Barker and Hedges Real Estate Blog

This week, I’ve been writing articles to help first time home buyers.  On Tuesday, I wrote about the hidden costs of ownership and yesterday, I wrote about budgeting tips to help you get into, and keep, that first home.  But what are you supposed to do if you have bad credit and you want to buy a home?  It would be great if every person in the U.S. who wanted to buy their first home could just be approved for a low-interest loan immediately. That’s not how it works though, as not every first time home buyer has good credit and a high score.

Don’t despair, though, there are still ways for people with bad credit to accomplish the American Dream of buying a home.  While having bad credit will mean that some first time home buyer programs will be unavailable, there are others which are still a good possibility.  Whether or not these programs are a good option for you will depend on the status of your individual credit situation.

Basically, the options of first time home buyers can be reduced to these two options.

You can buy a house now through Housing and Urban Development (HUD) first time home buyer loan programs From the Federal Housing Administration (FHA).  These programs should be the first place a potential first time home buyer with bad credit should look.  FHA first time home buyer programs guarantee loans through normal, local mortgage lenders with a reasonable interest rates and just a 3% down payment.  Additional information regarding Federal First Time Home Buyer Programs can be found here and here.

There are also local and regional first time home buyer programs for which individuals may qualify.  Some counties and cities within Minnesota have their own grant and loan programs for first time home buyers, including Hennepin County, Ramsey County, Dakota County, and Anoka County.  Minneapolis and St. Paul have a combined program called CityLiving to help first time home buyers.  Even some individual lenders may have their own ways of helping people with bad credit buy their first home.  Additionally, Realtors, financial advisors, and mortgage lenders themselves may be able to point first time home buyers in the right direction for unadvertised local programs. It takes research and diligence to find a lender willing to take a risk on you, but you will most likely find someone willing to help you buy a home.

You can buy a house later more easily if you can wait at least six months before you buy a home so you can repair your credit.  Taking the time to repair credit and build up a credit score will provide a first time home buyer with a variety benefits.  First, you are more likely to get a lower interest rate, which can save tens of thousands of dollars over the life of the loan.  Remember, most mortgages are paid over a period of 30 years.  You don’t want to be strapped with a high interest rate long after you’ve repaired your credit.  The second benefit of taking the time to rebuild credit is that first home itself.  You could be eligible to buy a bigger house or one in a better neighborhood if you repair your credit first.

How do you rebuild your credit? You don’t need to spend extra money on a credit rebuilding service.  Anyone can rebuild their own credit without much help.  Here are the basic steps of how to do it:

• Evaluate All 3 Credit Reports.  Credit reports can be obtained from three main consumer reporting companies, known as Equifax, Experian, and Trans Union.  You can contact them separately or all at the same time by going to annualcreditreport.com.  According to U.S. law, every citizen can obtain a free credit report from each of the bureaus once each year from that website.  Review all three credit reports for accuracy.  If any errors are found, follow the instructions each bureau provides investigating and correcting bad information.
• Pay Bills On Time.  Timing is everything, and this is particularly true when it comes to repairing or maintaining credit.  Promptly pay all bills on time, every time.  Late payments do not reflect well on a credit report and will drag down credit scores. 
  
• Clear Out Debts.  If you seek to buy your first time home but you have bad credit, you should pay off as much outstanding debt as possible.  All debts that have higher interest rates should be paid first, moving on to debts with lower interest rates next.  Paying off debt will have a positive impact on raising your credit score.
• Reduce Credit Card Use.  Reduce or eliminate your use of credit cards.  Not only do they help you accumulate debt, you end up paying much more for your items due to interest.  You might not want to actually close your accounts, as that can actually hurt your credit status.  Whatever you do, don’t apply for any new credit accounts.
• Avoid Other Credit Pitfalls.  Do not file for bankruptcy, as this may prevent a first time home buyer from being approved for a loan for many years in the future.  Other credit traps to avoid are tax liens and accounts in collection.  These negative marks on a credit score will have a detrimental effect on a first time home buyer’s mortgage eligibility.

Just because you have less-than-perfect credit, doesn’t mean you can’t buy a home.  Either with the use of special programs or some time spent cleaning up your credit and raising your score, you can accomplish the American Dream of home ownership.

Yesterday, I wrote a post about the hidden costs of home ownership that first time home buyers might not have thought about.  It wasn’t meant as a discouraging article, it was meant to enlighten potential first time home buyers so they know what is in store for them.  Today, I’m going to give some budgeting tips to go along with those costs.  Following these tips could help first time home buyers reign in spending so they can buy the home they want and take good care of it.

