploring the world, whether by land or sea. Her service and dedication to those around her is truly a testament to her humility and respect for others, and the difference one person can make.

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CHAPTER 1 How Real Estat eal Estate Agents e Agents Help Home Buyers

We’ll come right out at the start and tell you we’re real estate agents—proudly so! Nice to meet you! We’re not trying to sell you anything, but we’re pleased to be of service. We’re giving you the benefit of experience and advice we have picked up in our careers selling houses and handling real estate transactions—for both sellers and buyers. If you want us to help you find a house, we can talk. Call us if you need us. Technology has changed the way homes are sought and bought today. In this “Information Era,” most buyers are first introduced to the home they eventually purchase via the Internet, through Zillow, Realtor.com, or one of hundreds of other real estate websites. With all this information available, you might wonder if you need a buyer's real estate agent. Can you handle the process on your own?

WHY HOME BUYERS NEED A REAL ES UYERS NEED A REAL ESTATE AGENT

Ah, not so fast, friend. The reasons to use a real estate agent today are as valid as yesterday. The ease of online transactions and the proliferation of services to assist buyers in handling their own real estate transactions came recently, arising throughout the last decade. This has caused buyers to wonder if using a real estate agent is no longer necessary, or an expense that can be avoided. While doing the work yourself can save you if you buy a “For Sale By Owner” (FSBO) house and the seller agrees to 2

reduce the price to offset agent compensation, for many, a do-it- yourself home purchase might be pricier than a real estate agent’s compensation/ in the long run. On most home sales, there is a “listing agent” (the agent engaged by the seller to sell the property) and a selling agent (the agent who introduces the eventual buyer into the transaction). The selling agent is sometimes called the “buyer’s agent” because he or she is often working on a certain buyer’s behalf and it’s easier than explaining that the selling agent is not the listing agent but really the buyer’s agent. There are some real estate agents that market themselves as “buyer’s agents,” “exclusive buyer’s agents,” or “buyer’s representatives.” These real estate agents have chosen to make a business of finding homes for prospective buyers and handling the negotiations and transactions attendant to the purchase. These agents want to accentuate the reasons a buyer shouldn’t go directly to the listing agent when they purchase real estate. A buyer who goes directly to the listing agent and allows that agent to “manage” both sides of the transaction is dealing with an agent who has conflicting responsibilities. Their job is to get a good price for the seller, and they might not zealously represent the interests of the buyer. Those who market themselves as buyer’s agents indicate they’re only working for the buyer in a real estate transaction. A buyer's agent is therefore a real estate professional dedicated solely to representing your interests as the buyer throughout the home-buying process. Once you agree to work with a buyer’s agent, you will sign a written buyer agreement outlining key services and compensation. Then the buyer’s agent will work on your behalf, helping you find properties that meet your criteria, scheduling viewings, negotiating offers, and handling all the necessary paperwork and legalities involved in purchasing a

home.

BUYER AGREEMENT GREEMENTS

New regulations will mean that potential home buyers will need to enter into a written buyer’s agreement before touring homes. A written buyer agreement is a formal contract between you and your buyer's agent. It outlines the services your agent will provide, the terms of your working relationship, and how the agent will be compensated. Compensation for the buyer’s agent can be directly paid by the buyer or negotiated in various forms. This agreement ensures that both you and your agent are clear on your mutual expectations and responsibilities.

Key Components of a Buyer’s Agreement

• Services Provided: Details of what your agent will do for you, such as finding homes, arranging viewings, and negotiating terms. • Compensation: Clear disclosure of how your agent will be paid. This could be a percentage of the purchase price, a flat fee, or another arrangement. It's important to know that agent fees are negotiable and not set by law. • Term and Termination: The duration of the agreement and conditions under which it can be terminated by either party. • Consumer Protection: Disclosures related to your rights, confidentiality, and any potential conflicts of interest. Entering into a buyer's agreement provides several benefits. First, it brings clarity to your relationship with your agent, ensuring that both parties understand their roles and responsibilities. Second, it demonstrates a commitment from your agent to dedicate their efforts to your home search. Lastly, it offers

protection by safeguarding your interests and ensuring transparency throughout the transaction. By having a formal agreement, you can proceed with confidence, knowing that your agent is committed to helping you find your dream home while protecting your interests.

MORE ACCESS TO THE REAL ES O THE REAL ESTATE MARKE TE MARKET

A real estate agent will have better access to the market, and a special knowledge of local conditions. The agent is a full-time liaison between sellers and buyers. An agent will have ready access to other properties listed by other agents. Buyers’ and sellers’ agents know how to put a real estate deal together. A real estate agent will track down homes that meet your criteria, contact sellers’ agents, and secure appointments for viewing the homes. On their own, buyers have a more difficult time with these things. This is even more so the case when a buyer is moving due to relocation or employment opportunity and engages a “buyer’s agent” to handle matters.

NEGOTIATING IS HARDER ON YOUR OWN

A real estate agent will keep the transaction “at arm’s length,” such that personalities and emotions do not become involved. Price negotiations take a special skill and understanding of the psychology of offering and counter-offering. Agents keep the transaction dispassionate and rational. For example, a buyer (you) might like a home but despise its wood- paneled walls, shag carpet, and lurid orange kitchen. When you work with an agent, you can express your opinions on the current owner’s decorating skills and complain about how much it will cost to upgrade the home without insulting the owner. Your agent will translate that to the seller that you very much like the property, but can see having to spend $xx in decorating costs, and

thus offer that much less.

CONTRACTUALLY SPEAKING…

There are many contracts and documents involved in purchasing a house. The stack is more than an inch thick. Unless you’re a real estate lawyer or title agent, these documents will be foreign to you. Yet, they require detailed and accurate completions. Buying a property is not necessarily a “fill-in-the- blanks” transaction and a mistake, let’s say in title work, could haunt the buyer well down the line after purchase. This very situation happened. A property that sat on a double lot was put on the market. The neighbor bought it to carve off a bit of the second lot to expand his own yard. The seller then put the home back on the market and it sold. Months later, through a property tax notification, it came out that in preparing new deeds for the properties, the expanded yard area was correctly in the name of the neighbor; however, the house had been transferred to the home buyer. The new homeowner now owned both houses and the neighbor owned his expanded driveway and yard. Fortunately, they were good neighbors and settled the matter with a few signatures. A real estate agent deals regularly with these contracts, conditions, and unexpected situations, and is familiar with which conditions should be used, when they can safely be removed, and how to use the contract to protect you.

YOU WON'T NECESSARIL N'T NECESSARILY SAVE MONEY

The point of not using a real estate agent would be to save money, right? Otherwise, why turn down professional assistance in

finding a home to the buyers’ liking without their own effort and dealing with negotiations and the many attendant home-selling duties? However, it’s unlikely that both the buyer and the seller will reap the benefits of not paying real estate agents. Buyers looking to purchase a home sold by owners without an agent may believe they can save money on the home by not having an agent involved and so look solely at FSBO houses. They might expect it and make an offer accordingly. Unless the buyer and seller agree to split the savings, they can’t both save that money—and that’s if the listing price was not already lowered to make it more market- attractive. Here’s a short list of the advantages that using a real estate agent can bring to your buying experience:

• Education and experience • Agents are buffers • Neighborhood knowledge • Price guidance • Market conditions information • Professional networking • Negotiation skills and confidentiality • Handling volumes of paperwork • Answer questions after closing • Develop relationships for future business

It’s extremely important to know the “ins and outs” of real estate agents before you bring one along with you to help in your search for a home, just so that you know what to expect, and what will be expected of you.

WHO A REAL ESTATE AGENT IS GENT IS

In short, a real estate agent is someone licensed to list and sell real estate, including homes, multi-family properties, and commercial and industrial buildings. A REALTOR®, however, is somewhat different. A REALTOR® is a member of the National Association of REALTORS®. While an agent is always a real estate agent, a real estate agent isn’t always a REALTOR®. Real estate agents who work on behalf of the best interests of the buyer are commonly called buyer’s agents (the seller’s agent/ listing agent explanation above, aside). All listing agents represent the seller, but other agents who don’t have buyer agreements with prospective buyers are working on behalf of the seller and must obtain the best price they can for the seller. Buyer’s agents are dedicated to looking out for the buyer's interests throughout the home-buying process. Buyers can schedule consultations with agents to learn more about the services they offer and to assess who can best represent their needs. Once buyers have decided on an agent who they feel can effectively represent them, they will enter into a buyer's agreement, formalizing the relationship and ensuring that their interests are protected during the search for their new home.