Recognizing spending habits and making a budget is vital for first time home buyers.  The responsibility of owning a home requires good money management skills and control over impulsive spending.  For first time home buyers, creating a budget is the first step in saving money for a down payment before a home is bought and keeping ahead of finances after purchase.  Additionally, if a first time home buyer runs into financial difficulty, knowing how to properly budget can mean the difference between keeping that first home or losing it. Here are some budgeting suggestions for people seeking to buy their first home.

1. When you create your budge, include all of your income and all your expenses. Plan your budget according to what your income is now, not what you expect it to be.
2. Don’t copy someone else’s budget, their spending plan isn’t going to help your situation. Develop a spending plan specifically suited to your family’s or your individual income, expenses, necessities, and future needs and goals.
3. Do what you can to plan ahead for the whole year.  By having this long view, you will you have sort of a “road map” to where you are going financially.  Having an extended budget will also help you determine how well you are following your budget plan.
4. Take the time to decide what your most important goals are for the future.  After you’ve determined your goals, it’s much easier to spend your money on things which mean most to you or your family.
5. Develop a personal savings plan and pay yourself first. Try to save 10% of your income each month. If you can’t cope with saving10% right away, save a smaller amount, but do so regularly.
6. Stop wasting money on products or services you don’t need, including things like extra cable or cellphone features, magazine subscriptions, and health club memberships.
7. Don’t spend impulsively. Make purchases wisely by defining needs versus wants, comparison shop for lower prices, and have an understanding of value based on quantity and quality.  This will help you determine if what you’re paying is worth it for the end result.  If you take the time to think hard about it, you may find out you don’t really want to make that purchase.
8. Plan, budget for, and stockpile a savings account exclusively for home maintenance projects and repair.  As a homeowner, you will need this money to cover any home repair emergencies you may have in the future. 
9. Keep good records of what you spend, but don’t make it a complicated process. Remember, you’ll have to follow through with keeping records. Many people have no idea where their money really goes when it comes to accounting for each dollar. Trying to track every penny you spend will help you take control of your spending habits.
10. Review your budget and financial plan once each month. Scrutinize your expenditures and make any alterations to your budget which may be needed.

Most importantly, when you create your budget, try to keep to it.  If at first you don’t succeed, try, try again.  It’s important not to give up.  If you are determined, you will eventually teach yourself how to keep within your budget.

I’m going to write a few posts about important things first time home buyers should know before they take the leap into buying a home.  If you are considering purchasing a home in the Twin Cities area, there are things to understand or do which can make transitioning into home ownership much easier.  Additionally, simply having as much helpful information as possible could help you keep your first home once you have it.

First, as the title of this post suggests, I’m going to talk about the hidden costs of home ownership which a first time home buyer may not   Owning a home has been touted as the American dream for generations.  Because dreams are supposed to be perfect, the liabilities of owning a home don’t tend to be talked about.  Though buying a home offers advantages like housing security, tax advantages, and ultimately, no more housing payments after it’s paid off, if you are considering buying a home for the very first time there are some things you should consider first.  It is a mistake to believe that a mortgage equal to how much you pay for rent is all that is needed to become a homeowner.  Here are some costs of home ownership you might not have thought of which may impact the size of your mortgage, and the size of your home!

Appliances
Most rental units have basic, necessary appliance like refrigerators and stoves installed.  Lucky renters may even have a dishwasher, clothes washer, and dryer.  When you buy a home, unless the previous owner agreed to leave their appliances in the home, it is your responsibility to buy these items.  Some new homes have appliances installed, but even if you buy new construction, you will most likely need to purchase the necessary large appliance.  That being said, if the home you buy comes with all the needed appliances, they will break down eventually.   When they need repairing or replacing, home owners can’t call the landlord. The money will have to come out of your wallet.

Utilities
As a renter, some of the utilities you use may be included in your rent.  Your rent agreement could include electric, heat, water, sewage, garbage disposal, maybe even cable or other expenses.  When you buy a home, these utilities will not be included in your monthly mortgage payment.  You will have to pay for those utilities separately.  But how will you know what the bills are like before you move in? When you find a home that you think you want to buy, ask the owner for estimates or copies of the utility bills for the past few months.  Doing this may give you a good idea of how much you will have to pay monthly for utilities in a specific home.  Remember that the size of a home will have a great impact how much electricity it utilizes and the price of heating or cooling it.  Additionally, you may want to pay for satellite, cable, phone service, or internet services.

Landscaping
For many first time home buyers, having a yard could be a great selling point for a home.  You could even be anticipating planting shrubs and trees, growing vegetables in a garden, or adding color with some beautiful flowers.  All those landscaping costs are going to ad up. As a potential first time home buyer, you may not have a few landscaping necessities like a lawnmower, weed eater, pruning shears, a snow shovel or blower, and other similar items.  Many landlords tend to the landscaping, lawn mowing, leaf raking, and snow removal without the renter ever lifting a finger.  Whether you plan is to take care of the yard on your own or hire someone else to do it, landscaping and yard duties will have its price.