HOW TO CHOOSE THE BEST AGENT FOR YOUR NEEDS UR NEEDS

You might feel the urge to pick the first real estate agent who appeals to or approaches you, but that’s something to avoid. Like with any professional, there are degrees of professionalism, dedication, and experience. The “wow factor” will simply wear off. Meet with prospective buyer agents in their offices. A good buyer’s agent will want to know whether you’re loan-preapproved by a financier, what kind, and the terms of the loan you’re getting.

They should spend adequate time to discover what you’re looking for in a house. They should listen as much as talk and ask questions. Watch to see if the agent makes notes. If the agent doesn’t broach the topic, ask for an explanation of his or her understanding of agency relationships and obligations to you. The law requires agents to explain whether they’ll be working for the buyer or the seller whenever they have substantive contact with a customer or prospective client. If the agent doesn’t offer you a buyer’s agreement, that agent is representing the seller, not buyer. If the agent can’t explain agency concepts to you, then move to the next agent. Be sure that the agent will be showing you all listings or properties on the market that meet your requirements, not only listings that are handled in-house. Buyer’s agents have the legal duty to put buyer’s needs ahead of their own. Even when an agent will be paid more for selling an in-house listing, they must inform you about other available, suitable listings and take you to see those you believe are viable prospects. A good buyer’s agent will provide a home-buying education. The listing agent will point out all the features of a home; a good buyer’s agent will point to the faults—or advise when they can be overlooked. Competent buyer’s agents help their buyers to think clearly as the home-buying process unfolds. For example, if a house is a good buy, a buyer’s agent might suggest looking past the dated bathroom and kitchen and look at the space above the garage that will make the perfect studio you desire. Likewise, a cute house with all the amenities, but with knob-and-tube wiring or a 40-year-old roof might not be worth the asking price. According to the San Francisco Chronicle’s Home Guide, if you decide to buy with the intention of building an addition, the agent should advise you to check the zoning before making an offer.

Agree to sign a buyer’s agreement after you have met with an agent, and discuss the terms for payment, whether that's a negotiated commission structure or a direct payment from buyer to the buyer's agent. A buyer’s agent is legally required to maintain your confidentiality, disclose material facts to you, including the potential for direct compensation, and maintain loyalty to you.

LOOK FOR PROPER CREDENTIALS

You wouldn’t trust a doctor who doesn’t have the proper credentials and licensing. Don’t trust a real estate agent who doesn’t present theirs or doesn’t have them at all. It’s easy to find real estate agents who can take the job, but finding agents with special credentials, those who have gone that extra step to take additional classes in certain specialties of real estate sales, is worth looking into. Here are just a few credentials within real estate that you should be on the lookout for: • Accredited Buyer’s Representative (ABR): Completed additional education during representation of buyers in their transactions. • Certified Residential Specialist (CRS): t (CRS):Completed additional training during the handling of residential real estate, such as houses and apartments. • Seniors Real Estate Specialist (SRES): RES):Completed training for the purpose of helping sellers and buyers 50+ years old. Similarly, if you choose to use a real estate agent who’s also a member of the National Association of REALTORS®, it will be a bonus. However, ensure they have credentials that are relevant to 10

your need(s).

RESEARCH LICENSING

Your state will have a license board for all active real estate REALTORS® and agents, which you can easily access. You will also be able to see their information, disciplinary actions, complaints, or any other information that you’ll need to help influence your decision—especially since most of the information is now posted online.

GIVE THE “WHAT ELSE” TEST

A good agent will know about all the other properties for sale in the area. Also, a good agent always does their research regarding the events in the current market, and those that are out there for the taking. In short, you want an agent who’s an expert of the current market, and someone who always stays on top of things.

RESEARCH THEIR BUSINESS ACTIVITY

Learning the type of market presence that a real estate agent has is the best way to figure them out. Ideally, you’re going to want an agent who specializes in one or two real estate markets, and who understands which types of homes and amenities are available within your price range. You can unearth this information by asking them or by asking the state licensing authority if you’re not comfortable with asking the agent directly. You’re better off with an agent who’s engaged actively in one area and price range—e.g., residential homes around the $200,000 to $250,000 range or the $400,000 and up range.

GOING THE BUYER'S AGENT ROUTE

So, you’re ready to take the plunge and look for a place to call

“home.” To get the most out of it, use a buyer’s agent to avoid a flurry of paperwork, stampedes of buyers competing for the same property, and other challenges. Home buying can be exciting and exhilarating; but it can also be complex and stressful—which is why having a pro by your side can make an enormous difference. True to the name, buyer’s agents assist home buyers every step of the way; they can also save you both time and money on the road to homeownership. These real estate agents will work day and night, if you listen to the advice above and find the best one for you, to ensure all your needs and requirements are met when it comes to finding the right home for you.

GETTING STARTED WITH A B TED WITH A BUYER’S AGENT

Your buyer’s agent will have a vast knowledge of the current real estate market for the area, which will include neighborhood amenities and conditions, the law, zoning issues, price trends, negotiations, taxes, financing, and insurance. Once you meet with the buyer’s agent and sign the buyer’s agreement, they’ll generally help you to determine your needs and wants when it comes to finding you a home and a neighborhood. The agent will aid you in learning about what you can afford, help you in setting a budget, provide some insight on the current conditions of the market, and explain what you should expect while shopping for a home. In addition, they will help you find a suitable level of financing. During the shopping-for-a-home period, you’ll probably meet with your agent for tours of homes in which you might be interested. They will give your insight into the floor plans, the home’s pertinent selling points, and the overall crime rate of that neighborhood. They will also give you the rundown for cultural

activities, work centers, shopping centers, and schools nearby.

Your agent is responsible for ensuring inspections of the homes are complete, as well as the disclosures therein. They’re also in charge of ensuring coordination and completion is done through the roof inspector, attorneys, lenders, and all other professionals involved with the purchase of the home. If bargains need to be made over the price, you won’t have to negotiate yourself. Your buyer’s agent will do that for you, along with signing the final closing documents. They will be present whenever documents you need to go through and sign any document.

DUAL AGENCY: THE BASICS

A “dual agency” relationship occurs when a buyer is being represented by a brokerage firm that controls the listing. Once an agent represents both the seller and the buyer within the same transaction, the situation is known as “dual agency.” In multiple states, this is illegal because of the conflicts of interest that can arise regarding the broker. Even in states where allowed, dual agency must be clearly disclosed and consented to by all parties involved. This arrangement can create potential conflicts of interest, and buyers should be fully aware of these implications before agreeing to dual agency. All agents hold the same responsibility, which is to inform their clients of all potential risks that could arise due to conflicts of interest. Legally, agents are not allowed to work on both sides of any transaction without consent from the clients.

For example, if you’re selling your home, and you don’t want an

agent to be working with the buyer, it’s your right to say so in the listing agreement. This is also true for the buyers. A buyer can get out of a buyer’s agency agreement, but only if their agent has a listing in which the buyer is interested. When it comes to dual agency, there are definite advantages for the seller. • Trust has already been gained with your listing agent, so representation for the buyer has been established. • Your agent brought you the buyer knowing that you’re selling, even if your property has not yet hit the market. • Your listing agent will already have covered and researched your neighborhood’s market to gain buyer inquiries, which means your agent will be working from all sides of the deal to sell your house faster, and with more incentive. • Your agent works together with corporate relocation buyers who need to find a house quickly, and they will ensure it’s your house that’s bought.

There are also cons when it comes to dual agency, and they are:

• You can’t be advised by your agent as thoroughly when they must act as a dual agent, because impartial facilitation is required. • Your listing agent is not allowed to negotiate the best or highest price for you if also negotiating both the best and lowest terms for the buyer. • Earning compensation from both buyer and seller, if the opportunity arises, may tempt the agent to coerce a deal that you might not accept otherwise. • Your agent may inhibit all access to your listing through 14

buyers with agents.

To avoid surprises or anything going wrong in general when going with dual agency, always ensure you properly represent and clarify your full relationship with your agent. You can do this by using an exclusive buyer agreement, or a listing agreement. Even with dual agency, one can’t have too many surprises once everything is outlined. There simply can’t be any surprises.