General Maintenance
Observation, time, money, and manual labor are all required in order to keep any home in good condition. Landlords make sure air conditioning systems, furnaces, sump pumps, plumbing, and electrical systems are all working properly and are well maintained.  As you might have guessed, as a first time home buyer, this will be your responsibility.  You should observe of what is “normal” for your home and the working parts within it.  This way, you’re more likely to be tipped off problems early and prevent more costly repairs later on.  It’s also an excellent idea to keep a record of any maintenance you do for future reference.  It may be advisable to hire a professional inspector to evaluate your heating and cooling systems to make sure there are no safety concerns.

Repairs
Even if you expect maintenance, the need for repairs are hard to anticipate.  New homes tend to need less maintenance and fewer repairs while older homes will most likely need more attention.  Either way, every home will eventually need something fixed.  It could be a relatively simple fix, like installing tile in the bathroom, replacing shoddy carpeting, or repainting.  Conversely, it could be more involved, expensive, and immediate need of attention like a leaky roof, a flooded basement, or buckling floors.  Whatever needs repairing, as a home owner, you will have to cover the expenses.  Homeowners should be prepared for needed repairs by having a few thousand dollars saved in an emergency repair fund for just such an occasion.

Taxes
As a renter, you’re probably not concerned about property taxes.  As a Minnesota renter, you may even qualify for a renter’s credit at tax filing time.  Though it is true that as a homeowner, some of the interest you pay on your mortgage can be written off of your taxes, real estate and property taxes must be paid.  The taxes you must pay will depend on where you live and the value of your property. Taxes vary by state, county, and city.  For the most part, the larger the lot and home, the higher your property tax payment will be.  Don’t be surprised: When you decide to buy your first home, research the property, school, state, and local tax rates for the specific places you seek to live.

Insurance
As a renter, you may have renter’s insurance already, but when you buy your first home, you will absolutely need several types of insurance.  There is insurance to cover the property itself, insurance to cover the personal possessions inside, and in many cases, mortgage insurance to cover the lender’s loss in case you default on the loan.  All of adds up.  When you buy insurance, make sure your buying the coverage you need.  Shop around and explore different insurance options until you find the plan that fits your needs.  One thing which is important to note for first time home buyers in Minnesota, where lakes, rivers, and streams may flood:  Your homeowner’s policy does not cover flood damage.

Disaster
You’re probably aware as a first time home buyer in Minnesota that there is the potential for natural disasters here.  In the winter, the weight of snow can collapse roofs.  During the spring, melting snow and rains cause overrun rivers and flood houses.  In the summer, tornados can reduce a home to toothpicks.  If a disaster like this occurs, it’s up to you, the homeowner, to determine rebuilding or repairing plans for a destroyed or damaged home.  As I said before, insurance can be bought to cover a lot of disasters.  If you have good homeowners insurance, not all damages will be covered in full but the cost to a home owner will be much less than if you had no insurance.

By mentioning these expenses, I am by no means trying to discourage anyone from buying a home.  In fact, just the opposite.  It’s important for first time home buyers to know as much as possible before they make the home ownership plunge.  The more you know, the less likely you are to bite off more house than you can afford.  By knowing what types of expenses to expect, first time home buyers can more accurately determine how much they can afford to spend on buying a house.

A “short sale” happens when a seller negotiates with a lender to sell their house for less than is owed on the mortgage as payment in full of the debt owed. It is an alternative to foreclosure or bankruptcy proceedings for owners who can no longer afford to keep mortgage payments current. Because by definition a short sale means the lender is accepting less than what is due on the loan, not all lenders will accept short sales or discounted payoffs. Furthermore, not all sellers nor properties qualify for short sales.

So how do they work? If you’re a seller thinking you can’t make your payments or you’re a buyer considering purchasing a home through a short sale, you should know about the process before proceeding. There are benefits and drawbacks for both sides of the equation. That isn’t to say that a short sale isn’t a possible solution to a sticky mortgage situation or that a home buyer can’t get a discount on a home that might otherwise be priced out of range. Here is a general idea of what happens through the course of short sale proceedings.

Pursuing a short sale is usually a last resort to stay out of foreclosure. A homeowner first falls behind on payments, knows that they will be unable to make their next payment, or must move but can’t sell the house for what they owe on it (this last scenario has been happening more and more lately as real estate values drop). At any rate, foreclosure proceedings haven’t started but one is looming. A short sale could be the solution. As I said before, not all properties or people qualify. When they do, a financial hardship that will cause mortgage payments to be missed must be proven before anything happens.