HOW REAL ESTATE AGENTS ARE PAID

The compensation structure for real estate agents can vary, especially with recent regulatory changes that offer more flexibility and transparency. Agents are required to disclose their compensation arrangements clearly in the buyer agreement. This ensures that you, as a buyer, understand exactly how your agent will be compensated and can make informed decisions.

Possible Compensation Structures

Recent regulations now allow for more varied compensation structures. Buyers will need to be proactive in understanding the costs associated with their agent's services, and may need to factor these costs into their overall budget for purchasing a home. Here are some of the ways a buyer’s agent can be compensated: 1. Split Commission Model: Starting August 17, 2024, commission information will no longer be communicated via the MLS (Multiple Listing Service). Compensation agreements based on commission must now occur off-MLS through negotiation and consultation between real estate professionals. These agreements may still follow the traditional split commission model, where real estate agents are paid a commission based on the final sale price of the home. This commission is typically a percentage agreed upon between the seller and the listing agent. If using this payment model, the buyer's agent would receive 15

a portion of the commission, as arranged between the listing agent and the buyer's agent. Typically, all commission payments go through the broker managing the brokerage where the agent works. From there, the commission is split between the broker and the agent according to their internal agreement. 2. Direct Payment from the Buyer: The buyer may agree to pay their agent directly. This can be a flat fee, an hourly rate, or a percentage of the purchase price. 3. Negotiated Arrangements: Other customized compensation agreements can be negotiated between the buyer and their agent. Before you start touring homes, you will need to enter into a written buyer’s agreement with your agent. This agreement will outline the services your agent will provide, the compensation structure, and other terms of your working relationship. The greater flexibility for agent compensation methods due to recent changes in regulations reinforces the importance of entering into a written buyer’s agreement. This formal agreement ensures both parties are clear on expectations and protects your interests throughout the home-buying process.

KNOWING REAL ES G REAL ESTATE

If you know all the basics, and the technicalities regarding real estate, you’ll have no trouble making the best decision on which real estate professional to hire, you’ll know what to expect, and you’ll how to go about transactions and deals, ensuring a smooth sale.

CHAPTER 2 Owning vs. Renting

Owning your own home might not be one of the defining qualities of the “American Dream,” the set of ideals that includes opportunity for prosperity and success, and an upward social mobility for the family and children, achieved through hard work. However, home ownership is surely ingrained as one of the strongest representations of that vision—66% of Americans own their own home, and more hope they will or wish they did. Something about home ownership plucks a strong chord with Americans. Financial security, permanency, status, and pride whatever the reason for wanting to own your own home—there has never been a time in recent memory when the health of our credit reports meant so much. Lifestyle plays a big role in the decision to own versus rent. Home buying is most often driven by household formation, such as marriage and childbirth. Less than 40% of people under 35 years old own homes, 60% of people over 35 years old own homes, and more than 80% of people 65 years old or over own homes. Interestingly, for the millennial generation, the primary reason for buying a home? Owning a dog. The U.S. homeownership rate has fluctuated between 62% and 70% since the 1950s. Most young people begin their independent lives renting an apartment, maximizing lifestyle flexibility and minimizing the hefty upfront costs associated with purchasing a home. As they build careers, save money, and start families, many choose to buy a home, recognizing that home ownership, as opposed to rental living, is more appropriate to their growing family needs. Their needs might be better filled in a single-family 18

house, a condominium, a townhouse, or a duplex of their own.

At the other end of the age spectrum are homeowners nearing retirement who may desire to sell their homes, downsize, avoid the maintenance and other obligations of home ownership, and go back to renting.

WHICH IS BEST?

Is it better to rent or buy a home? Most adults ask themselves this at some point as they form their goals and plan for the years ahead. Before you answer the question, here are some things to ask yourself. Owning and renting each have their advantages, but what’s best for you depends on your circumstances. What will be the duration of your stay in the home? Each market is different, but whether the time you plan to spend in the house warrants its purchase is possible to predict. In general terms, it takes four to seven years to break even on a home (i.e., where there has been enough appreciation to pay back the cost of the transaction and cost of ownership). If you’re thinking about buying a home and selling it in two years, buying is very unlikely to be cheaper than renting. Do you think of or need your house as an investment in your retirement plan? Many Americans see their homes as a valuable asset, often integral to their retirement strategy. Real estate is commonly regarded as a solid long-term investment, frequently favored over other options like stocks, gold, or savings accounts. Its appeal lies in the potential for value appreciation over time. However, it's wise to remember that the real estate market is subject to fluctuations. Property values can both increase and decrease, influenced by various market and economic factors. This reality highlights the importance of considering real estate as one component of a diversified investment portfolio, recognizing both its potential benefits and inherent risks.