The next step is for them to call for help. The seller must discuss the situation with the mortgage company as soon as he or she knows they can’t make a payment or soon won’t be able to. Talking and being open with a mortgage company during times of financial difficulty is very important because “it never hurts to try.” Although all lenders have varying requirements, the seller will basically have to explain to his or her lender why they should approve the short sale and will have to disclose an accounting of assets, income and liabilities. The borrower will submit a wide array of documentation before they will consider it. However, lenders do have an interest in considering a short sale if it is possible for them to avoid the expensive and lengthy process of foreclosing on a property. It can cost upwards of $50,000!

So the lender now has considered all of the financial facts and if a buyer is found, for the right price the short sale will proceed. If they haven’t already been heavily advertising their home is for sale, now is the time when a flurry of marketing occurs. The seller must offer full disclosure, though. Sellers must notify buyers as quickly as possible that a home is a short sale listing. Some MLSs have places in the listing report where agents can indicate a home is a short sale.

Now be prepared to wait. Even if you have a buyer right away, it’s not uncommon for this process to take 40 to 80 days. This is part of the reason why full disclosure is necessary: buyers decide whether they’re willing to wait for bank approval.

This is where the buyer steps in. First and foremost, if you’re a buyer looking at a short sale, seriously consider hiring a buyer’s agent to represent you. Buying a home in general is a complicated process already and short sale can be even more-so. The seller has representation in the listing agent, so why shouldn’t you? They can also help you to make a reasonable offer.

Buyers must be prepared to buy a property that is being sold as-is and with no credits for repairs or fix-up. The bank or lender won’t approve the sale if it is too far below the market value of the house. They’re sure to do their own broker price appraisal before accepting or countering an offer.

Since short sale properties are usually sold as-is, buyers should make their offers contingent on the outcome of an independent home inspection. Sellers are required by law to disclose material defects of which they are aware. Obviously, if a seller hasn’t had the money to make mortgage payments, odds are that maintenance has been pushed off. Owners have no incentive make improvements to the house anyway because they’ll make nothing on the sale.

Buyers on a short sale should also make their offer contingent upon the lender’s acceptance. Give the lender a time frame in which to respond, after which, you will be free to cancel. This doesn’t guarantee action, however, if the lender is under no pressure to make a decision.

There are benefits and pitfalls for both the sellers and the buyers when it comes to a short sale vs. foreclosure.

For the seller, both of these solutions affect credit the same. Sellers will take a hit of 200 to 300 points, depending on overall condition of credit, whether it’s a foreclosure or a short sale. However, the waiting period to buy another home following these events is very different. Someone who has gone through a foreclosure will have to wait 24 to 72 months before a lender will offer them a decent interest rate. For those who have a short sale on their financial record, the time frame is more in the ballpark of 24 to 36 months if they have been diligent about rebuilding their credit.

When it comes to short sales, you want to be the buyer, obviously. They have the most to gain from this transaction, as the buyer will likely purchase the property at or a bit below market value. This has a two-fold effect of lowering its future taxation by the tax assessor and the buyer’s mortgage payment is reduced because the loan is less. A drawback, however, is the buyer can often feel in limbo, waiting for an answer that could very well be no. Often this can be because the bank took to long to answer or countered with to high of a price. Then there are always other buyers in pursuit of a deal placing a higher bid. For buyers, short sale homes are often a better idea than purchasing a foreclosure property, as when a home stands empty without inhabitants or maintenance, a whole host of natural and man-made issues can arise that will require costly repairs.

For many citizens, owning a home is the very definition of American freedom and independence. Having your own home or real estate has been the American dream since before the Homestead Act. Because of how important home ownership is to Americans, June has been declared National Homeownership Month. All through the month of June, local and national organizations around the country will draw attention to the benefits of home ownership and encourage responsible home ownership. As of today, about 70 percent of Americans own their own homes at this time.

According to the National Association of Realtors, this month is also the 40th Anniversary of the Fair Housing Act.

On April 11, 1968 President Lyndon Johnson urged congress to approve the Fair Housing Act just one week following the assassination of Dr. Martin Luther King, Jr. as a tribute to Dr. King’s legacy and commitment to civil rights. One of the Act’s central objectives was to prevent discrimination based on race in the sales or rental of housing. This historic Act has since empowered people from all races and ethnicities to pursue the dream of equal access to housing.

In 2002, President George W. Bush designated June as National Homeownership Month. The goal of drawing such attention to home ownership at that time was to increase minority homeownership in America by 5.5 million by the end of the decade. At this point in time, the rate of minority homeownership has climbed to above 50 percent.