Are you financially ready? Owning a home is a financial commitment that requires planning how home ownership fits into where your life is headed. Ask yourself what your budget is and if either buying or renting would require you to stretch your finances. Crunch all the numbers. A frequent mistake of first-time home buyers is comparing a month’s rent to a month’s mortgage payment. Many people don’t have all the numbers. There are many additional fees necessary to include to make a fair comparison: principal interest, property taxes, property insurance, homeowners’ association (HOA) fees, and ongoing maintenance. Are you prepared for the down payment? This is the lumpsum payment that funds your equity in the property (how much of the property you actually own). Down payments vary; 20% is preferred and gets the best rates. There are some loans that allow down payments as low as 3%. Sometimes relatives help with the down payment. If you have a choice, take a gift rather than a loan, because lenders will add that debt to other monthly obligations and potential mortgage payments to determine your debt-to- income ratio, which generally can’t top 43% to qualify for a home loan. Can you afford the monthly mortgage and its components? Generally, a mortgage includes loan principal and interest (both amortized over the life of the loan) plus homeowner’s insurance and property taxes (pro-rated). These items can affect the monthly loan-only payment by several hundred dollars. Are you emotionally ready? Can you handle the stress? A big factor to consider when buying a home is stress. The Holmes and Rahe Stress Scale, a landmark stress study, ranks many events that go along with buying a home in the top 43 most stressful circumstances in life. Four events are specifically home-related: change in financial state (No. 16), large mortgage or loan (No.

20), change in living conditions (No. 28), and change in residence (No. 32). If someone has recently made other life changes, such as marriage, which is No. 7, switching careers (No. 18), or having a child (No. 14), it might be wise to postpone buying a home. Stress overload can lead to missed payments, which can result in destroyed credit or even losing the home. It’s better to rent if your life is in flux, and then buy when your stress levels are lower. Are you ready for commitment? Are you ready to make lots of decisions, from picking a real estate agent to picking paint colors? Are you confident enough to choose a neighborhood where you believe home values will continue to appreciate in value and that will serve your needs (i.e., proximity to schools, shopping, recreation, etc.)? Are you ready for devoting the time and attention to maintaining a home (i.e., leaf-raking, grass- cutting, appliance maintenance and repair, etc.)? Taking care of your biggest investment can be gratifying, but only if you’re ready.

ADVANTAGES OF BUYING YOUR HOME

Control over housing expense. By selecting a fixed-rate 15-, 20-, 25-, or 30-year mortgage, the homeowner has assurance that housing costs won’t increase over the period, and, in fact, will be eliminated at the end of the term (subject to refinancing). You build equity. Some of each monthly mortgage payment goes toward the loan’s interest. Other portions may go to homeowner’s insurance and county taxes. The remainder pays down the loan principal. Every dollar put toward your loan’s principal represents a dollar of equity—actual ownership of the property. Further, the property should appreciate in value each year, further adding to equity (what the house could be sold for versus what is owed on it). With certain blip periods such as the 2006 housing bubble burst, home prices in the U.S. appreciate nationally at an average annual rate between 3% and 5% (home

value appreciation in different metro areas can appreciate at markedly different rates than the national average). Improvements increase your home’s value. A homeowner can also increase a home’s value through home improvements, thus both making your home more comfortable and enjoyable while growing its loan-to-value (LTV) ratio. For instance, adding a bathroom or finishing a basement substantially increases the property’s functionality and appeal, while potentially boosting its value. Tax advantages of home ownership. There are significant tax benefits associated with buying a house, both at the time of purchase and for the duration of time you own the home: • Homestead exemption. Many states exempt owner- occupied homes (homesteads) from a portion of the property tax amount that would normally accrue. For instance, Louisiana exempts the first $75,000 of a home’s value from property tax assessments, so a $200,000 home in New Orleans is taxed as if it were worth $125,000. • Federal tax deductions. When you’re looking to purchase a home, it’s important to understand what can be deducted on your tax return and what can’t. Property taxes and interest paid on your mortgage can be deducted if you itemize your federal income taxes, which can reduce your income tax burden. Many home buyers, unfortunately, overlook the effect of mortgage interest on their federal income tax payments. Mortgage interest can be a powerful financial planning tool. Calculate the amount of mortgage interest deductions you are eligible for and include that in your annual financial planning. Then, make a point of checking Internal Revenue Service