During “Home Ownership Month,” three sessions are available for first-time homebuyers to attend called “Opportunity Knocking: Get the Facts for First Time Homebuyers”. These sessions are sponsored by the Minnesota Home Ownership Center, Bremer Bank and Freddie Mac. The discussions are opportunities for potential first-time buyers to learn about the home-buying process, visit with lending and real estate professionals, and discover home-buying resources and services. Here, prospective buyers can connect with and share information with other people who may be thinking of buying a home.

The events are scheduled for the following days:

Thursday, June 12
6:00 p.m. – 7:30 p.m.
Roseville Library, Meeting Room
2108 Hamline Ave N, Roseville, MN 55113

Tuesday, June 17
4:00 p.m. – 5:30 p.m.
Richfield Community Center, Richfield Room
7000 Nicollet Ave S, Richfield, MN 55423

Saturday, June 21
11:00 a.m. – 12:30 p.m.
Brookdale-Hennepin Area Library, Meeting Room C
6125 Shingle Creek Pkwy, Brooklyn Center, MN 55430

One of the events is happening today, so plan accordingly if you would like to attend that session. As you can see though, there are two other sessions available within the Twin Cities! If you are a first time home buyer, you may really benefit from attending one of these events.

Also, Barker & Hedges offers first time homebuyers and home buying veterans alike the opportunity to attend one of our free, monthly home buying seminars. At one of our events, all aspects of the Home Buying process will be covered including: How to pick a Real Estate Agent, What types of loans are available, How much money you will need for down payment, Home Buying Tips, Agency Disclosure, The Home Buying Process, and the Purchase Agreement from start to finish. You can register for our next event here!

The Minneapolis Area Association of Realtors, have provided in the consumer section on their website a list of the five most common mistakes first-time homebuyers often make.  If you’ve been considering purchasing a home for the very first time, you should know that there are plenty of costly errors which can be made!  Fear not, you can avoid the common mistakes that first-time homebuyers tend to make if you are aware of the pitfalls. 

1. They don’t ask enough questions of their lender and miss out on the best deal.

Making the right choice when finally signing your name to your first home mortgage can mean a difference of thousands of dollars in interest paid over the long haul.  For many, this 15 to 30 year mortgage commitment is the most important financial decision they’ll ever make.  When you think about it that way, it makes sense to collect as much information about the financing of your home as possible.  Don’t rush into anything that involves buying a house.  Take the time to thoroughly investigate all financing options available to you.

2. They don’t act quickly enough to make a decision and someone else buys the house.

The purchase of a first home can be a lifelong commitment which requires time, thought, and contemplation in order to reach a decision.  At the same time, hesitation can cause you to lose the house of your dreams as someone else makes a move.  In a seller’s market, buyers will tend to look at fewer homes and make a decision to buy a home quickly because other buyers could be waiting to snatch it up.  In a buyer’s market, people will take their time choosing.  But either way, you never know when a home is going to sell.  If you find a house that you like within your price range, make an offer.  If you wait, someone else may purchase it and then you’ll be back to searching for the right home.

3. They don’t find the right real estate professional who is willing to help you through the homebuying process.

It is just as important that you chose the right Realtor as it is to pick the right home. This person will be representing you and helping to lead you to the home of your dreams.  Having the wrong person during this transaction can lead to stress and irritation.  The right Realtor will be helpful to you throughout the home purchase process and can match you up with the right mortgage, the right neighborhood, and the right home. 

4. They don’t do enough to make their offer look good to a seller.

If your offer isn’t attractive to the seller, the home you seek could be sold to another buyer with a more appealing offer.  Pre-qualification can give an idea of how much money you might be able to borrow, but a loan has not been applied for and your financial information has not been verified.  A firm approval from your lender will let you know exactly how much you can spend on a home. It will also let sellers know just how serious you are.

5. They don’t think about resale before they buy. The average first-time buyer only stays in a home for four years.

If you don’t plan on staying in the home for more than five years, knowing what other people want in a home will make selling the home easier when it is time to move on or move up.  Do some research ahead of time in order to find out what most buyers want in a home.  Knowing what other people are looking for will help give you an idea on what is worth compromising on and what is not.  Planning this way can also give you a little extra equity when resale time arrives.

But wait!  I said that MAAR had provided five home-buying errors, but the title of this post says there are ten common mistakes.  What gives?  Well, we here at Barker & Hedges feel that there are a few important points which MAAR didn’t address.  We’ve included them as errors 6 through 10.  Here are five more common mistakes which were not covered by MAAR’s list:

6.  They don’t think about paying off existing debt first.

This is one of the most common mistakes people make before buying their first home.  They focus so much on saving money for a down payment that they don’t think about paying down other debts first.  Your existing credit can affect your buying power just as much as your down-payment can.  Eliminating high-interest debt and credit-cards is important, even if it means collecting less for your down payment.  Lenders won’t allow your total monthly debt service to exceed 40% of your gross income.  Pay down existing debts first before taking on the immense debt of a home mortgage.

7.  They aren’t the first person to look at their credit report. 

You can get a free copy of your credit report once every 12 months thanks to Federal Law.  Knowing what kind of information is on it before anyone else does can help you enormously when you try to discover how much you can borrow.  The information in your credit report will determine your credit score, which will in turn determine how much money you can borrow.  If there is incorrect information on your credit report, you can dispute it with the credit agency to have it changed or removed.  Disputing errors can help raise your credit score.  Generally, the higher your credit score, the better interest rate and loan you can get.  If your score is low due to late or missed payments, you can take action by making your payments on time to slowly raise your score.

8.  They get in too deep.

Whatever you do, do not venture outside of your budget or over-extend yourself when buying your first home. You could be disappointed you don’t get approved for that much mortgage.  Or it could be worse: you could get the loan and end up in foreclosure if you are unable to make the payments later on.  There are steps you can take to avoid getting in too deep.  Monitor your expenses for several of months.  From this information, develop a budget that reflects your lifestyle accurately.  Talk to a Realtor about what expenses you can expect with a new home.  Then, review the budget you made.  You may find that it needs revision.

9. Waiting until you find a house to get pre-approved. 

During the search for a home, in addition to finding the perfect house, buyers must take a hands-on approach to finding reliable financing.  Before you start looking, move beyond pre-qualification and get pre-approved through your chosen lender.  Though pre-qualification can tell you how much you can afford, pre-approval will actually clear you for a loan of a determined amount.  When you find that home, you don’t want to be scrambling for pre-approval to make your offer more appealing to the seller.  Someone else with more forethought can simply pounce and make an offer.  By the time you’re ready, someone else could be moving into your dream home. 

10.  They alter their financial picture prior to closing.

Imagine this: you have been pre-qualified for a loan, found that perfect house, and closing is just one week away.  Does this situation scream “Buy a new car?” No, no, no, this is not the time to be financing large purchases (besides your home) and it is not the time to open a new high limit credit card.  Adding on a car payment or revolving debt which did not previously exist when you began your home search could ruin your chances when it comes to closing time.  Even slight alterations in your credit ratios could cause a loan application to be denied.  Wait for that new car or credit card until after the deal has been sealed.

These mistakes can be avoided as long as you are aware of them!  There are others out there lurking, of course, but these are the big ones.  Make your first home purchase a positive experience by researching and educating yourself.  Then set out for a smooth transaction!

Springtime is a very popular season for buying or selling a home.  So it would naturally follow that springtime is also the season for a buying second home.  You know Minnesota residents love their cabins “up north.”  Many other Minnesota residents see dollar signs at the thought of generating income by renting out a home to tenants.

According to the National Association of Realtors®, second-home sales fell along with the overall housing market in 2007.  However, nearly a third of all homes purchased nationwide last year were either vacation or investment properties.  In 2007, sales of vacation homes were down 30.6 percent while sales of homes intended to be investment properties fell 18 percent compared to 2006. An uncertain economy and the credit crunch which the U.S. has been experiencing contributed to the sales decline.

Whether you want a vacation home or a rental property, purchasing a second home can give you many of the same benefits as your first home.  It is important to understand the tax implications before you buy, as depending on how you would like to use the property, they are different.  Knowing the differences can help you make the most of your second home investment.

Let’s talk about the money, as investing in a second home could potentially give you advantages several ways.  The first scenario is if the property will be a “second home” or vacation property.  If you are going to purchase a vacation home, the interest you pay on the mortgage is tax deductible, just like your first home.

The second scenario is if the home will be strictly a rental property, you can use it as a source of income, although the tax implications will be different. You cannot deduct the interest from a mortgage on a rental property and you must report rental income to the IRS.  Although you can’t deduct mortgage interest for an investment property, you can deduct operating expenses like maintenance and advertising costs that exceed the rent you collect, as well as losses on the sale of the home.  Neither is deductible for a second home.

The third scenario is a little bit of column A, and a little bit of column B.  Your second home can serve a dual purpose as a rental property and a vacation home at the same time.  If this is your plan, you must personally use the home 14 days per year or one day for every 10 days it is rented out, depending on which is greater.

Now, let’s talk about the lifestyle benefits.  If your second home will serve as a personal getaway, it could serve as your own private vacation spot.  A lake-side cottage or a cabin in the woods can by your retreat from the stress of daily life.  Just think about how your weekends will change, knowing you have a place to which you can escape and relax.  The quality time you could get with your family and friends is very appealing.