(IRS) Form 1098 which you’ll receive from your lender at the end of the year. This form shows the amount of mortgage interest that you’ve paid. The Tax Cuts and Jobs Act (TCJA) applies from 2018 to 2025 and limits the aggregate deduction for state and local real estate property taxes; state and local personal property taxes; state and local, and foreign, income, war profits, and excess profits taxes; and general sales taxes (if elected) for any tax year to $10,000 ($5,000 for marrieds filing separately). This limit does not apply if those taxes are paid or accrued in carrying on a trade or business or in an activity engaged in for the production of income. In other words, if you are just living in your home, you can only claim up to $10,000 in tax deductions on your property, but if you are earning income directly from your home in some way, the limit might be waived. Comparatively lower lending rates on mortgages. Mortgage rates, though subject to fluctuation, often remain more favorable compared to other types of loans. Even in periods of higher rates, mortgages typically offer more competitive interest rates than personal loans or credit cards. This aspect of home financing can make homeownership a financially advantageous decision, providing a more affordable route to building equity than other borrowing options. Ownership rights and creative freedom. Your decorating and home-improvement choices are just that—yours, provided they don’t break building codes or violate homeowners’ association rules. You can paint walls any which way, add fixtures, update or finish your basement, or build a patio or deck. Changing your environment to suit whims is a freeing aspect of homeownership.

A sense of belonging to the community. Homeowners tend to stay in homes for longer than renters and are more likely to grow roots. They might join a neighborhood association, sponsor block parties or National Nights Out, volunteer at a nearby community center, join a school group, or align with a business improvement district. Renters might not do any of those things, particularly if they know their lease is up in a year and they might move. There’s an intangible pleasant feeling attached to owning your own house, a sense of freedom and independence. The home you live in belongs to you and you only (or your spouse or partner), and you can do what you want with it. You aren’t daunted about increases in rent or risk losing the lease. You’re free to make improvements and changes. Also, owning your home gives your children the guarantee of attending the schools in the area on a more permanent basis; you never need to worry about a notice from the landlord to vacate your rented house or apartment for a variety of reasons over which you have no control.

ADVANTAGES OF RENTING

It seems a shorter list, but one man’s pro is another man’s con, and there certainly are advantages to renting to factor into your buy- or-rent decision. No responsibility for maintenance. Admittedly, this is a big one. As a renter, you’re not responsible for home maintenance or repair costs. If a toilet backs up, a pipe bursts, or an appliance stops working, you don’t have to call an expensive repair person—you just call your landlord or superintendent. Renters in condos, townhouses, or apartments don’t have lawn and grounds care obligations. Relocating is easier. When renting, relocating for work is easier. Though a sudden move may require you to break your lease, you can partially offset the cost by subletting your apartment or

talking with your landlord. On the other hand, selling a home takes time and effort. If you have a short timeline to sell your home, you may be forced to accept a lower price and lose some of your investment. No real estate market exposure. Home values fluctuate and can decline over time. If you’re a renter, that’s not your problem. If you’re an owner trying to sell—it is.

DISADVANTAGES OF OWNING

Maintenance. The renter’s largest advantage might just be the homeowner’s major disadvantage. While insurance might be available to protect against expense from major catastrophe, usual maintenance items are on the homeowners’ dime. Maintenance and repair can be as simple as repainting the baseboards and can also be as extensive and expensive as replacing a HVAC system or sewer pipe. The expense will vary from year-to-year; however, you can expect to pay about 1% of the value of your home annually toward these expenses. If you live in a $200,000 home for 10 years, that’s $20,000 over the period, and perhaps more if you must replace a costly, long- lived mechanical item, such as a furnace. Keep in mind the usual homeowner’s chores of lawn care, snow removal, gutter cleaning, and other regular home maintenance needs. Upfront and closing costs. Buying a home entails numerous upfront costs. Some are paid out-of-pocket after the seller accepts your purchase offer, while others are paid at closing. These include earnest money, down payment (typically ranges from 3.5% chiefly for FHA [Federal Housing Administration] loans to more than 20% of the purchase price), home appraisal, home inspection, property taxes, and first year’s homeowner’s insurance.

Loss of relocation flexibility. It’s much easier to break a lease and

move out of town than to arrange for the sale of a residence. Selling the home from out-of-town involves its special logistics and financial problems, such a dealing with the mortgage while the home is on the market. Financial loss potential. Homeownership builds equity over time; however, equity doesn’t equate to profit. If home values in your area go down or remain stagnant during your time as a homeowner, the appraised value of your home could decrease, putting you at risk of a financial loss when you sell.

DISADVANTAGES OF RENTING

No equity building. The monthly rent you pay goes to the landlord. It represents the fee you pay for using the property. You gain no ownership in the property, no matter how long you live there. No tax benefits. While homeowners can deduct property taxes and mortgage interest on their tax returns, renters aren’t eligible for housing-related federal tax credits or deductions. Home improvements go to the landlord. Any structural and decorative home improvements that renters make belong to the building owner and will have to stay behind when you move to a different place. Additionally, approval for desired major redecoration will be necessary. After all is said, the decision to buy or rent depends on the prospective home buyer’s circumstances. There’s no denying, though, that a home of your own is a good financial and a great emotional investment. An investment in a home can also mean an investment in the future of your children. Little is better than leaving a home behind as a legacy for your children to enjoy.

There is much to consider when you want to buy a home.

Switching from renting to homeownership is highly challenging, but an exciting and amazing decision to make. Owning a first house is the first step in the direction toward the home we’ve all been dreaming of. Because, at the end of the day, as we all know, there is no place like home.

CHAPTER 3 Buyers' Needs and Desires

After you’ve decided to buy a home, what sort of home it will be is your next decision point. It’s a better approach to have a rather concrete vision in mind of what type, features, and amenities you want in your home, rather than a “shotgun look” at every listing that’s out there in your price range. Imagine your dream house. It fulfills both your needs and desires. It fits the need for a good roof over your head, a sturdy structure, modern fixtures and appliances, living space (i.e., bedrooms, living room), and functional rooms (i.e., kitchen, bathroom[s]). Your needs fulfilled, you turn to your desires. A home on the beach or in the woods, a gourmet kitchen, wood-paneled den, crystal chandeliers over a banquet table in the manor-sized dining room, and an Olympic-sized swimming pool with a hot tub and sauna. In your first home, you must ensure all needs are met; however, there are probably going to be some desires that you’ll have to let go (for now) due to affordability issues.

Decide your needs vs. your desires.

• Would you like a swimming pool? Enough that a home without one will not be looked at? • In what areas or neighborhoods might the home be located? Where do you want to live? Where might you have to live for work commute or home price reasons? • What features would make it special? • What can you afford and what is out of your budget?

Budget usually constrains us most in selecting a home. While some things are necessary for any home (as mentioned, the good roof, a working furnace), others will just stay on the list of desires for now (the sauna or that home in Beverly Hills).

MAKE A LIST; CHECK IT T ; CHECK IT TWICE

You may have an impression of what you want in your new home. Putting that to paper and having a complete checklist can prove useful. Before starting your hunt for a new home, it’s advisable to make a list of all your basic needs and desires, then prioritize the desires, figuring that all needs must be met in any house under consideration. This will make the search easier and help weed out the ones that don’t meet the basics. Realize, however, that it’s nearly impossible to find a home that meets all requirements. Compromises will be necessary. It’s a good idea to work from outside-the-house factors to inside- the-house. For example, location is perhaps the primary concern and both “needs” factors and “desires” factors might be involved. A “need” would be “must be within 25 miles of work.” A desire might be, “would like Westwood” (a favored neighborhood), while a need might be “on west side of city” (because work, family, friends, and recreation activities are all located there). Location needs may include proximity to schools, frequently used recreation facilities, or mode of transportation (bus or suburban rail access). Whether an item is a need or a desire depends on circumstance. Closeness to family might be a need for a couple with young children or elderly parents to care for or a desire if those factors

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