That sounds great, right?  There is at least one thing to consider though: Mortgage lenders are tougher on second-home loan applications than on primary-home loans.  The reason for this is obvious, as by definition, the finances of a second-home buyer are stretched thinner.  The result is that second-home rates tend to run one-quarter to one-half point higher than those of first residences.  

That being said, the current atmosphere surrounding second-home lending is lenient compared to previous years.  The typical second home buyer tends to be more affluent than single home buyers, which make these consumers valuable to lenders.  It is important to determine your finances ahead of time to ensure you can afford it before approaching a lender.  Second homes are not for everyone!

The Minneapolis Area Association of Realtors, in the consumer section on their website, has a list of seven reasons to own your own home as opposed to rent. First-time homebuyers don’t always have all of the information available to them as to why owning a home can be so much better than renting a home. If you’re considering ditching the landlord and purchasing a home for the very first time, here are some things to consider.

1. Tax breaks. According to the U.S. Tax Code you can deduct the interest you pay on your mortgage, property taxes, and some of the costs involved in buying your home. This one is so self-explanatory, it is hard to expand on!

2. Appreciation. Real estate has long-term, stable growth in value. While year-to-year fluctuations are normal, median existing-home sale prices have increased on average 6.5 percent each year from 1972 through 2005, and increased 88.5 percent over the last 10 years, according to the National Association of Realtors®. Additionally, the number of U.S. households is expected to rise by 15 percent over the next decade, which will continue the high demand for housing.

3. Equity. If you’re paying rent, you might as well be throwing money out of the window. You’ll never see again, and when you move out, you will have nothing to show for it. Mortgage payments allow you to build equity ownership interest in your home with every payment you make. When owning a house it is possible to gain equity value in several different ways, including housing supply and demand, new commercial developments nearby, new schools in the area, and new highway access, just to name a few.

4. Savings. Continuing on along the equity line of though, your home can be like a large-scale piggy bank. Building equity in your home is like building interest in a bank account but only at a more rapid pace. You add money to it with every mortgage payment you make, minus interest and fees of course. When you sell, you can generally take up to $250,000 if you are single or $500,000 for a married couple as gain without owing federal income tax. In addition when you sell your home, you can take a tax deduction of $250,000 or $500,000 for a married couple as long as you have owned your house for 2 years.

5. Predictability. Unless you’re stuck in an adjustable rate mortgage, your mortgage payments don’t go up over the years, unlike rent. How much? Only your landlord knows. You don’t need that kind of worry. The longer you are making payments on your home, your housing costs may actually decline. Do keep in mind, however, that property taxes and insurance costs will rise. As mentioned earlier you can also write off the interest on your mortgage, though.

6. Freedom. Renting a home usually limits the amount of decorating that you are able to do. When you own your own home, you can decorate any way you want and benefit from the investments you make in the home. What is more, if you need more space, you can add on to the home! Home ownership also offers advantages which make life more enjoyable, such as backyard barbecues, family gatherings during holidays, a home office or workshop, and all of this and more can be done in the privacy of your own home.

7. Stability. Remaining in one neighborhood for several years gives you a chance to throw down roots. You can establish long-lasting friendships you’re your neighbors and participate in community activities. Additionally, children can benefit from growing up in the neighborhood of your choice at schools you decide on.

Why would you pay someone else rent when you can put that same money towards a home of your own and reap all of these benefits?

If you would like to learn more about purchasing a home in the Minneapolis market, a Minneapolis home buying seminar is a great place to start. There are upcoming home buying seminars in the Minneapolis Metro Area. Register to attend a Barker & Hedges home buying seminar for free.

Problems are much more likely to occur in homes that are left unoccupied for any extended period of time. With a large inventory of vacant homes on the market today, buyers should be aware of issues that often arise when a home is not maintained regularly. While these homes can often be purchased at a bargain, anyone considering a house which has been vacant for a while should pay close attention to their condition. Here are a few things to be aware of when buying a vacant property.

• One of the obvious things that can happen to a vacant home is vandalism. From broken windows and spray paint to the theft of copper pipes and wires, it does happen. This means that you may end up having to make some repairs yourself. Sellers may also make sub par repairs themselves to save money, which may mean even more work.
• Fluctuating temperatures in vacant homes as the weather changes unpredictably can lead to cracks around windows and in weather stripping. Moisture and temperature changes in wood can also cause cracks in plaster and drywall.
• If the furnace has been shut off for a long time, ensure to have them checked for leaks or rust build up. Heating systems usually dry moisture which may be in the home. Without heat, the moisture can create rust, or worse, mold. Air conditioning systems may also need to be inspected and possibly recharged to work properly.
• Plumbing problems can arise with unused drain pipes. Some are more susceptible to waste blockages and solidifications, while others may be at risk for sediment buildup. Additionally, washers and gaskets may shrink, which may cause pipes and fixtures to leak.
• Sediment buildup from stagnant water in an unused water heater can impair its function. Turning the water heater on improperly after a time spent in disuse can cause thermal shock, leading to leaks and even failure.
• Appliances such as dishwashers, washing machines, clothes driers, and garbage disposal motors can freeze up. Also, as with the plumbing, their seals can dry out and leak after a period of disuse.
• There are the obvious problems that can occur with dust and dirt! Without the ventilation systems running to move air and filter pollutants, dust, dirt, and cobwebs can settle throughout the home.
• This is Minnesota, a land full of 10,000 lakes and an abundance of wildlife. Beyond small rodents, there may be a raccoon, possum, or other animal setting up shop in a vacant home.
• When roof and drains are not properly maintained and cleared of debris, roof leakage may occur due to water buildup. Deferred maintenance of flashings can be another source of leaks.
• Soil expansion can also occur after the dry yard of a vacant property is properly watered by a new homeowner. This could have unexpected affects on the home’s foundation.

If you plan to purchase one of these homes, have it inspected carefully by a professional. Based on the results of the inspector’s report, a buyer considering a vacant home should rely on the expertise of a real estate professional to assist in negotiations for repairs or price adjustments. Even then, it may help to set aside some cash in the event an unforeseen problem presents itself after you’ve move into the house.

With the weather warming up (and hopefully drying out… SOON), many Minnesota residents are gearing up to make improvements and repairs to their homes. Some will hire a professional, and some will do it themselves. When it comes to home repair, sometimes doing it yourself pays off. Other times, it doesn’t.

The idea of doing it yourself sounds great, at first glance. It can save you money on both labor and materials, you can learn new skills, sharpen existing knowledge, and improve your home at the same time. But it isn’t without its risks.

The key to avoiding an expensive mistake is knowing when to pick up the hammer and when to pick up the phone. When it comes to home improvements, you must know you’re limits. If you start a project you are unable to finish, you’ll simply spend more money getting it fixed.

Here are a few home improvement tasks you might want to consider leaving to the professionals:

Anything involving Wires. In Minnesota, all electrical wiring work must be completed by an electrician licensed by the state. However, you can do electrical wiring in a home which you own and live in. All electrical wiring must be inspected by the State Electrical Inspector. Beyond the legalities, consider that 95 percent of electrical fires are due to homeowners who installed wires improperly.

Anything involving Plumbing. As with wiring, all plumbing work must be completed by a plumber licensed by the state, but a resident who owns a home and lives in it can apply for the proper permits to carry out the work. A plumbing permit is required to replace or install fixtures, replace or install water piping, replace or install a water heater, and to connect gas appliances to gas piping (stoves, dryers, or fireplaces). A mechanical permit and a licensed contractor are required when it comes connecting a furnace. A permit is not required to reset an existing fixture. One thing to think about when it comes to plumbing is if anything isn’t sealed correctly, the resulting water damage could be quite costly.

Demolishing walls. If you make a mistake and remove the wrong wall or beam, you could find yourself with an unstable home or roof problem. This should very strictly be left to the professionals. Only an engineer can properly determine what can be removed and if additional support is needed.

Installing windows and doors. Changing doors and upgrading windows requires precise measurements. In many cases, it can be hard to understand the nuances involved with sizing and placement. What good is installing those brand new energy efficient windows if you have a 1/4 inch gap around the frame? If a larger window or door is installed (see previous statements about “wall demolishing), there’s also a risk that a stud that supports the house’s structure could be removed by mistake.

Some Roof repairs. Obviously, repairing a roof high off of the ground is inherently dangerous for obvious reasons. People are injured and even killed every year performing their own roof repairs. However, a poorly installed roof can also lead to water damage inside your home as well. When it comes to fixing the roof, be sure you know what you’re doing.

Building decks. Properly built decks have to be constructed to certain specifications. In Minnesota, building permits are required for all decks that are attached to the home or are 30 inches or more above grade. Decks and platforms not more than 30 inches above adjacent grade and not attached to a structure with frost footings, do not require a building permit and may require a zoning or land-use permit. Decks and platforms are required to meet the land-use requirements of the community’s zoning code.

Chemical or heat stripping of woodwork. This job can be dangerous if what you’re stripping contains lead. A certified lead carpenter or licensed lead abatement specialist should definitely be hired for this task.

If you’re not particularly handy, but you want to expand your skills, you should start out relatively small. Try painting a room, hanging a medicine cabinet or shelves, perhaps even installing new moldings. These are some fairly simple tasks for a beginner do-it-yourselfer. By starting small, you can discover what you’re capable of and hopefully it will help you understand when you should call the professionals.